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How JA Solar Benefits from High Conversion Efficiency Modules

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Conversion efficiency

Conversion efficiency refers to the efficiency of a solar (TAN) module to convert a portion of the sun’s energy into electricity. The higher the conversion efficiency, the lower the amount of material required to make solar modules. In turn, this lowers the cost of sales.

In October 2013, JA Solar (JASO) launched its high-efficiency monocrystalline Percium modules. According to company filings, the Percium family products now have a record high conversion efficiency of up to 21%. Record high module conversion efficiencies of First Solar (FSLR), SunPower(SPWR), and Trina Solar (TSL) are higher than JA Solar’s.

JA Solar’s R&D (research and development) expenditure remained nearly unchanged at $23 million in fiscal 2015 on a year-over-year basis. According to company filings, JA Solar’s R&D expenditure primarily consists of research material and compensation and benefits to R&D personnel.

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JA Solar’s solar module capacity utilization

Capacity utilization is one of the key operating metrics that can have a significant impact on a company’s cost of sales. Lower capacity utilization implies higher fixed costs per module produced.

For 2015, JA Solar’s solar module capacity utilization was about 94% compared to 85% in 2014. Module capacity utilization has consistently been on the rise over the last five years.

Adjusted EBITDA

Higher adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) implies higher income from a company’s ongoing operations.

JA Solar’s adjusted EBITDA was $270 million in 2015 compared to $219 million in 2014. The increase in capacity utilization accompanied by higher gross margins led to higher adjusted EBITDA on a year-over-year basis. However, the increase in EBITDA was partially offset by a fall in the average selling price for its modules.

For 2016, analysts expect JA Solar’s EBITDA to be around $230 million. The expected fall in adjusted EBITDA on a year-over-year basis is mainly due to lower gross margins due to an anticipated fall in the average selling price of the company’s solar module products. For 2Q16, JASO reported gross margins of 15.3%.

In the next part, we’ll analyze JA Solar’s leverage and liquidity position.

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