LDK stock spikes despite dismal Morgan Stanley solar report

Shares of silicon ingot and wafer manufacturer LDK Solar (NYSE:LDK) were up nearly 10 percent in afternoon trading to $5.76 as investors flouted the advice of Morgan Stanley.

Morgan Stanley analyst Sunil Gupta downgraded LDK from “overweight” to “equal weight” today with a target of $5.10 (down from $14) in a dismal report on solar that also:

• downgraded shares of Motech (6244.TWO) from equal weight to underweight and dropped the price target from NT$49 to NT$56 (US$1.45 to $1.66).
• cut price targets on Korea-based KCC (KSE:002380) from 240,000 won to to 237,000 won ($173.50 to $171.35).
• dropped the price target on solar wafer maker ReneSola (NYSE: SOL) from $5.20 to $2.30.
• dropped the price target for Suntech Power Holdings (NYSE:STP) from $11 to $7.
• cut the target for Trina Solar (NYSE:TSL) from $9.10 to to $7.30.

Gupta projected “sluggish demand, large supply increases and high excess inventory” causing losses this year and break-even conditions in 2010. He forecast that polysilicon prices will continue to decrease 60 percent to reach $50 per kilogram, with wafers falling 35 percent to $0.85 and modules 30 percent to $1.85.

Gupta said he expects wafer shipments to decrease 7 percent this year, with companies being forced to write down 30 percent to 50 percent of their current inventory.

In February, LDK said it planned to take an inventory write-down of $210 million to $220 million because of the decline in wafer prices (see Suntech optimistic despite stock downgrade). 

The projections also bring LDK's price target more in line with its current value. LDK's stock has underperformed the S&P 500 by 63 percent in the last 60 days of trading.

But CEO Xiaofeng Peng has reportedly said conditions are worse at other Chinese solar companies. Chinese-language publication Finance Net reported that Peng said government officials recently told him more than 80 percent of solar companies have gone bankrupt since the economic crisis began.

China has around 140 solar-grade crystalline silicon wafer makers. Analyst estimates earlier this month said the wafer industry is now operating at half its capacity because of factory shutdowns in February (see Yingli, Longjitaih partner on new 600MW solar cell maker).

Last week, LDK joined Q-Cells in asking German regulators for permission to form a joint venture. The companies signed an 11-year wafer processing deal in September (see LDK Solar signs silicon deal with Q-Cells).

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