Monday, March 03, 2008

Asensio Still Sceptical About LDK

Asensio issued two press releases outlining what they view as issues with LDK Solar Panels (LDK). Regular readers of this blog will know that Asensio has long been critical of LDK. LDK has been controversial with one Charles Situ leaving the company under strained circumstances last year. As a result of allegations made by Charles Situ regarding inventory levels and valuations an independent committee was struck to investigate.

Let’s read a quote from Asensio’s press release which I received before market open Feb 28, 2008.

“It appears that LDK's most recent financial filing betrays the findings of the committee led by two of its own independent directors. On February 25, 2008, LDK reported its financial results for the fourth quarter of fiscal 2007. On the unaudited balance sheet released with this earnings report, LDK now classifies $29.98 million of its $380 million inventory as "Inventories to be processed beyond one year." During the earnings call, LDK CFO Jack Lai commented on the inclusion of the mysterious line item:

"...based on the manufacturing recipe, we have a limit percentage of polysilicon powder that can be used in the production process. So we work on our formula, work on our production anticipation this year, and some of the inventory will be going beyond this year."

Asensio is calling into question LDK’s financial reporting in this quote
“ believes the findings of LDK's independent audit committee are questionable. In fact, recently contacted Simpson, Thatcher and Bartlett LLP in connection with LDK's long term inventory. The company continues to file earnings reports without including any notes or discussion. Until LDK's disclosures improve, it is impossible to properly evaluate the condition of the company's inventories or the level of earnings it reports. “

On Monday Feb 3, 2008 Asensio issued another press release regarding LDK which included this comment:

“In addition to these disclosure issues, LDK now appears to have suffered serious damages to equipment and property, resulting from a winter storm in late February. According to a translation of an article published in the Jiangxi Daily on February 25, the "snow disasters" damaged a material sum of "15,000 tons silicon material." In addition, LDK suffered "some machinery and equipment damage." So far the company has made no announcement in connection with these damages.

LDK is a tough story to buy into. In the past I have suggested to LDK to upgrade their disclosure so as to avoid the doubts that some investors have. LDK you have a long way to go. My sense of the matter is that Asensio’s judgement needs to be paid attention to.