China's move to cool its overheating wind turbine market may see a winner in U.S. power technology company American Superconductor as any consolidation will increase the market share of its top customers, most of whom are China-based.
Shares of AMSC, one of the world's largest makers of electrical systems used in wind power generation, have shed a third of their value in the past six months due to concerns of overcapacity in China, the company's key market and the world's largest producer of wind turbines.
Earlier this year, the Chinese government decided to tackle overcapacity by weeding out smaller turbine makers from the country's highly fragmented market.
American Superconductor, which calls itself AMSC, supplies electrical systems to some of the China's top state-owned turbine makers -- Sinovel Wind Group, Dongfang Electric, XJ Group, Shenyang Blower Works and CSR-ZELRI, all of which are touted to be key acquirers in the consolidation.
"For AMSC, the consolidation...is a positive because its customers would get bigger," Raymond James analyst Pavel Molchanov said.
China's Sinovel Wind Group, the world's third-largest wind turbine maker, accounts for more than 75 percent of AMSC's revenue.
Sinovel recently said it was looking to be the world's No. 1 player within five years.
Another overhang on AMSC was lifted in June when China said it would consider allowing the yuan to appreciate against the U.S. dollar. The company has been criticized in the past few quarters by analysts and investors alike for its "overdependence" on the Chinese market.
"A rising Yuan would be a net positive for AMSC, given that the bulk of its revenue is denominated in renminbi," Needham & Co analyst James Ricchiuti said.
WINDS OF CHANGE
AMSC's growth still largely depends on its legacy customer Sinovel, but the United States and countries such as India, Japan and Korea will be the next growth hubs as government policies and privatisation drive investments in renewable energy.
The United States, which installed most of its wind power capacity in the past two years, has set a goal of generating 20 percent of its power from wind by 2030, making it among the biggest markets for wind equipment.
Chinese wind turbine makers are making their fresh assault on the U.S. market, largely served by General Electric, as they form sales teams and set up offices in the region, a trend that would help AMSC to diversify its geographical mix.
However, analysts do not expect any near-term surprise. AMSC's customers currently have "little to zero" market share in the United States and they are in the early phase of penetration, Gleacher & Co's John Hardy said.
To boost exports to international markets, including the United States, Chinese manufacturers have adopted the strategy of offering products at significant discounts.
"Chinese turbines are sold at 25 percent discount to that sold by western producers. That is a significant discount," Ardour Capital Investments analyst Jinming Liu said.
Analysts expect Chinese wind companies to win more projects outside China over the next 12 months.
Apart from GE, which makes the electrical systems for its own turbines, AMSC faces competition from Switzerland's ABB and Woodward Governor....MORE