Analysts Unhappy with Internal Inventory Audit Report From China's LDK Solar

From Staff Reports

Shares of high-flying LDK Solar Co. Ltd. (LDK) fell yesterday (Thursday), even after the Chinese solar wafer maker said an internal audit revealed no evidence of wrongdoing related to the way it reports inventory.

Early Thursday, LDK said it conducted an investigation after its former financial controller, Charley Situ, said the company has been inconsistent in reporting its inventory. Situ, who was fired in September, made the allegations a few days ago, LDK said. The company has asked an independent firm to conduct its own audit.

CIBC World Markets analyst Adam Hinckley has downgraded the stock to "Sector Underperformer," or "Sell," from "Sector Performer." According to Hinckley, investors should sell LDK’s shares and wait for more details about the accusations that Situ made -- and more proof from LDK about the audit it conducted to prove it did no wrong.

"We view the [LDK] press release as unsatisfactory, as it does not disclose the specifics of the allegations and leaves questions unanswered," Hinckley wrote in an investment note to clients.

Clay Sumner, an analyst for Friedman Billings Ramsey, said the controversy could hurt LDK’s efforts to boost its capacity, opening the door for rival MEMC Electronic Materials Inc. (WFR).

LDK, which makes multicrystalline solar wafers used in solar panels, said Wednesday it had signed a five-year contract to supply multicrystalline solar wafers to Taiwan-based Solartech Energy Corp. Contract pricing is fixed for the first three years of the deal, LDK Solar said. During these three years, LDK is to deliver solar wafers worth about $224 million to Solartech.

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