LDK - Q2 FY08 Thoughts

After reviewing the financials I have a few thoughts:
What the analysts do not like:
1. Q2 looks to have a GM of 23-27%
2. Inventory over one year to be processed- 21 Mil (reduction of roughtly 20% from end of Q1)
3. Taxes increased to $8.5 million from 500K.

What analysts do like:
1. Prepayments increased 65% from $141 mil to $231 Mil.
2. Sales FY 08 increase from 960 mil to 1.08 to 1.18 BIL.
3. Cash on hand increase a tad over 10% from $83 mil to $93 mil.
4. Inventory on hand increase from $349 mil to $519 mil. meaning delivery shortages are not likely to happen.
5. Total current assets increase 40%
6. R&D dropped significantly from 1.6 mil to 370K
7. They are paying their taxes...
8. Foreign currency benfit of $5 mil
9. General admin expenses increase 20% from 9.5 mil to 11.1 mil.
10. Nice bump in Government subsidies up over 100%.
11. Most important: Plant is on track and will be producing 100 to 350 MT of Poly by end of the year increasing the GM.

All in all, LDK is positioned extremely well for the future and continues to exceed expectations. FY 2008 It apprears that 2.20 per share is attainable. At a PE of 25 to 30, I think 60 to 75 by year end is very realistic not taking into account the buy-back of shares.
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After reviewing the conference call and the numbers:

The current cost of PS is $200/Kg.
They roughly sold 105 MW in qtr 1 and produced $233.4 Million in revenue with an average sell amount of $2.22 per watt.
They need about 8 grams/watt of Polysilicon.
This equates to 840,000 Kg's of PS at a cost of $200/kg.
So the costs of PS = $168 million.
1 - $168M /$233 = about 28 % gross margin.

From the CC lets advance 3 years:
The future costs of PS will cost them $35/Kg to produce with the new plant.
Let's say that at the end of 2009/ beginning 2010 they ship at a rate of 1.8 GW/year.
How much PS will they need?
The amount of PS will drop to 6.5 grams per watt.
So they need about 12 Million KG of PS per year, which is a lot of material.
This equates to about 15,000 Tons the magical new PS production capacity.

Bottom line:
The 1.8 GW will give revenue about $3.6 Billion/year ($2/Watt).
But the PS will only cost LDK $35/Kg to produce = $420 million/year. The gives a gross margin value of: 88%.

If you crunch those numbers LDK could net of $1.5 - 2.2 Billion or an EPS of $13-20 per share/year.