NEW YORK (AP) -- Shares of Chinese solar companies fell Monday on investor worries that promises by their home country's government to boost solar installations this year won't be enough to keep them out of the red.
Raymond James analyst Pavel Molchanov said that even if China does stick with a plan to target 10 gigawatts in solar power installations this year, up from an estimated 4 gigawatts in 2012, the big jump in volume still won't be enough to offset the solar companies' razor-thin profit margins.
In addition, Molchanov said the 10-gigawatt goal seems a bit "aggressive." But even if China doesn't reach it, installations should still be up significantly this year, easily reaching 7 to 8 gigawatts, he said.
"To be clear, our quibble is not even whether China ends up installing 8 gigawatts instead of 10 gigawatts — both are clearly hefty numbers," Molchanov wrote in a note to investors.
"Where we think the market has run into irrational exuberance (to put it mildly) is the notion that this jump in Chinese demand represents some sort of panacea for the industry's epic overcapacity."
The analyst noted that both German and Italian solar demand is expected to be down this year. In addition, while U.S. demand is expected to be up, Chinese companies will have a tough time competing in the U.S. because of recently passed tariffs.
Molchanov added that higher domestic sales won't offset export sales on an equal basis, because solar pricing is even worse in China than it is in the U.S. or Europe. As a result, it's unclear if a pickup in domestic sales will be much help at all.
"After all, even doubling sales does not do much good when the margin on each incremental sale is close to zero," Molchanov wrote.
The analyst said investors should use the recent run up in Chinese solar company shares to sell off their holdings, pointing to both SunTech Power Holdings Co. and Trina Solar Ltd., which he currently rates at "Underperform."
In afternoon trading, SunTech shares fell 10 cents, or 5 percent, to $1.75, while Trina shares lost 7 cents to $5.55.
Elsewhere in the sector, LDK Solar Co. fell 11 cents, or 5 percent, to $2.04; JA Solar Holdings Co. lost 19 cents, or 3 percent, to $5.40; and Yingli Green Energy Holding Co. dropped 2 cents to $2.96.