LDK Solar (NYSE:LDK), one of China’s largest solar wafer manufacturers, reported its Q4 2012 earnings today, displaying a very weak set of numbers. Revenues declined by around 54% sequentially to $135 million while operating losses widened from around $76 million to $408 million due to impairments and lower gross margins.  The results were a lot worse than we had expected since revenues were actually 40% short of the lower end of Q4 guidance figures and gross margins (including write-downs) came in at -60%. Here are some of the key takeaways from LDK’s earnings release and what they could mean for the firm going forward.
Shipments Continue To Fall
While most Chinese solar firms have been witnessing declining revenues due to lower selling prices, their shipments have been holding up and even growing in some cases. However, LDK’s situation is quite different since its volumes and selling prices have plummeted over the past year. For Q4 2012, the company shipped around 184.7 megawatts (MW) of wafers and 69 MW of modules and cells, down by 20% and 60% sequentially. These volumes look even worse taking into account that the firm has around 4,300 MW of annual wafer manufacturing capacity and about 1,700 MW (as of Q1 2012) of module manufacturing capacity. Given the excess manufacturing capacity and low annual volumes, the utilization rates are likely to be less than 30%. (Related read: Here’s Why We Think LDK Solar Could Be In Trouble)
Shareholders Equity Has Eroded
LDK has the most overleveraged balance sheet by far among Chinese solar companies and it just seems to keep getting worse. It recently defaulted on a $7.2 million bond payment and has around $2 billion in debt that matures over the next year. The company’s cash position as of Q4 was around $98 million while total debt was over $2.7 billion. Despite the firm’s success raising some additional equity funding (around $50 million) over the last 2 quarters, shareholders’ equity was wiped out during Q4, falling from around $29 million in Q3 to negative $452 million. (Related read: LDK Defaults On $7.2 Million Payment)
The weak conditions in the solar market have caused LDK to take nearly $180 million in provisions and impairments on assets including receivables, prepayments, goodwill, property and equipment. Additionally, the firm took an inventory charge of around $25 million which was partly responsible for its dismal gross margins.
Sets A Low Bar For Itself In Q1 2013
LDK’s performance is likely to remain weak through Q1 2013 as well. Revenue guidance for the quarter is between $80 million and $100 million (25% lower than Q4 2012). Wafer shipments are expected to improve slightly to between 260 MW and 270 MW while cell and modules sales are expected at around 30-40 MW. We remain pessimistic about the firm’s future prospects given its extremely high debt load and deteriorating operations. We have a price estimate of around $0.90 for LDK, which is around 18% below the current market price. (Related read: Here’s Why We Expect LDK Solar To Report A Lackluster Q4)Notes: