ingli Green Energy’s (NYSE:YGE) shares fell 7% before recovering on February 21 as the company revealed that its module shipments dropped by 30% in Q4 2011 over the previous quarter.  The company had earlier stated that the sales may fall by around 20% in the period. Yingli will however still manage to meet the yearly sales target for last year. A fall in volumes is in direct contrast to other solar players like Suntech Power (NYSE:STP) that are expecting a spurt in their Q4 sales volumes driven by an installations rush in Germany. Yingli also said that it will write down $404 million of assets on its polysilicon manufacturing business.
We have a $5 price estimate for Yingli Green Energy, which is at a 5% premium to its current stock price.
The fall in Yingli’s Q4 sales volumes came as a surprise when solar stocks in general have seen a sharp recovery because of an installations rush in Germany. Installers in the country ramped up demand for panels in December last year to take advantage of falling panel prices before the government readjusted the subsidy levels.
Yingli derives a significant portion of its sales from the German market, and a weak performance could have a significant bearing on the company’s stock. However, the company will meet its overall sales target to ship 1,580 to 1,630 Megawatts of panels last year.  Yingli also said that gross margins in the period will be around 3%, which is a sharp drop from its earlier estimate of 10%. The drop is because of non-cash inventory provisions as polysilicon prices slid toward the end of 2011 due to falling demand. The solar manufacturer will take a $135 million charge because of its long-term polysilicon purchase commitments.
Yingli will also write down $404 million because of write-off charges related to its long-term assets of in-house polysilicon business.  The charges are because of a significant drop in polysilicon prices, which has forced many Chinese manufacturers to idle production capacity. Yingli has a vertically integrated business model and has increased its capacity across the different stages in the PV manufacturing chain over the past few years. The non-cash nature of the write-off will limit the impact of this event on our price estimate.
See our recent note: Rising Polysilicon Prices Lift LDK’s Outlook as China Curbs Production