Yingli Green Energy (NYSE:YGE) will release earnings on May 30th. We expect the company to report a weak quarter on the back of low demand and falling panel prices. Earlier last week, one of the company’s main competitors, Suntech Power (NYSE:STP) reported operating losses, hit by tariffs imposed by the U.S. Department of Commerce.
Yingli has a significant share of its sales from the U.S. market and the imposition of duties of around 30% on the company’s equipment could lower the company’s profits in the last quarter. Sales in Q1 could also see a drop because of seasonal effects and lower demand from key markets such as Germany.
We are looking to revise our $5.02 price estimate for Yingli, which is at a significant premium to its current market price.
Yingli Green Energy and other Chinese solar companies received a major blow on May 16th when the U.S. Department of Commerce imposed tariffs on their imports. The U.S. has become a major market for solar panels with declining demand from European markets. Provisions for the duties pulled down the gross margins for Suntech to 0.6% in Q1. Margins have also been hit by lower revenues in Q1. However, players have partially offset falling module prices by lowering production costs. Most solar companies have also announced plans to cut costs further and to make their operations more streamlined in view of the declining demand and intense price competition in the solar market.
We also expect Yingli to focus on its cash position going ahead. With the solar industry due to see a tough year ahead, companies are cutting down on debt to reduce the risk of insolvency. Yingli holds a significant amount of debt on its balance sheet, which could become a major concern for the panel manufacturer as margins continue to suffer. Analysts expect a round of consolidation in the solar industry as subsidies for solar energy are lowered and governments impose import tariffs to protect local industry.