Yingli Green Energy Results Sag On Weak Prices
Quick Take
- Q4 2012 revenues rise 13% to $466 million while net loss narrows to $200 million
- Low selling prices offset the effects of increasing shipments and lower costs, keeping gross margins at negative levels
- Shipments to China grow by nearly 44%; total annual module shipments of 2.3 GW
- Outlook: Selling prices could recover in the near term, module shipments expected to grow to around 3.2 GW in 2013, debt load remains a concern
Yingli Green Energy (NYSE:YGE) released its third quarter earnings Monday posting another quarterly loss despite significant growth in shipments. The firm’s quarterly revenues rose by 13% year-over-year to 2.9 billion yuan ($466 million) while net loss narrowed to around 1.25 billion yuan ($200 million) from around 3.77 billion yuan. Although the loss exceeded market expectations, the stock held steady in Monday’s trading.
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Although quarterly panel shipments grew by nearly 44%, low selling prices meant that gross margins remained negative. There were some encouraging trends in the earnings release, including strong sales to the Chinese market and significant improvements on the cost reduction front. The management also mentioned that selling prices seem to have bottomed out in recent months and could actually increase this year.
Here are the key takeaways from the earnings release and what they mean for Yingli going ahead.
See full analysis of Yingli Green Energy
China Drives Modules Sales
Yingli’s sales to China accounted for around 44% of quarterly sales overtaking Germany to become the firm’s largest geographic market. This is an encouraging shift as Chinese demand for solar products is expected to be strong in the near term driven by utility and distributed projects. The utility scale sector receives attractive feed-in-tariffs while distributed projects are expected to drive growth further as the government has outlined plans to subsidize these projects and also provide free grid connectivity. China is expected to become the world’s largest solar market this year and Yingli could stand to benefit due to its large-scale distribution network. The firm recently secured a 288 MW contract to supply modules under the Golden Sun Program.
Cost Improvements Are Encouraging
There was significant progress on the cost front as well with non-silicon costs per watt declining to $0.47 from $0.53 in Q3 while silicon costs per watt declined to $0.15 down from US$0.17. While silicon costs are largely dependent on polysilicon prices, non-silicon costs depend on utilization rates of manufacturing facilities, other material costs and also on the efficiency of the manufacturing process. The firm expects to reduce non-silicon costs to around $0.45 by the end of this year.
Outlook For 2013
Shipments growth will continue: The firm expects to sell between 3.2 GW and 3.3 GW of solar panels this year which should help boost utilization levels and enable better cost absorption. This should indirectly help improve costs and gross margins. A bulk of the growth is expected to come from the Chinese market where the firm expects shipments to increase by 40%. Other markets such as Latin America, Japan and the United States should also contribute significantly.
Panel prices could rise: Yingli’s management mentioned without providing specific data that panel prices began to stabilize beginning December 2012, ending a multiple-year decline in panel prices. Given stronger demand from emerging solar markets and improving supply-demand rationalization, the firm estimates that prices could actually increase this year. [1] This is a metric that we will be closely observing. We will update our forecasts if required after the firm provides more information in its first quarter earnings release.
Gross margins and capex: Excluding write-downs, the firm’s gross margins for modules in Q4 2012 were around -3.0% and it expects that the figure could improve to low-to-mid single digit levels in Q1 as costs continue to decline and panel pricing improves.
High debt remains a concern: Most of Yingli’s capacity expansion has been funded by debt, which has now risen to very high levels. Total debt stands at around $2.5 billion, of which $1.2 billion is current. [2] Cash and shareholders equity are just around $490 and $377 million respectively. We see this as the most critical near-term issue for the firm. Given its relatively low cash flows and tight margins, it could be difficult for the company to service debt.
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