Yingli Preview: Margins And Chinese Deal In Focus

by Trefis Team
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Yingli Green Energy
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Yingli Green Energy (NYSE:YGE) is expected to release its Q2 2013 earnings on August 30, reporting on a quarter that has seen some positive trends in the Chinese solar industry. In Q1, Yingli’s revenues declined by around 8% sequentially to $431 million as panel shipments fell due to weather related slowdowns in installations in China. [1] However, we expect the company to report a sequentially better set of number thanks to higher demand from the Chinese market, stabilizing average selling prices (ASPs) and continued cost improvements. Yingli recently increased its guidance for the quarter, indicating that shipments will rise by 23% to 24% from the first quarter of 2013 and also indicated that gross margins would be higher than previously anticipated. [2]

See Our Complete Analysis For Yingli Green Energy Here

Higher Gross Margins

Falling prices have been the most significant concern for the solar industry over the last few years given the global oversupply of modules and excess panel manufacturing capacity particularly in China. According to our estimates, Yingli’s average selling prices fell from around $1.43 per watt in 2011 to around $0.77 per watt in 2012 (a 45% decline). However, Yingli was able to buck the trend during the first quarter as its ASPs actually increased by around 5% sequentially, partially due to sales to higher value markets such as Japan. [3] We believe that the firm should see its prices stabilize and even grow going forward given the increasing sales to China and other emerging markets.

Costs, on a per watt basis, are also expected to improve this quarter. During Q1 Yingli’s non-silicon production costs fell to around $0.47 per watt from around $0.48 per watt in Q4 2012. Non-silicon costs are expected to touch $0.45 per watt by the end of this year. The combination of higher selling prices and lower costs will help improve the company’s profits significantly. Yingli has guided gross margins between 11% and 12% for the second quarter, up from around 4% in Q1 2013.

Chinese Sales Will Grow Sequentially

China is poised to become the world’s largest market for solar products this year. China’s State Council has outlined plans to quadruple solar power capacity in the country to around 35 gigawatts (GW) by 2015, translating to an addition of nearly 10 GW of capacity each year over the next three years. Although Yingli’s Chinese shipments to China slowed down during Q1 due to seasonality and poor weather, we believe that the outlook for the company in the Chinese market remains strong given the company’s sales network and its relatively strong track record.

Yingli has been one of the most active participants in China’s Golden Sun program, having supplied panels to nearly a quarter of all projects under the program till date. In June, Yingli entered into a framework agreement with municipal authorities of the Yunnan province in Southern China. This deal that could pave the way for the company to supply as much as 3 GW of panels to solar projects in the region through 2016. We will be interested to hear more details on this agreement from the management and also hear about the firm’s growth plans in the Chinese market. (Related: Yingli Could Get A Boost With 3 GW Chinese Opportunity)

We currently have a price estimate of $2.50 for Yingli Green Energy. We will be revisiting our price estimate post the earnings release.

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Notes:
  1. SEC Filings []
  2. Yingli Press Release []
  3. Seeking Alpha []
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