Yingli Q3 Preview: Expect Higher Shipments And Gross Margins

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YGE
Yingli Green Energy

Yingli Green Energy (NYSE:YGE), China’s largest solar panel manufacturer, is expected to release its Q3 2013 earnings on Tuesday, November 12. The company has been doing relatively well over the last few quarters, aided by higher average selling prices for solar panels as well as surging shipments to markets such as China, the United States and Japan. During the second quarter, Yingli’s revenues grew by around 27% sequentially to $550 million while the company’s net loss narrowed to around $52 million. [1] For this quarter, we expect the company’s earnings to improve on a sequential as well as a year-over-year basis given the relatively bullish outlook for shipments and manufacturing capacity utilization rates.

Trefis has a $4.55 price estimate for Yingli Green Energy, which is about 33% lower than the current market price.

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China Should Drive Shipments, But Our Eyes Will Be The Downstream Business

China is poised to become the world’s largest market for solar products this year, and Yingli expects the country to account for about 30% of its volumes during Q3. [2] Shipments apart, we will be interested to hear of the company’s progress in the utility scale solar market in China, which is poised to grow on the back of a relatively attractive feed-in-tariff. The downstream solar business is more profitable when compared to the panels business since it involves providing services such as engineering, procurement and construction in addition to supplying panels. The company said that it has been expanding its downstream operations in the country and already has a project pipeline of around 500 megawatts (MW), of which around 120 MW to 130 MW will be completed by the end of this year. [3]

Gross Margins  Will Be Sequentially Higher On Improving Utilization

Yingli’s gross margins have been on an upward trend over the last few quarters, rising from around 4.1% in Q1 2013 to about 11.8%  in Q2 2013 as non-silicon based production costs continued to fall while panel prices increased. We expect this trend to largely continue into Q3 as well given the company’s improving shipments outlook. For FY 2013, Yingli has guided panel shipments of between 3.2 gigawatts (GW) and 3.3 GW, which exceeds its in-house nameplate manufacturing capacity of about 2.45 GW. The company doesn’t expect to expand capacity in the near term and has indicated that it could run its exiting facilities at utilization rates of as much as 130% while outsourcing the remaining cells from third-parties. Higher utilization rates generally help solar companies to improve the allocation of  fixed costs; this, coupled with the improving pricing trends, should bode well for the company’s gross margins in the third quarter.

Trefis will be revisiting its price estimate for Yingli Green Energy following the company’s earnings release.

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Notes:
  1. Yingli SEC Filings []
  2. Yingli Earnings Presentation []
  3. Seeking Alpha []