Chinese Shipments And Cost Improvements Drive Yingli’s Q3 Results

by Trefis Team
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Yingli Green Energy (NYSE:YGE) reported improved third quarter numbers on November 12, largely mirroring the recovery in the global solar industry. However, the earnings were short of market expectations, sending the stock down by close to 10% in Tuesday’s trading. Quarterly revenues rose by 8% sequentially to around $596 million, as shipments to markets such as China and the United States soared, while adjusted losses narrowed from around $52 million in Q2 2013 to $37 million due to better average selling prices and improving manufacturing costs. Below is a brief overview of the results and some of the key trends that influenced them.

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China Drives Shipments To An All Time High

China is expected to become the world’s largest solar market in terms of volumes this year, and Yingli has been one of the prime beneficiaries of this growth since it is the country’s largest solar panel manufacturer. Shipments to China accounted for about 38% of overall quarterly volumes, up from around 28% last quarter, and the company expects the market to account for as much as 47% of total shipments in Q4. [1] While some of this recent growth has been driven by demand from project developers who have been speeding up construction to complete their projects before the upcoming adjustment in the country’s feed-in-tariff, the fundamentals of the Chinese market look strong. [2] China’s government provides relatively attractive incentives and credits for solar developers and recently proposed to increase the country’s solar installation target for 2014 from around 10 gigawatts (GW) to around 12 GW. Pricing and payment terms, which have traditionally been somewhat of a concern in China, have also been improving.

Yingli has also been making some progress with its downstream business in China as well. The company currently has a project pipeline of around 500 megawatts (MW) and indicated that it had already executed on around 80 MW. The downstream solar market, which involves providing panels as well as services such as engineering, procurement and construction, is becoming increasingly important for solar companies such as Yingli given that it is much more profitable than selling standalone solar panels.

Margins Improve On Lower Costs And Better Selling Prices

Yingli’s gross margins improved to around 13.7% during the quarter, up from about 11.8% in Q2 as the company’s manufacturing costs continued to fall while panel prices improved. Both non-silicon as well as silicon costs fell by around $0.01 sequentially to $0.44 and $0.09 respectively. These costs reductions are due to improving panel conversion efficiency, which helps to cut down on the quantity of silicon used to manufacture each watt of panels, as well as improving utilization of the company’s manufacturing facilities.

For FY 2013, Yingli has guided panel shipments of between 3.2 GW and 3.3 GW, which exceeds its in-house nameplate manufacturing capacity of about 2.45 GW.  Module pricing has also been on the uptrend. While the company doesn’t break out its quarterly selling prices or shipments, it indicated that overall pricing improved marginally when compared to earlier this year while pricing in China, as of  the fourth quarter was up by close to 10% compared to last year.

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