Yingli Has A Disappointing Quarter Despite Higher Shipments

Yingli Green Energy (NYSE:YGE), the world’s largest solar panel manufacturer, reported a disappointing set of Q4 2013 numbers on March 18, as the company’s soaring shipments to markets such as China came at the expense of low pricing. Quarterly revenues grew by around 28% year-over-year to around $613 million,while operating losses narrowed to about $98.1 million. ^[1] The stock fell by about 8%  in Tuesday’s trading as management indicated that the company would return to profitability in Q3 2014, which is almost a year behind key rivals such as Trina Solar (NYSE:TSL). Below, we take a look at some key takeaways from the earnings release and how they could impact the company going forward.

We will be revisiting our valuation model and $5 price estimate for Yingli Green Energy to account for the earnings information.

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Higher Sales to China Impact ASPs: China became the world’s largest solar market in 2013, driven by favorable government policies such as feed-in-tariffs, more streamlined grid connectivity for solar projects as well as a favorable financing environment. Yingli has been one of the biggest beneficiaries of surging installations in China.  Shipments to the country grew by 60% in 2013 and during the fourth quarter, China alone accounted for over half of the company’s total shipments.  However, pricing for solar panels in China continues to be lower than the global average and this has impacted Yingli’s overall average selling prices. The larger share of Chinese shipments during the fourth quarter meant that the ASP per watt was between $0.63 and $0.64. ((Yingli to stay in the red to win solar panel price war, Reuters, March 2014)) In comparison, Trina Solar, realized about $0.66 per watt during the same period.

Non-Silicon Costs Continue to Fall: Yingli continued to make progress in controlling its costs in Q4 as non-silicon costs fell by around $0.02 sequentially to $0.42 per watt. The improvements have come through improved manufacturing processes, better cell efficiencies and possibly higher utilization rates for the company’s manufacturing facilities. Higher conversion efficiencies help cut down on the quantity of raw materials used to manufacture each watt of panels, while higher capacity utilizations result in better allocation of fixed manufacturing costs. However, despite the cost improvements, Yingli’s gross margins actually decreased from 13.7% in Q3 2013 to around 12.2%, as the company recognized a year-end tax adjustment. Adjusted for this one-time item, gross margins stood at around 14.2%. ^[2]

Downstream Solar Improvements: While the solar panel business is largely commoditized, with most Chinese manufacturers competing based on price, the project development business has remained lucrative. Although the downstream business currently accounts for just about 3% of Yingli’s revenues, the company has been expanding its development pipeline with around 1 gigawatt (GW) of projects in China and about 200 MW of projects overseas. The company indicated that it could complete construction of 400 MW to 600 MW of projects this year, up from just about 128 MW in 2013 (related: A Look At Yingli’s Recent Utility-Scale Solar Deals).

Shipments Will Surge Further In 2014: Yingli expects its module shipments to rise to between 4 GW to 4.2 GW this year (including shipments to its solar projects), translating to an increase of as much as 32% year-over-year. Additionally, the company expects to derive a greater proportion of sales from markets outside China (71% in 2014 vs. 65% in 2013), and this could also have a positive impact on average selling prices. However, despite the improved project guidance and geographic sales mix,  the company still expects to remain in the red in Q1, although it indicated that it could break even in Q2, while returning to profitability by the third quarter.

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1. Yingli Green Energy Reports Fourth Quarter and Full Year 2013 Results, Yingli Green Energy, March 2014 [↩]
2. Yingli Green Energy Q4 2013 Earnings Call Transcript, Seeking Alpha, March 2014 [↩]