Yingli’s Quarterly Loss Narrows On Higher ASPs, Debt Load Remains A Concern

Yingli Green Energy (NYSE:YGE), China’s largest solar panel manufacturer by volumes, reported a narrower Q1 2014 loss (year-over-year) aided by cost improvements and a favorable geographic mix of sales that bolstered average selling prices. While quarterly revenues remained relatively flat at around $432 million, operating losses decreased by nearly 60% to around $20 million. The company’s outlook for the rest of the year was also positive, as it reiterated its full-year shipment guidance figure of 4 to 4.2 gigawatts (GW) and indicated that operating costs were likely to remain flat year-over-year. ^[1] In this note, we take a look at some of the key factors that drove the company’s quarterly results.

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Sales to Higher Value Markets Aid ASP: Yingli shipped a total of 631 megawatts (MW) of capacity during the quarter. The geographic sales mix was quite favorable, with just about 23% of overall shipments directed to Chinese market (where average selling prices are often lower) compared to around 53% of shipments during the previous quarter. The company saw better sales to markets such as Japan, where average selling prices are among the highest in the world. While Yingli does not break out its Japanese numbers, it noted that shipments to the country increased by over 50% quarter-over-quarter, while its customer base quadrupled. ^[2] The company has been seeing increasing demand from emerging solar markets such as South America, Southeast Asia and Africa, and expects the trend to continue going forward.

Manufacturing Costs Remain Flat, Could Be Bottoming Out: Yingli’s core panel manufacturing costs declined by around 12% year-over-year to around $0.52 . However, things were less encouraging on a sequential basis, as both non-silicon and silicon based manufacturing costs remained sequentially flat at around $0.42 per watt and $0.10 per watt, respectively. We believe that the company may not be able to sustain the rate of cost reductions that it has been able to achieve in the past for two reasons. Firstly, the cost declines that the company has realized of late have largely come from a drop in polysilicon prices and tighter controls of its supply chain. Such improvements may be difficult to replicate going forward, as the solar market improves with escalating demand. For instance, Bloomberg New Energy Finance estimates that polysilicon prices could rise by over 15% this year, driven by higher demand from China and Japan. ^[3] Additionally, we do not expect to see very meaningful cost reductions via process improvements, given Yingli’s lack of significant intellectual property and differentiated technology.

Controlling Operating Expenses: While Yingli has been working to rein in its operating expenses over the last few quarters, they saw a slight increase to around $88 million during Q1, owing to bad debt expense of around $12.2 million. However, Yingli expects its operating expenses to reduce by around 12% to 15% sequentially during Q2. It also intends to contain its FY 2014 operating expenditures (in dollar terms)  at their 2013 levels, despite the fact that shipments are poised to rise by as much as 30% this year. This should prove positive for the company’s operating and net margins going forward, since operating expenses stand at around 20% of revenues. ^[4]

Weak Balance Sheet Position, High Interest Costs A Concern: Much of Yingli’s capacity expansion over the years was funded by debt, which now stands at very high levels in relation to EBITDA. As of Q1, total debt was around $2.4 billion. The company’s interest costs are also staggering, standing at close to 10% of revenues. Moreover, the company’s cash position (as of Q1) stood at just about $480 million and the company has been steadily bleeding cash over the last two years.  Although Yingli has had some success with raising equity (it completed a $80 million follow-on offering in April) to fund its operations, it will need to return to profitability in order to service debt.

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1. Yingli’s (YGE) CEO Miao Liansheng on Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, June 2014 [↩]
2. Yingli Q1 Earnings Supplementary Presentation, Yingli Solar, June 2014 [↩]
3. Global polysilicon market on course for 15% increase, PV Magazine, May 2014 [↩]
4. Yingli Green Energy Reports First Quarter 2014 Results, Yingli Green Energy, June 2014 [↩]