Yingli Q2 Earnings: Key Takeaways

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Yingli Green Energy

Yingli Green Energy (NYSE:YGE), China’s largest solar panel manufacturer, published its Q2 2014 earnings on August 27, posting a set of results that missed market expectations on both earnings and revenues.  While quarterly revenues grew by around 26% sequentially to $549.5 million, owing to higher module shipments and slightly better system sales, net losses from controlling interests fell by around 16% to $45.96 million due to slightly lower manufacturing costs and general and administrative expenses. The company cut its modules shipments outlook for the rest of the year by around 10% to between 3.6 gigawatts (GW) and 3.8 GW, as it seeks to scale back on sourcing panels from third-party OEM facilities and also due to lower expected shipments to the U.S. market, where it faces steep tariffs. In this note, we take a look at some of the factors that drove earnings and what to expect from Yingli going into Q3.

Trefis has a $3.50 price estimate for Yingli, which is slightly ahead of the current market price.

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Higher Shipments Into China Hurt ASP

Yingli shipped a total of 888 MW of solar panels for the quarter, including about 72 MW delivered to the company’s downstream projects. China was the company’s largest market for the quarter, accounting for nearly 34% of total shipments compared to around 24% of total shipments during Q1. Given that panel prices in China are typically lower when compared to global markets, Yingli saw its average selling prices (ASP) fall by around $0.01 sequentially. While overall demand trends in the Chinese market were quite subdued during Q1, with total installations standing at 3.3 GW, the government is likely to boost incentives for solar in order to meet its revised target of 13 GW of new installations for 2014. China’s National Energy Administration (NEA) is expected to further its incentive policies to encourage diversifying the locations for distributed generation, in addition to guaranteeing distributed project owners the same feed-in-tariff as large scale photovoltaic power plants. [1]. This should help to accelerate Yingli’s shipments in the Chinese market for the second half of the year.

U.S. Tariffs

The United States is Yingli’s second largest market in terms of shipments. In July, the U.S. closed a loophole that allowed Chinese solar companies to circumvent previously imposed duties on their panels by moving cell manufacturing to Taiwan. Now, Yingli faces a combined U.S. tariff of 42.33%, which is significantly higher than the industry average of around 31%. [2] Yingli is likely to see lower sales to the country as a result of these tariffs, estimating U.S. shipments to account for about 15% of total shipments for this year, down from its previous estimate of about 17%. However, the company does not foresee an impact on its U.S. margins,  since it expects to realize higher prices for its panels in the U.S., which is likely to offset the higher costs. [3]

Cost Reductions

Yingli made some progress on the cost front this quarter, reducing manufacturing costs (for in-house production) from around $0.52 per watt for panels to around $0.49 per watt, due to lower polysilicon and non-silicon costs. However, the company’s gross margins decreased marginally on a sequential basis from 15.7% to 15.6% due to lower ASPs. Yingli expects its gross margins to range from 15% to 17% for Q3 owing to more effective cost controls. On the operating cost front, Yingli saw general and administrative expenses fall by around 20% to $27.7 million. However, marketing expenses rose by around 60% to $50.6 million due to some one-off marketing expenses in South America and Brazil, where the company was a sponsor of the FIFA World Cup. The company expects OpEx as a percentage of revenue to fall by around 2-3% sequentially for Q3, and we believe that this could help the company approach profitability, at least at the operating level.

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Notes:
  1. Q2 2014 Earnings Presentation, Yingli Green Energy, Q2 2014 []
  2. Yingli cuts solar panel shipment forecast, shares slip, Reuters, August 2014 []
  3. Yingli Green Energy Holding’s (YGE) CEO Liansheng Miao on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, August 2014 []