Yingli Q3 Preview: International Sales, OpEx In Focus

5.63
Trefis
YGE: Yingli Green Energy logo
YGE
Yingli Green Energy

Yingli Green Energy (NYSE:YGE), one of China’s largest solar manufacturers, is expected to publish its Q3 earnings on November 25. Although the company has seen its volumes soar over the last few years, driven by burgeoning demand for solar panels worldwide, it remains one of the few tier-1 Chinese panel manufacturers yet to return to profitability. During the second quarter, the company’s revenues grew by around 26% sequentially to $549.5 million while net losses from controlling interests narrowed to $46 million. Q3 is traditionally one of the strongest quarters for Chinese solar firms in terms of shipments, and Yingli has guided for shipments of around 900 megawatts (MW) to 1,000 MW for the quarter, with gross margins expected to come in at around 16% to 17%. [1] Here are some of the key factors that we will be watching when the company reports Q3 earnings.

See Our Complete Analysis For Solar Stocks Trina SolarYingli Green Energy |First SolarSunPower

Trefis has a $3.75 price estimate for Yingli, which is more than 25% ahead of the current market price.

Relevant Articles
  1. Why Is The Chinese Government Stepping In To Help Yingli Green Energy?
  2. Yingli Posts Tough Q3 Amid Focus On Upcoming Debt Payments
  3. Yingli Q3 Preview: OEM Play In Focus As Panel Shipments Continue Descent
  4. Yingli Green Energy Price Estimate Cut As Debt Concerns Hurt Operations
  5. Yingli’s Debt Woes Begin To Hurt Core Operations
  6. Why We Cut Our Price Estimate For Yingli To $1.20

Looking Beyond The Chinese Market

China has been one of the key growth levers of the solar markets over the last two years, helping photovoltaics companies offset declines in markets such as Spain and Germany, which had previously accounted for a bulk of global panel demand. Yingli has been particularly dependent on China, with the market expected to account for about 36% of its shipments for FY 2014. While Chinese solar installations are expected to rise this year, with the government targeting about 13 GW of new installations, taking cumulative installation to 27.8 GW by the end of 2014, the cumulative government target for 2015 stands at just 35 GW. [2] This could mean that installation growth may slow down, since government policy and targets largely dictate demand in China. Yingli may need to diversify its shipment mix away from China into higher-growth markets, such as Asia Pacific (ex. China) and the Americas, to improve its revenue mix and margins. For Q3, the company expects China to account for about 34% of shipments. Japan has been an especially promising market for Yingli of late. The company has gained significant traction in the country’s utility-scale market and is looking to increase its presence in the residential solar markets by partnering with house builders. Yingli expects its Japanese shipments to grow by 20% in 2015. Latin America’s fledgling photovoltaic market could also provide scope for growth, given the high electricity costs, low quality base load supply and strong levels of solar irradiance in the region.

Lower Operating Costs Are Crucial To Turnaround

Yingli has been making significant progress on the manufacturing cost front, bringing down per watt module manufacturing costs from $0.54 in Q2 2013 to about $0.49 in Q2 2014, driven by higher efficiencies and manufacturing process improvements. The manufacturing improvements could continue into Q3 as well, with the company expecting gross margins of between 15% to 17% for Q3, compared to 15.6% during the last quarter. However, reducing other operating costs will be a key factor that will determine Yingli’s return to profitability. Yingli’s selling, general and administrative expenses and research and development costs have typically ranged from 15% to 20% of revenues, which is high compared to its peer group. For instance, Trina Solar‘s (NYSE:TSL) operating costs stand at roughly 11% of revenues. However, Yingli has been looking to prune down overhead by restructuring and streamlining operations for its international subsidiaries, particularly in Europe where demand has taken a hit, while also improving its cost management. The company expects OpEx as a percentage of revenue to fall by 2% to 3% sequentially for Q3, and we believe that this could help the company approach profitability at the operating level this quarter.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Yingli Q2 2014 Supplementary Presentation []
  2. Yingli Global Investor Day Presentation 2014 []