Yingli Earnings: Weaker ASPs, Higher OpEx; 2015 Guidance Is Light

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Yingli Green Energy (NYSE:YGE), China’s second largest solar module manufacturer, posted a lackluster set of Q4 2014 numbers as weaker average selling prices (ASPs) and the weakness of the Yen and Euro against the Yuan outweighed the benefits of reasonably strong shipments. While quarterly revenues remained almost flat sequentially at about $555 million, with panel shipments coming in at 940 MW, operating losses stood at $32 million compared to an operating profit of about $32 million during the prior quarter. The net loss attributable to the company stood at $88 million. While solid demand and stabilizing ASPs helped most tier-1 Chinese solar players return to quarterly profitability as early as 2013, Yingli continues to face challenges owing to its marginally higher operating costs and meaningfully higher financial leverage. Here’s a quick review of Yingli’s Q4 results and what to expect from the company going into 2015. [1]

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Trefis has a $3.60 price estimate for Yingli Green Energy, which is significantly ahead of the current market price. We are currently revisiting our price estimate for the company to account for the earnings release.

Lower ASPs, Flat Manufacturing Costs And Higher OpEx

Yingli shipped a total of 940 MW of panels for the quarter, including about 74 MW shipped to its downstream projects. However, panel ASPs slipped to under $0.60 per watt according to our estimates, owing to higher shipments to the lower-value Chinese market. Shipments to China accounted for 47% of the overall sales mix for Q4, up from 39% a quarter ago.  Module sales in China typically peak during Q4 of every year and the trend was more pronounced for 2014, as the country fell behind its installation target during the first half of the year. In particular, installations to distributed generation projects are likely to have received a boost as the Chinese government moved to simplify the approval process for DG PV projects last September. Yingli also continued to make good progress in the Japanese market, which accounted for 21% of quarterly module sales, driven by installations in the utility scale, commercial and residential rooftop segments. The company’s full year sales to Japan grew by 176% year-over-year. Shipments to residential projects in the United States rose by 45% year-over-year, while ASPs in the region increased by 7% in H2 2014 over H1 2014. However, the anti-dumping/countervailing duties that the company faces in the U.S. market could potentially reduce the margin impact of these sales.

While Yingli made some progress on the non-silicon manufacturing cost front, with per-watt costs falling by $0.01 to $0.38, this was entirely offset by higher silicon costs. Total in-house production costs remained sequentially flat at $0.48 per watt. [2] Gross margins declined to 16.8% owing to the lower ASPs and flat manufacturing costs. Yingli’s operating costs saw a sequential increase, with SG&A coming in at about 14% of revenues (excluding provision for bad debts). The company also beefed up its R&D activities, launching over 20 new projects during Q4, causing R&D spending to sequentially double to $34.1 million. [3]

Outlook: High Debt Load, Weak Shipment Guidance Cloud Outlook

Yingli’s high interest burden remains a key factor hindering its return to profitability. The company’s interest expenses remained almost flat at $43 million during Q4, or about 8% of revenues. Yingli remains one of the highest-leveraged large Chinese solar companies, with a debt load of over $2.3 billion. On the other hand, the total equity attributable to the company has deteriorated to a deficit of about $35 million. While the company has about $550 million in unused short-term lines of credit and another $550 million committed long-term facility, we believe that it will need to raise additional equity to better balance its capital structure and find its way out of a potential debt trap. Additionally, Yingli will need funds to expand its manufacturing capacity and take advantage of the strong demand growth in the solar industry.

For instance, China upped its official solar installation target for 2015 to 17.8GW, representing a roughly 30% jump over  2014 installations (related: China Ups Solar Target By 20%: Is It Achievable? Who Will It Benefit?). Global PV installations are also expected to rise by 20% to about 58 GW for 2015, according to Bloomberg New Energy Finance. It seems unlikely that Yingli will be able to take advantage of the growth, potentially due to manufacturing capacity constraints.  The company has provided subdued guidance of 3.6 GW to 3.9 GW of panel shipments for 2015, which includes 400MW- 600 MW of modules to be shipped to its own downstream project. This translates to a shipment growth rate of 11% over 2014. In comparison, key rival Trina Solar‘s (NYSE:TSL) guidance of 4.4 GW-4.6 GW for 2015 marks a 23% jump over its 2014 numbers.

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Notes:
  1. Yingli Green Energy Press Release []
  2. Yingli Q4 Earnings Presentation []
  3. Yingli Green Energy’s (YGE) CEO Liansheng Miao on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, March 2014 []
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