Tuesday, March 2, 2010

Yingli Green Energy Holding Co. Ltd. (NYSE: YGE): Q4 Earnings Preview 2009

Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) is scheduled to release its fiscal fourth-quarter 2009 financial results before the market open on Monday, March 8, 2010. Analysts, on average, expect the company to report earnings of 14 cents a share on revenue of $323.79 million. In the year ago period, the company posted earnings of 12 cents per share on revenue of $258 million.

Yingli Green Energy Holding Company Limited (NYSE: YGE) is a leading solar energy company and one of the world's largest vertically integrated photovoltaic manufacturers. Yingli Green Energy develops, manufactures and sells photovoltaic modules to a wide range of markets, including Germany, Spain, Italy, Greece, France, South Korea, China, and the United States.

In the preceding fiscal-third quarter, the Baoding, China-based company reported that its net income dropped to RMB 120.85 million or RMB 0.79 per ordinary share and per American Depository Shares, or ADS, from RMB 147.63 million or RMB 1.14 per ordinary share and per ADS in the previous year. In dollar terms, earnings were $17.70 million or $0.12 per ordinary share and per ADS. Excluding items, earnings increased to RMB 184.24 million or RMB 1.20 per ordinary share and per ADS from RMB 175.31 million or RMB 1.34 per ordinary share and per ADS in the year-ago period. In dollar currency, non-GAAP earnings was US$ 26.99 million or US$ 0.18 per ordinary share and per ADS. Total net revenues for the period increased to RMB 2.22 billion or US$ 325.98 million from RMB 2.21 billion in the third quarter of the prior fiscal year. Analysts, on average, expected the company to report earnings of $0.17 per ADS on revenue of $ 328.64 million. Shipments increased to more than 80% quarter-over-quarter. Gross margin rose to 20.1%, up from 18.3% in the second quarter.

In November, the company raised it fourth quarter annual PV module shipment target to range between 490 MW and 500 MW from the earlier range of 450 MW to 500 MW.

In the fourth quarter of last year, Yingli won 27% of the commercial and residential installations in the California- the nation's biggest solar market and was the single biggest player, according to Bloomberg New Energy Finance.

The company is trying to lower costs and raise quality through complete vertical integration; it controls the materials in their solar panels from the sand to finished product. Last year, Yingli announced the Project PANDA, a collaboration of Yingli, ECN and Amtech to develop next generation high efficiency solar cells. During the third quarter, Project PANDA has achieved an important milestone. It successfully produced a next generation cell, which has an average efficiency rate of 18% or higher on higher production line.

Thanks to better cost advantages, Chinese solar module maker have grabbed more market share from their international competitors. Local solar companies have also benefited from China's well-developed supply chain, cheap electricity, supportive policies and even low environmental standards. In fourth quarter, Chinese makers won 46% of the new installations in California.

The demand for solar power products has picked up after a difficult 2009, when the turmoil in the credit market forced financial players to abandon U.S. solar energy projects. The 2008 collapse of top solar financier Lehman Brothers and the freeze-up in the global credit markets drove nearly all banks to halt funding for major new solar projects, forcing the makers of systems that turn sunlight into electricity to cut prices for their products and sending their stocks crashing. The problems of solar companies had been further compounded by an oversupply of polysilicon, a material used in solar panels.

The solar industry is poised to benefit from growing attention to global warming, skyrocketing oil prices, cheap financing and technological advances. At the Copenhagen Summit held in December 2009, the five major polluters of the world agreed to take action to reduce CO2 aggressively, with $100B per year pledged to help developing nations adopt green energy technology to cut greenhouse gas. Meanwhile, the US, China, Brazil and India continue to invest heavily in wind and solar energy with China's $454B in the next 5 year period as the most aggressive one. As part of the stimulus bill signed last year, the federal government approved around $60 billion in loan guarantee authority and $30 billion in energy grants for renewable energy and transmission companies. Congress has also granted a 30% renewable-investment tax credit to help expand the development of alternative sources of energy. Last month, Yingli Green Energy Holding Company Ltd. said it has received through its US unit, Yingli Green Energy Americas, Inc., a tax credit of US$4.5 million from the United States Treasury Department, as part of its Recovery Act Advanced Manufacturing Tax Credit program or MITC program, for the company's planned establishment of manufacturing operations in the United States.

In the near term, the solar industry is facing an important challenge in the form of reduced government subsidies. Globally, solar industry depends upon government subsidies and incentives and support to remain competitive. However, recent developments suggest that subsidies will inevitably be reduced or phased out. According to media reports, the German government is planning to cut solar subsidies for new roof and open-field sites from April by 16 percent to 17 percent. Additional cuts to the subsidies will be made from 2011 if solar projects amount to more than 3,000 megawatts, and even more if they total more than 3,500 megawatts. Already, France in January slashed the tariffs for electricity produced from rooftop solar panels by 24 percent. Spain too has taken similar steps.

The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 14.73. In terms of stock performance, Yingli shares have gained nearly 204% over the past year.

Full Disclosure: None.
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