Friday, May 21, 2010

Yingli Green Energy (NYSE: YGE): Q1 Earnings Preview

Yingli Green Energy Holding Co. (NYSE: YGE), China's second-largest solar panel maker, is scheduled to release its first-quarter financial results before the market open on Monday, May 24, 2010. Analysts, on average, expect the company to report earnings of 22 cents per share on revenue of $353.89 billion. In the year ago quarter, the company reported a loss of 16 cents per share on revenue of $146.34 million.

Yingli Green Energy Holding Company Limited and its subsidiaries engage in the design, development, marketing, manufacturing, installation, and sale of photovoltaic (PV) products in the People's Republic of China and internationally.

In the preceding fourth quarter, the Baoding, China-based company reported that it slipped to a loss of RMB 44.84 million or RMB 0.3 per share compared to a profit of RMB 82.04 million or RMB 0.64 per share last year. In dollar terms, loss per share was $0.04. RMB 44.8 million or US$6.6 million, compared to net income of RMB 82.0 million in the fourth quarter of 2008. Loss per ordinary share and per ADS was RMB 0.30 or US$0.04, compared to net income of RMB 0.64 in the fourth quarter of 2008. On an adjusted non-GAAP basis, net income was RMB 137.5 million or US$20.2 million, compared to RMB 111.4 million in the fourth quarter of 2008. Adjusted non-GAAP earnings per ordinary share and per ADS were RMB 0.89 or US$0.13 in the fourth quarter of 2009, compared to RMB 0.86 in the fourth quarter of 2008. Total net revenues were RMB 2.53 billion or US$370.8 million, an increase of 43.7% from RMB 1.76 billion in the fourth quarter of 2008. Analysts, on average, expected the company to report earnings of US$0.14 per share on revenues of US$326.46 million for the quarter. PV module shipments for the fourth quarter increased by 15.7% over the previous quarter, and the fourth quarter gross margin continued to improve, reaching 29.6%.

Looking ahead to 2010, the company expects its PV module shipment target to be in the estimated range of 950 MW to 1 GW, which represents an increase of 80.8% to 90.4% compared to fiscal 2009. In addition, the company expects that its gross margin target for fiscal year 2010 to be in the estimated range of 27% to 29%. Yingli's gross margin, which is a proportion of each dollar of revenue retained as gross profit, may reach up to 30 percent in 2011, up from about an average 28 percent estimated for 2010, the company recently said.

The company said it plans to carve out a 12 percent share of the global panel market, which analysts expect to expand by more than 50 percent in 2010 to about 10 to 13 gigawatts. Yingli expects a near doubling of panel shipments to 1,000 megawatts (MW) this year.

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. Evergreen Solar sells bulk of its panels in key European markets like Germany and Spain, where generous federal subsidies ensured high electricity rates for solar energy system. In Germany, Solar subsidies for rooftop-installed solar power will see a one-off cut of 16 percent from July, while most open-field installations will be cut by 15 percent.Support for farmland solar systems is to be scrapped completely, according to media reports. Yingli derives over 50 percent of its revenue in Europe.

However, the industry as a whole is likely 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. As of February this year, the industry had gotten Treasury grants worth $81 million. That grant program is scheduled to end Dec. 31. The industry is still hoping that Congress will approve further policies to aid solar.

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. Yingli's non-silicon production costs stand at $0.76 per watt, already the lowest in the industry.

Among other developments, the company recently announced that it has entered into a sales contract to power France's largest PV solar power plant.

In terms of stock performance, Yingli shares are down more than 13% over the past year.

Full Disclosure: None.
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