Higher Panel Prices Brighten Yingli’s Prospects

Yingli Green Energy (NYSE:YGE) released its Q1 2013 results on May 30, showing signs that a turnaround may not be far off. Quarterly revenues declined by around 8% sequentially to $431 million, as panel shipments fell due to to seasonal and weather related slowdown in China. ^[1] However, things looked better on the margins front with the net loss narrowing to around $103 million, as average selling prices (ASP) for panels increased for the first time in several quarters. We see the stabilization of prices as a very positive development for the company because this has been one of the key factors that has been weighing down the firm’s overall performance.

Here are some of the highlights from the company’s earnings release and some of the trends that we believe will influence the stock going forward.

Increase In Average Selling Price Is Encouraging

Average selling prices have been the most significant concern for the solar industry over the last few years given the global oversupply of modules, excess panel manufacturing capacity in China as well as subsidy cutbacks in markets like Europe that have dented demand. According to our estimates, Yingli’s average selling prices fell from around $1.43 per watt in 2011 to around $0.77 per watt in 2012 (a 45% decline). However, Yingli was able to buck the trend this quarter as its ASPs increased by around 5%. ^[2]

While the increase was partly due to higher sales to markets such as Japan which traditionally have higher panel prices, the firm also mentioned that there has been an increasing trend in markets such as Europe, China and the U.S. as well. Japan is a market geared towards higher performance solar products and average system prices in the country are higher than the rest of the world. Solar imports to Japan surged during Q1, with solar cell imports into the country increasing from around 342 MW in Q4 to around 852 MW. ^[3] In Europe, better price realizations were aided by demand from installers rushed to buy panels before the provisional anti-dumping tariffs are imposed in early June. In China, higher prices are likely to be due to customers focusing on higher quality and higher specification panels. The company expects the pricing trend to continue to improve, with an increase in ASP’s of around 4% to 5% in Q2.

Things also showed improvement on the cost front, with non-silicon production costs per watt falling to $0.47 from around $0.48 per watt in Q4 2012. The management mentioned that it was on track to cut non-silicon costs to around $0.45 by the end of this year. The combination of higher selling prices and lower costs should help improve the company’s profitability significantly. For Q2, guided gross margins stand at between 9% to 11% in Q2, up from around 4% in the first quarter of 2013.

China Will Drive Sales This Year

Although Yingli’s Chinese shipments to China slowed down during Q1 due to seasonality, the outlook remains strong. China is expected to become the world’s largest market for solar products this year and Yingli could stand to benefit due to its sales network and also due to a relatively strong track record in the Chinese market. The Chinese government plans to increase installed solar capacity by around 10 GW this year.  Feed-in-tariffs of around 1 RMB/kWh are already being provided for utility scale projects and there have been indications that this could be extended to smaller distributed projects as well. There are certain challenges though, in the Chinese market as average selling prices in the region are typically slightly lower than the rest of the world, however, this is unlikely to be a long term issue as the market evolves and customers focus on quality and higher performance panels. Yingli expects China to account for around 25% of its shipments for 2013.

We have increased our price estimate for Yingli Green Energy from around $2 to $2.50 to account for the improving pricing, as well as the higher sales to the Chinese market.

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1. Yingli Press Release [↩]
2. Seeking Alpha [↩]
3. Reuters [↩]