Yingli Green Energy Q1 Preview: China In Focus

Yingli Green Energy (NYSE:YGE), the second-largest Chinese solar panel manufacturer by volume, is expected to publish its Q1 2015 earnings on June 5. The company’s stock price has fallen by about 40% over the last few weeks, after some comments published in its 2014 annual report regarding its high debt load stoked fresh concerns over its solvency (related:Yingli Plummets After It Says It Has “Substantial Doubt” About Its Future). Debt concerns aside, we think that the company will have a reasonable quarter on the operating front, driven by strong shipments and possibly lower manufacturing costs. Q1 saw strong global solar demand, with China raising its solar installation target for 2015 by 20% to 17.8 GW. Yingli is likely to have witnessed some tailwinds from this revised target, given its strong sales and distribution footprint in the Chinese market. Even so, we think that the firm will continue operating at a loss due to high operating leverage and interest costs. Here’s a quick look at what to expect from Yingli this quarter.

Trefis will be revisiting its $2 for Yingli Green Energy following the earnings release.

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Shipments Could Be Driven By China 

While Yingli has guided for shipments of between 700-750 MW for Q1 (with 40-60 MW directed to its PV projects), we believe that there is a possibility that the firm could exceed this target. While Q1 is typically a seasonally weak quarter for installations in China, owing to the Chinese New Year period, things could be better this year. Official figures from China’s National Energy Administration show that the country installed a stronger than expected 5.04 GW of new solar capacity over Q1. For perspective, Chinese installations stood at under 11 GW for FY 2014. Yingli is likely to have benefited from the stronger demand in the Chinese market.

Other markets that are likely to have driven growth include Japan and the United States. Japan accounted for about 21% of the firm’s quarterly module sales during Q4 2014, driven by installations in the utility scale, commercial and residential rooftop segments. Yingli’s FY 2014 sales to the country grew by 176% year-over-year during 2014, and we expect shipments to remain strong this quarter as well. The U.S. residential solar market could also be a source of volume growth for the company. The firm noted that ASPs in the region increased by 7% in in the second half of 2014 over the first half of the year. However, the anti-dumping/countervailing duties that the company faces in the U.S. market could potentially reduce the ASP/margin impact of these sales.

Gross Margins Likely To Decline On Lower ASPs

Although Yingli posted gross margins of about 16.8% during Q4, the company’s guidance for Q1 is slightly lower at 14-16%. While we expect the company’s ASPs to decline slightly, owing to a higher sales mix to China, there could be some improvements on the manufacturing cost front. While in-house non-silicon manufacturing costs are likely to decline owing to better economies of scale and efficiency improvements, silicon-related costs could remain flat. The firm’s non-silicon costs stood at $0.38/watt during Q4, while silicon costs stood at $0.10 for in-house panels. ^[1]  However, Yingli has limited manufacturing capacity and may need to outsource production from third-parties in the event of stronger demand. This could increase its direct costs and weigh on its gross margins.

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1. Yingli Q4 Earnings Presentation [↩]