Yingli Posts Tough Q3 Amid Focus On Upcoming Debt Payments

Yingli Green Energy (NYSE:YGE) published a challenging set of Q3 earnings that highlighted a focus on improving its near-term liquidity position in order to pay off upcoming debt maturities. While quarterly revenues fell by about 34% year-over-year to $351 million, its adjusted loss widened to about $67 million. ^[1] Below, we provide a brief review of Yingli’s earnings, its debt position and what the company is doing to improve its liquidity position.

We will be revisiting our $0.50 price estimate for Yingli, to account for the earnings.

The Debt Situation And Near-Term Payments 

Yingli’s total debt at the end of Q3 stood at about $1.9 billion, out of which about $1.5 billion was classified as current. On the other hand, the company’s deficit has deteriorated to about $698 million. While most of Yingli’s short-term loans are from state-backed banks, who have perpetually rolled them forward, one of the firm’s two major manufacturing subsidiaries – Tianwei Yingli – faces crucial payments on tranches of medium term notes. The company has to pay the remaining portion (RMB 357 million) of a note that came due in October and also has a RMB 1.4 billion ($219 million) tranche due in May 2016. The company has been meeting some of its recent debt maturities by selling land and other assets, but it remains unclear as to how much further liquidity it can raise via land sales, as China’s property market remains in a downturn and much of its land assets are likely located in Baoding, a third-tier industrial city.

Focus On Improving Liquidity 

Yingli’s total panel shipments for the quarter stood at about 460 MW (including shipments to its downstream projects), down from 727 MW in the previous quarter, as the firm has been scaling back on manufacturing its own branded panels, which tie up funds in accounts receivables and inventory. The reduced shipments come despite the fact that demand has actually been strengthening in both the domestic market – where the government recently upped its 2015 solar installation target by about 5 GW – and the international market. Yingli’s key rival Trina Solar (NYSE:TSL), for example, saw record-high shipments (1.7 GW) this quarter.

However, Yingli has been indirectly benefiting from demand growth. For instance, it has been prioritizing orders where it receives better payment terms and more competitive profit margins as it looks to improve working capital turnover. As of Q3, the firm noted that it had signed agreements to supply 350 MW of panels which required full cash pre-payments. Yingli has also been acting as an OEM module manufacturer for some other Chinese solar vendors who have been seeing strong demand. This strategy frees up cash for the firm, since customers provide the necessary materials to produce panels, while Yingli only incurs costs such as electricity and labor. This strategy also helps to bolster utilization rates (up to over 70% for the quarter), while reducing its cash conversion cycle. This move was at least partially responsible for the sequential improvement in gross margins.

Yingli is also re-examining its exposure to the downstream business, which has a much longer investment horizon, and is seeing some headwinds as a result of a nationwide delay in subsidy allocation. The company has decided to suspend entrustment agreements for the development of PV projects in China with other related parties, and has also indicated that it would accelerate the disposal of the PV projects projects assets that are on its books in order to quickly collect the funds related to the downstream business (related: Yingli Green Energy’s (YGE) CEO Liansheng Miao on Q3 2015 Results – Earnings Call Transcript). The company noted that about 115 MW of projects have been sold to third-parties, with negotiations under way to sell another 200 MW of projects.

Key Earnings Takeaways: 

• Total net revenues stood at RMB 2,234 million ($351.5 million), down by 34% year-over-year.
• Non-GAAP net loss stood at $66.7 million, compared to a loss of $17.5 million a year ago.
• The company took a non-cash impairment charge on long-lived assets of RMB 3,804 million ($598.5 million)
• Adjusted gross margins improved to 8.6% from 6.3% in the previous quarter.
• Other revenues grew by close to 200% year-over-year to $82 million, due to stronger OEM manufacturing.
• Cash and restricted cash stood at about $253 million.

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1. Yingli Q3 2015 Earnings Press Release [↩]