China Sunergy Records Loss with Reduction in Shipment Guidance

Net loss has tripled from $9.5M in the previous quarter to the current $30.2M, which is translated as $2.26 loss per share

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Following JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) and Trina Solar Limited (ADR) (NYSE: TSL), China Sunergy Co Ltd (NASDAQ:CSUN) has also reduced this year’s shipment guidance when it announced its quarterly results on Thursday. The business continues to disappoint investors by slipping to a gross loss of $0.3M in Q2 2012 from a gross profit of $0.7M and $3.7M in Q1 2012 and Q4 2011, respectively. Consequently, gross margin in the second quarter was -0.3%, dropping from 1.1% in Q1 2012.

Net loss has tripled from $9.5M in the previous quarter to the current $30.2M, which is translated as $2.26 loss per share. However, the losses from operations have declined slightly from $18M in the previous quarter to $17.2M in Q2. Out of the total losses, $12.6M was a result of the Euro losing its value against the US dollar amid the ongoing European debt crisis. The business generates most of its revenues from Europe, which is further explained later; therefore, it is highly exposed to the continent’s economic environment.

For the quarter ending June 30, 2012, the business made significant improvements in quarterly revenues, which went up by 61.2% sequentially to $110.4M from $68.4M, as sales to third parties and related parties have both increased. Shipments also increased by 88.1% from the previous quarter to 150.3MW, 96% of which were module shipments. However, compared to last year’s Q2, the revenues have fallen by 23%.

The increasing volume was due to an increase in sales in Italy, Germany and Denmark as the company continues with its expansion strategy. More than a quarter, i.e., 27.5% of the revenues were earned in Germany, 23.5% in Italy and 9.4% in Bulgaria. Thus, 60% of the sales were made in the aforementioned countries as Europe remains China Sunergy’s primary market. Australia, on the other hand, contributed 9.2% to the total revenues.

The cost for wafers was $0.28 per watt, with conversion costs for cells and modules at $0.16 and $0.23 per watt, while the average selling price was reduced by 12.8% to $0.75 per watt due to adverse market conditions. China Sunergy should have been able to record gross profit, but the massive foreign exchange loss and the business’s inability to reduce its manufacturing costs meant that it was not even able to recover its production cost. The company expects the polysilicon and wafer costs to continue to fall, which should enable the company to reduce their cost per watt in the next quarter.

So far, since the beginning of the year until June 30, there has been a net cash inflow into China Sunergy of $29.1M, which has taken the cash and cash equivalent position to $416.5M.

For the current year, the company expects to achieve shipments of 400MW - 420MW, lower than its previously announced guidance of 500MW - 550MM. This also means that the quarterly shipments will drop from the current 150.3MW to just 80MW - 85MW, which could offset the gains from the 61% increase in revenues achieved in Q2.