Yingli Green Energy and JA Solar Report Falling Revenues

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One of the leading Chinese solar panel manufacturers, Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE), has posted results for its third quarter in which it missed the sales estimates as its losses widened, but recorded a better-than-expected loss per share. The revenues have gone down 27.9% sequentially and by 47.4% year-over-year to $355.9M, which came on the back of fewer sales and falling average selling prices. Analysts had estimated the third quarter’s revenues of $448M. The company’s gross margin has slumped from 4.6% in the previous quarter and 10.8% in Q3-2011 to the current negative 22.7%, which translates into a gross loss of $80.8M. The negative gross margin, its first this year, was due to non-cash expenditures such as inventory provisions and depreciation. The exclusion of these expenses improves the gross margin to a positive 0.3%, which reflects the fall in ASPs, but is still significantly lower than the previous year and quarter.

The result of the falling revenues, margins and ASPs caused a widening of losses by 67.4% sequentially and 431.4% YoY to $152.6M, which includes $15.4M as income tax benefits. However, on a positive note, the adjusted loss per share of $0.40 was better than Wall Street’s expectations of $0.52 per share. Moreover, the demand in China has also risen considerably. The region’s contribution to total revenues has gone up from 14% in the previous quarter to 28% in the current, but the German tariff cuts have caused a 16.9% sequential decrease in shipments.

For the fiscal 2012, the company has reiterated its guidance of 2100MW – 2200MW, which would represent a 30.9% - 37.2% annual increase. The gross margins are also expected to bounce back in the positive range to 2%. YGE’s chief executive Miao Liansheng said, “In the fourth quarter, we continue to see stable demand from Europe and the U.S. and rising shipments to rapidly growing markets like China.”

The company has worked on the largest solar projects in Latin America and Singapore and it expects to gain greater footholds in markets such as Uruguay and Sri Lanka. Although its sales to Europe are expected to fall by as much as 40% in the fourth quarter, a potential 40% increase in demand from China, where installed capacity could reach 21GW in the next three years, is expected to offset the European slump. Liansheng believes that “although the solar industry will continue to face challenges, we're confident that we will be able to emerge stronger as an industry leader."

YGE’s American division has secured the biggest supply contract for utility-scale solar modules in the company’s history, with 200MW in California for LS Power Group’s Centinela solar energy plant. The engineering, procurement and construction work on this massive project will be carried out by Fluor Corporation (NEW) (NYSE:FLR). The facility is expected to become operational by mid-2014 and will supply electricity to San Diego Gas and Electric under a 20-year power purchase agreement.

Earlier this year, Yingli Green had announced that it has increased its annual production capacity by 44% to 2,450MW. The U.S. imposes 15.42% of anti-dumping duties and 15.24% of countervailing duties on Yingli’s solar products if they include cells made in China.

In the meantime, another Chinese solar cell manufacturer, JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO), has also released its quarterly results. The company has posted revenues of $260.9M, which are down 9.2% from the previous quarter and 33.7% from the year-ago quarter due to falling average selling prices. Total shipments were 418 MW, which is 48 MW more than the high end of the company’s guidance. Shipments have remained flat as compared to the previous quarter and have fallen by 6.1% YoY.

Commenting on the results, JA Solar’s CEO Fang Peng said, “In spite of tough market conditions, shipments exceeded the top end of our guidance in the third quarter, thanks to robust sales across emerging markets. The proportion of modules in our overall sales mix continued to increase, accounting for 68% of revenue and 59% of total shipments in the quarter. In light of the current slowdown in demand and ongoing trade issues in Europe, we continued to explore opportunities in nascent growth markets while stringently managing our cash position.”

Like Yingli, JA Solar is also benefitting from increasing domestic demand as shipments to China “more than doubled sequentially.” JA Solar has also reported a gross loss of $15.4M, or a gross margin of negative 5.9%, down from positive 4.8% in the previous quarter and a negative 4.3% in the same quarter last year. The company ended up making a net loss of $59 million, down from a loss of $75 million in the previous quarter and $60.3 million in the same quarter last year. The business has missed analysts’ expectations again by reporting a loss per share of $0.30, as opposed to the $0.40 anticipated. The extent of this quarter’s loss was offset through a one-off gain of $58.7M, which the company recorded as “other income” from its claim against Lehman Brothers. So far, the business has missed analysts’ estimates for four quarters, while its revenues have diminished for five consecutive quarters.

JA Solar has reduced its annual guidance from 1.5 GW – 1.8 GW to 1.55 GW – 1.65 GW, while its fourth quarter shipments are expected to be between 380 MW and 420 MW. The business is also seeing growth in emerging markets, particularly in Southeast Asia, South America and Australia.

Earlier this month, in a bid to avoid delisting from NASDAQ, JA Solar announced that it would consolidate its American Depository Shares (ADS) so that one ADS would represent five shares, instead of one share, from 10^th December 2012. Similarly, JA Solar’s Chinese peer LDK Solar Co., Ltd (ADR) (NYSE:LDK) had also received a delisting warning earlier this month from the New York Stock Exchange. Since the beginning of the current year, shares of YGE, JA Solar and LDK have fallen by 57%, 48% and 73%, respectively.