This week another set of companies from China reported their results. Along with GCL-Poly, listed in the US reporting in included Canadian Solar Inc. (NASDAQ: CSIQ), with results published on March 11th and ReneSola Ltd. (ADR)(NYSE: SOL), whose numbers showed a lot of optimism on March 14th.
Both companies have been attracting investors’ attention, as potential runner ups for profitability in fiscal 2013.
Canadian Solar has offered a lot of promise with its business model, including a particularly large, 780MW foreign portfolio of EPC projects, valued at $1.5B. Unfortunately, project revenue was not being recognized for Q4 and only a small fraction of project revenue will be seen in Q1. This situation has spoiled some of the excitement about the company’s prospects, but while there is profitability hope for companies like Trina Solar Limited (NYSE: TSL) and ambiguity around profit for Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE: YGE), Canadian appears to be on the most solid footing to reach this objective.
The revenue recorded by the company in Q4 was $295M and included sales of 404MW of modules, with an ASP of $0.66 per watt excluding systems sales. Thus far, Canadian had the best gross margin at 5%, even including a $6.8M charge for underutilized assets. The company appeared to take a few extra charges in its operating expenses, firstly due to increased sales of modules and headcounts supporting sales. General and administrative expenses included allowance for doubtful accounts at $31M, including $18M from China, as well as $30M in non-cash provision for the result of the arbitration decision against the company by the China International Economic and Trade Arbitration Commission in favor of LDK Solar for unsettled wafer contracts. Excluding those figures, the G&A would be at $17M.
There was a visible decrease in the interest expense, as borrowing is shifting to lower interest rates of short-term loans, as well as the interest cost on construction loans being capitalized into project assets. Those have increased in Q4 by around $34M and the total of long-term and short-term project assets stands at $400M. The company paid off $40M in financial liabilities, but operating liabilities increased the total by around $42M. There was an inventory reduction of $43M and overall cash spent of $126M, with $50M moving to restricted cash line. Including this line, Canadian had total cash at the end of Q4 at $560M.
Manufacturing costs at end of Q4 were at $0.56, including purchases of wafers at $0.21 per watt, placing Canadian in the leadership position among cost efficiency. Shawn Qu, CEO and President of Canadian, offered processing cost reductions within a range of $0.02 to $0.05 per watt during the 2013, but held back on predictions about polysilicon and associated wafer costs.
Guidance for Q1 was 290MW to 310MW, which is on the lower end of those figures already offered by other Chinese companies, but Canadian seems to be offering better gross margin numbers, landing in the range of 8 to 10%. Unfortunately, unless there is an increase in processing costs due to wafer costs, a potentially lower ASP is expected for Q1. Out of 1.6GW of guidance for 2013, 300 to 500MW will be dedicated to project sales. This, in consequence, substantially lowers third-party sales of modules versus 2012 results. Canadian executives noted that the company is not looking into profitless expansion of market share, but rather generation of profit for shareholders. The company statements suggested profitability for the full year on the possibility of Q2 and certainly Q3 and Q4 results, driven by revenue recognized through sales of project assets with margins that the company estimated at 20%.
On the other hand, ReneSola delivered a couple of its own positive surprises. First, the company has sold 320.5MW of modules in the quarter out of the 712.8MW sold in a full year, which is 45% of the total volume, a corporate record. Wafer shipments of 392.7MW were also at its highest level in the company’s history. ASP for modules was at $0.63 and wafers at $0.24.
As we learned, the company’s Virtus II modules, capable of 260W output, are currently in trial production, offering even greater savings due to the production savings of the Virtus II wafer, but during the quarter, modules sold were all of the Virtus I variety. The all-in cost of processing for the modules was at $0.60 per watt, with estimates to reach $0.55 per watt in Q1, which is around what Canadian Solar had in Q4, but offering lower costs over Trina or Yingli. The guidance for Q1 sees shipments of 280MW to 300MW, but the positive news for the company is the plan to ship approximately 1.4 to 1.6GW of modules in 2013, offering better margins than a break-even wafer business. In order to accomplish this, ReneSola will outsource production to others using its own branding as well as localized production meeting legislative measures, which could otherwise limit access for Chinese products in the future. Recent agreement in India for local production of some 250MW during the next two years is a part of the outsourcing capacity potential, which would allow ReneSola to avoid tariffs in this country, in case of their enforcement.
Overall wafer processing cost has dropped to $0.12 per watt with expectations of reaching a low level of $0.11 by the end of Q1 2013, and remaining there for the rest of the year. The margin on wafer was 1.9%, stipulating cost of poly at $21.00 per kg. The company disclosed production costs for its polysilicon production at $23.50 at the end of October 2012, when the production was halted for upgrades, and integration of phase II plant into phase I plant operations was initiated. The company confirmed that the plant is currently producing 10,000MT per year. Expected costs of polysilicon production are to be at $18 per kg by the end of the Q2 2013, with cash costs reported at $15 per kg. Wafer shipments for 2013 are expected to be at 1.3GW.
Financially, the company claimed a positive cash flow, which was mostly the result of value added tax recoverable and the reversal on impairment of goodwill. Cash and equivalents reduced to $93M from $265M, but overall cash included restricted portion, dropped by $67M to overall $268M. The company’s revenue was at $306M, with sales on credit increasing accounts receivable by $77M. Accounts payable increased by $88M to $483M, $20M more than Canadian Solar’s. ReneSola paid off $77M in long-term debt, and increased short-term debt by $17M, but short-term operating liabilities rose by $77M. The positive outlook on 2013 is certainly very exciting; however, there was neither a clear promise of profit, nor is the financial stand of the company particularly reassuring, and in our estimation appears in need of borrowing to offer liquidity until first profit is made by Q3, with the help of rising ASP.
Lastly, GCL-Poly reported its results, also on March 14th. The most interesting aspect from the company was on the polysilicon production and the production costs. GCL believes that poly pricing will return to levels of $20 per kg, but will remain below $25 to keep other producers dormant. Another factor brought about by this poly producer was an indication of development of granular silicon technology using the FBR process, until now solely identified with Norwegian REC Group. Some of the costing methods see poly manufacturing per kg to drop to as low as $11 or $10, offering another batch of reductions for solar products. GCL has apparently produced granular silicon in September and production lines have been meeting the standards for material since January 2013. GCL has also estimated production from the Siemens method at $16/kg by the end of the 2012.
In another business segment, the company has an extensive portfolio of solar projects in China worth around 500MW and the best-in-size portfolio for a Chinese company overseas with 1.5GW of projects. The total planned sales are in the area of 600MW for 2013 from domestic and global markets, including South Africa.
