Chinese Export Data Report (CEDR), covering period of the fourth quarter 2014, identified 499MW delivered to global markets by Yingli Green Energy Hold. Co. Ltd (ADR) (NYSE: YGE). Data for the third quarter indicated 576MW delivered globally. Based on volumes reported by the company for the third quarter, 903.4MW were shipped including 109MW to own projects in China.
The volume shipped to China during the third quarter including third party sales was around 350MW indicating actual global shipments of 553.4MW. Based on a comparison of customs records, CEDR shows 4% discrepancy suggesting an estimate for the global shipment in the fourth quarter to be in the range of 479 to 520MW. Based on the top range of the company’s guidance, the balance of shipped volume will come from China at 410MW including 50MW delivered to the company’s solar plants.
Top three destinations for Yingli during the fourth quarter were Japan with estimated 141MW, UK with 120MW and the US with above 100MW. In addition, the company had large deliveries to Algeria and Honduras. Overall Asia was the largest destination point with an approximately 157MW.
During the third quarter, estimated combined PV module and systems’ revenue per watt was an average of $0.66 for shipments of 794MW. Based on the company’s guidance, we see 880MW being recognized as shipments with the 2 cents’ reduction down to $0.64 per watt. We see no fluctuation in prices in China, but observing currency depreciation in Japan and EU.
Our expectations for fourth quarter revenue is $562M on PV module and system shipments, and around $25M to $30M in other revenue, for the total of $599M. We expect 17% gross margin with the gross profit of $100M to 105M.
We expect a drop in selling expenses due to the lower number of overseas shipments, but expect an increase in general and administrative costs due to year-end increases in compensation and bonuses. We assume research and development to drop to around $15M. Overall expectations for operating expenses are around $80M and operating profit to be in the range of $20M to $25M. Interest expense will remain close to $40M, and foreign currency exchange loss of $15M will deliver overall financial expenses including other income to total of $45M. As a result, we see $20M loss before income taxes. We speculate a tax benefit of about $2M and net loss attributable to Yingli at around $16 to $20M or $0.09 to $0.11 per share.
Potential positives this quarter are accounts payable reduction resulting in larger cash position, future project sales indication, and reduction of interest rates.
Yingli will certainly benefit from the overall improvement of installation targets in China during 2015. The company is also very active in emerging markets and has a first mover status in many global locations. Unfortunately, heavily leveraged corporate structure and exceptionally high operating expenses, do not support future capacity growth and may force the company to increase the use of OEM arrangements or even not match the demand. OEM usage could prove costlier, and the company may elect to ship at preferable ASPs, if the demand permits, using only own value chain. As the path to the profitability is blocked by the interest expense, further currency pressures will continue to add negatively to the challenge.
Yingli is the only company among the US-listed peers to suggest selling projects in China with the objective of 50% of the portfolio or 200MW to be sold in 2015. By accomplishing modest $1.60 per watt at 20% GM, Yingli can add around $60M to the bottom line as COGS of the projects should be capitalized, and projects should have limited operating expenses. This is one of the obvious ways to de-leverage the balance sheet and produce more cash flow. If currency conditions reverse and potential module shortage can materialize in the second half of 2015 thus improving ASP, Yingli has a chance to produce net income and profitability for last two-quarters of this year. While the company needs to count on positive alignment of many out-of-control factors, enterprise-level activities should help with the interest rates and hopefully produce reduction of debt or the category of debt. Strong global branding and China presence ensures that Yingli is going to continue as an operating entity for years, but will remain challenged by its designs for some time.
Current market capitalization is not offering much credit for the work the company did to improve its operating expenses resulting in delivery of the first operating profit in over three years. While there are four companies with lesser risks and profitability among peers, Yingli has been treated unassumingly by the market, especially with recent value appreciation in solar stocks. Yingli closing at $2.33 on Monday, March 23, 2014 traded at 50% loss for the year, compared to 7% loss for JA Solar and 9% gain for Canadian.
