What To Expect From Yingli Green Energy And Trina Solar In 2014

December 18, 2013 by  
Filed under Green Energy News

Yingli Green Energy (

) and Trina Solar (

), two of China’s largest solar companies by market capitalization,
have had a relatively good 2013, aided by higher demand for panels
in both the domestic and international markets, better price
realizations, as well as improving profitability. Both the stocks
have performed well – Yingli is up by around 80% year-to-date while
Trina Solar is up by a whopping 170%. In this note, we take a brief
look at what to expect from the two companies and the broader base
of tier-one Chinese solar manufacturers going into 2014.

See Our Complete Analysis For Trina Solar
and  Yingli Green Energy

Expect Stable To Improved Panel Pricing On Growing Demand
And Capacity Consolidation

Both Yingli and Trina Solar reported some stabilization in their
average selling prices through 2013, benefiting from a narrowing
supply-demand gap in the solar industry.  This ended a streak
of double-digit annual percentage declines. We believe that the
prices could remain stable or improve slightly next year due to
higher demand, as well as the possibility of further capacity
consolidation within the Chinese market.  According to NPD
Solar Buzz, global solar demand could cross 50 GW (shipments in
2013 are estimated at 35 GW) next year as installations continue to
rise in China as well as in other emerging solar markets.
Additionally, there have been signs of consolidation in the Chinese
solar industry, with some large and over-leveraged companies
including LDK Solar and Suntech Power selling or idling their
underutilized capacity. The Chinese government has indicated that
it will not permit solar companies to build new manufacturing
plants that are intended to “purely” expand capacity, meaning that
companies that have been seeing healthy demand will likely have to
acquire unused capacity from other manufacturers rather than
building out new capacity.

Increasing Focus On The Downstream Solar Space

While the solar panel business has become largely commoditized
over the last few years, the solar project development business has
been thriving. This so-called “downstream” business is benefiting
from lower panel and equipment costs, which are  making solar
power an increasingly viable alternative to conventional sources of
energy. The downstream business has healthy margins compared to the
panels business, since it involves providing value added services
such, as design and construction, in addition to procuring
equipment. For example, First Solar (

), one of the world’s largest solar companies, had gross margins of
around 10% for its panel business in 2012, while the margins for
its projects business stood at over 35%. Most Chinese solar
companies, Trina Solar and Yingli included, have a relatively small
presence in the solar projects business. As of 2012, Yingli
Green Energy’s systems business accounted for less than 2% of its
overall revenues, and we estimate that projects account for a
similar (or smaller) percentage of Trina Solar’s overall revenues.
We expect both companies to make deeper inroads into the downstream
solar space in 2014 . Yingli has projects to the tune of around 130
MW for 2013, and we expect this to grow significantly in the next
year. Trina Solar is estimated to have a development pipeline of
over 500 megawatts (

) currently, most of which is located in China.

Margins For Panels Should Rise on Better Non-Silcion
Costs, But Silicon Costs Could Pose A Threat

Both companies have seen their margins rise continuously though
2013, aided by better pricing and higher utilization rates, which
helped fixed-cost allocation. During Q3 2013, Yingli reported gross
margins of around 14%, up from negative levels during the same
quarter last year, while Trina saw its operating margins improve to
around 15% from less than 1% a year ago. We believe that both
companies will see stable to improving gross margins next year
owing to continued high utilization rates, improving pricing
conditions, and cost reduction initiatives. However, the
potentially higher prices for polysilicon, a key raw material used
in manufacturing polycrystalline panels, could pose a challenge to
both companies. Prices for the commodity are just off their
all-time lows and the growing demand for panels could result in
higher pricing. According to a report by GTM Research, polysilicon
prices could rise by as much as 25% next year. Although 
polysilicon costs now account for just about 20% to 25% of panels
manufacturing costs, higher prices could  nevertheless impact

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