Yingli Green Energy Q1 Preview: ASPs and Gross Margins Should Increase

May 7, 2014 by  
Filed under Green Energy News

Yingli Green Energy, the world’s largest solar panel manufacturer, is expected to release its Q1 2014 earnings later this month. While global solar panel demand has been soaring of late, driven by strong demand from markets such as Japan, Yingli’s performance for this quarter could remain muted due to weaker demand from China (its principal market) as well as delays in deliveries to projects in Algeria. During Q4 2013, the company’s revenues grew by around 28% year-over-year to around $613 million, while operating losses narrowed to about $98.1 million. Here is a brief look at some of the key trends that we will be watching when the company publishes earnings.

We have a $5 price estimate for Yingli, which is about 50% ahead of the current market price. We will be revisiting our price estimate for the company after the earnings release.

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Average Selling Prices, Gross Margins Will Improve

Yingli’s average selling prices have been slightly lower than some peers such as Trina Solar (about $0.64 per watt versus about $0.66 per watt for Trina during Q4). However, we believe that there could be some improvement this quarter, since global ASPs have risen by roughly 14% year-over-year, on the back of strong demand growth and constrained manufacturing capacity in the solar industry. Additionally, Yingli is likely to benefit from the fact that it expects to sell more of its products overseas rather than in the Chinese market, where pricing is typically lower. The company expects overseas sales to account for about 71% of shipments for 2014, compared to around 65% of total shipments in 2013.

Yingli remains one of the few tier-1 Chinese solar manufacturers that is not profitable. The company has indicated that it should post a quarterly profit by Q3 of this year. However, for this quarter, the company has guided gross margins of around 15.5% to 16.5%, which represent both a sequential as well as a year-over-year improvement. The improved margins are likely to be driven by higher ASPs, and possibly lower manufacturing costs (see The State Of The Chinese Solar Market). Yingli has been making progress on the cost front in recent quarters owing to improved manufacturing processes, better cell efficiencies and higher utilization levels.

Watching For Execution Of Solar Projects

We believe that Yingli’s solar projects business remains central to the company’s earnings growth, given that the business has better margins compared to the commoditized panels business. Yingli has 1 gigawatt project pipeline in China and about 200 megawatts of projects overseas. The company indicated that it could complete construction of about 400 MW to 600 MW of projects this year, up from just about 128 MW in 2013 (see A Look At Yingli’s Recent Utility-Scale Solar Deals). We will be closely watching the company’s progress on these projects.

Yingli does face some obstacles in the utility-scale market. Firstly, financing could prove a bottleneck. Chinese banks are likely to be averse to lending Yingli large sums of money to build solar projects, given its weak balance sheet position. While the company has been tapping the equity markets to raise funds, that is likely to be a more expensive option. Secondly, a sizable portion of its guided projects are believed to be waiting for government permits. This could possibly slow down the pace of the company’s projects.

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