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Cheaper manufacturing and growing demand for solar products in China gives Yingli an edge over its US competitors. This demand will be supporting the company in the future and by entering the Japanese market Yingli has expanded its market as the country is moving towards renewable energy. The company can capitalize on this increasing demand for clean energy and strengthen its financial and liquidity position.

Introduction

Yingli Green Energy Holding Company Limited (NYSE:YGE) is one of the world's largest solar manufactures with 20 offices around the globe. It operates in more than 40 countries, including the US and China who are the biggest consumers of solar energy. The company has been able to install more than 7GW of solar modules around the world with the help of its vertically integrated structure that encompasses the entire production process - from polysilicon to complete solar panels. Yingli Solar has a manufacturing capacity of 2.45GW. In 2010, the company became the first renewable energy company to sponsor the 2010 FIFA World Cup and will be continuing this partnership at 2014's FIFA World Cup in Brazil. Even though the company had significant achievements like the FIFA partnership, it was unable to post a good performance in 2013. The company's share price took off in October 2013 but did not carry on with the same momentum. Yingli closed the financial year with a 104% share price growth, which is close to the industry average, while its competitors followed a different trend altogether.

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Fundamentals

From 2011 onwards Yingli Solar has been reporting losses, though these are decreasing bit by bit every quarter. During the third quarter of 2013, the company reported a loss of $38.5 million which was a reduction of almost 27% compared to the second quarter of the same year. This indicates that even though the losses have been very high during recent years ($492 million in 2012 and $510 million in 2011), the company has been successful in controlling its expenses while increasing its production and sales. During the second quarter of 2013, sales of solar systems made up only 1.7% of total revenues. The company has managed to increase it to 7.3% in the third quarter which has been a major factor in an increase of 8% in total revenues while the operating loss has decreased from $21 million during the second quarter of 2013 to $11.5 million during the third quarter, a 45% decrease. This improving performance and positive results indicate that the company is moving in the right direction and will start earning profits in the near future.

 

Company

Industry

Sector

Quick Ratio (MRQ)

0.66

0.74

1.47

Current Ratio (MRQ)

0.86

1.12

1.71

LT Debt to Equity (MRQ)

662.39

401.73

36.87

Interest Coverage (NYSE:TTM)

-2.47

-2.81

17.41

The company's liquidity position does not look strong as both quick and current ratios are lower than the industry average. On top of that they are even lower than the standard ratio of 1, which means that the company is not financially healthy as it has less money to pay-off its short term obligations. While the liquidity position is weak, the company's LT Debt to equity is higher than the industry average suggesting that it will have to improve its financials in order to pay off such high debts in addition to the interest charged on it every year.

Sale of Modules

During the last quarter of 2013, the company was busy selling modules to companies in different part of the world. It supplied 59MW of multicrystalline YGE Series PV modules to China Three Gorges New Energy Co. for three ground-mounted projects which will be located in Hebei Province, Gansu Provience and Inner Mongolia Autonomous Region. The expected delivery was to be made at the end of 2013 according to the agreement between the two companies.

The Jordanian government issued its Master Strategy Energy Sector for the period (2007-2020) in 2007 in which it mentioned the aim of increasing the country's solar generation capacity to 600MW by 2020. Yingli has been able to capture 20% of the Jordanian solar market after the latest delivery of 1MW of PV modules to the country in November 2013. This presence of the company in this region might prove to be a strong catalyst in its future growth.

Mr. Liansheng Miao, Chairman and Chief Executive Officer of Yingli Green Energy said, "The Middle East has a huge potential for solar adoption because of its abundant sunlight resource, and we are aiming to achieve more development opportunities in this region through our advanced technology, high quality products, strong brand recognition and professional experience in manufacturing and marketing."

The company is also working in the UK with Solarcentury Holdings Ltd. to whom it supplied 15.2MW of multicrystalline PV modules. Yingli Green Energy is the sole supplier of Solarcentury and these PV modules will be delivered by the end of January 2014 to be installed at Hill Farm Project in the UK. This is by far Solarcentury's largest solar project and will produce approx. 14.5GWh electricity annually using 60,000 Yingli modules. The company also supplied 1MW of PV modules to Serbia's second largest solar project. Yingli worked on this project alongside Solaris Energy, Enertec and Energize.

Yingli has been busy during 2013 making its presence felt by selling its modules in different regions of the world. This should help the company in reporting good revenues for the fourth quarter of 2013 and the start of 2014 which will increase its profit margin and improve its liquidity ratios.

Recent Developments

During the fourth quarter of 2013 the company got involved in the world's largest hydro and PV hybrid project near Longyangxia Dam in China by supplying 15MW PV modules. The project has a total capacity of 320MW and is expected to deliver an average of 498 GWh annually during its 25 year life.

Due to the very low prices of Chinese solar panels, many countries took measures in order to protect their own solar industry and market. Recently the European Union announced the imposition of definitive anti-dumping and anti-subsidy duties without retroactive effect. Provisional anti-dumping duties of 11.8% will be collected for the period of 6th June 2013 to 5th August 2013. However, Yingli Green Energy will be exempted from these duties due to its participation in price undertaking. This can act in favor of the company as the imposition of duties might create some concerns for its Chinese competitors in the EU region.

At the start of 2014 the company initiated two joint ventures; one with China Rich Energy Co. wholly owned by China National Nuclear Corporation (OTC:CNNC) and the other with Shuozhou Coal Power Co. a wholly owned subsidiary of Datong Coal Mine Group Co.

Under the JV with China Rich Energy, the two companies will be working on the development and construction of 500MW solar projects to meet the demand of electricity across China; of which 200MW will be installed on sites provided by CNNC or China Rich Energy. The JV with Shuozhou Coal Power Co. is the continuation of the previous partnership in which the companies developed a 20MW utility scale project in the Tashan circular economy park, Shanix Province; in which Yingli was the supplier of modules as well as engineering, procurement and construction (EPC) services. The two companies will now be working on solar power projects in Shuozhou city.

The company is also entering the Japanese market through an agreement between its subsidiary, Yingli Green Energy Japan Corporation, and XSOL Co. Ltd. Yingli was the first solar company to be given the green signal to enter the Japanese market after it obtained TUV Rheinland's JIS Q 8901 certificate which certifies the reliability of Yingli's modules and the ability to withstand harsh conditions such as salt mist and ammonia. XSOL has sold over 137MW of PV modules and systems in Japan during 2012/13 fiscal year (ending 31st May 2013) and will be selling and promoting YGE 60 Cell Series modules from mid January 2014.

Back in December 2013 the company announced that its three-party consortium with Sinohyro Corporation Ltd and Hydrochina Corporation, which was formed in October 2013, won 233MW of PV projects in Algeria. The consortium will be designing and constructing the projects while the development will be done by Shariket el Kahrabawa el Taket el Moutadiadida (SKTM), a wholly-owned subsidiary of Sonelgaz (National Society for Electricity and Gas) and are expected to be completed in 8 months, starting from January 2014.

The company has strengthened through joint ventures and entering the Japanese market since the end of 2013. It can increase its market share, which might not be seen as a positive at present but can prove to be a good long term move by the company. Japan has been moving away from nuclear energy since the reactor meltdown which means that there is enough room for Yingli to maneuver in.

Valuation

Yingli's EPS is currently estimated to be -1.50 for the year 2013. It is expected to improve slightly going into 2014. The mean EPS estimate for 2014 is -0.79 which, in our opinion, is primarily due to high interest payments.

The estimated average sales for 2014 are $2.3 billion while the number of outstanding shares is approx. 157 million. Price to Sales ratio is 0.44x from which we can calculate the expected target price to be $6.49 per share; currently it is being sold at an undervalued rate of around $6 per share. According to analysts, the target price for the share is $6.40 per share which shows that the stock has potential for growth because of Yingli's new projects and entrance into new solar markets.

Conclusion

Yingli has not reported any profits for almost 3 years now but its situation is changing gradually as it has been consistently reducing losses. The company has generated good sales of modules during the last quarter which points to a recovery. Even though the expected revenue of 2014's first quarter, at $567.6 million, is lower than the expected revenue of the fourth quarter of 2013, the overall year is going to be better than previous ones due to the company's involvement in the FIFA World Cup 2014 and other new projects that are expected to increase sales by 16% (compared to 2013). Therefore, the share price might not seem attractive in the short term but it will prove to be a good long term investment, especially considering approaching catalysts.

Source: Yingli Can Score Big With FIFA 2014 In Sight

Additional disclosure: Equity Flux is a team of analysts. This article was written by our Basic Material analyst. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.