Yingli's Q1 Results: Hope Springs Eternal As Financials Deteriorate

Jun.18.14 | About: Yingli Green (YGE)


Yingli Green Energy met its revised guidance and reiterated the full-year 2014 guidance.

However, the lack of any clarity behind how management is likely to recover from US Commerce tariffs and increased competition in Japan makes us doubt the guidance.

The company's balance sheet continues to deteriorate and another capital raise may be needed before the end of 2014.

Yingli Green Energy (NYSE:YGE) reported first-quarter 2014 earnings today. The earnings came in largely as guided by the company in its recent earnings warning. But the much delayed earnings release raises more questions as it answers.

Yingli's net revenues for the quarter were US$432.2 million. Yingli's total PV module shipments including shipments for solar projects were 630.8 MW - a drop of almost 33% from Q4 and in line with the earnings warning.

Overall gross margin improved to 15.7%, per the revised guidance. The main reason for the uptick from Q4 was the result of increased shipments to the higher ASP Japan market and reduced shipments to the lower ASP Chinese market. The proportion of shipments to markets outside China, U.S. and Europe doubled and accounted for 35% of total shipments in the first quarter of 2014, compared with 16% in the fourth quarter of 2013.

However, the company yet again failed to post a profit and the operating margin was negative 4.8%. The company once again pushed out the forecasted profitability date and now expects to be profitable later this year. The company's balance sheet (see below), shows continued deterioration this quarter.

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The company's debt increased from about $2.3B at the end of Q4 2013 to $2.4B at the end of Q1 2014. And the total shareholders' equity dropped by a whopping 18%.

Days sales outstanding were 155 days in Q1, compared to 113 days in Q4. This metric is consistent with the fact that the company recognized a non-cash bad debt provision of US$12.2 million relating to several customers. None of this commentary or these metrics are favorable for an unprofitable company that is hurting for cash.

As a further sign of trouble, the company's days payable outstanding was 215 days in Q1, compared to 156 days in Q4. While this change is a positive in terms of working capital management, it is safe to say this extension deteriorates the company's credit and worsens procurement pricing or terms in the future.

For Q2, Yingli expects module shipment in the range from 870 megawatt to 950 megawatt, including an estimate of 30 megawatt to 60 megawatt shipment to its own projects. The company also expects gross margin in Q2 in the range of 14 to 16 percentage. We have no reason to doubt this guidance as this guidance is being given with less than 2 weeks left in the quarter. But judging by the guidance, it does not appear that the company will post a profit in Q2 either.

The company continues to reiterate the shipment guidance of 4GW-4.2GW of full-year module shipments including 400MW-600MW for solar system projects. While reiterating guidance is a positive, we note that the company's project pipeline remained unchanged at 1 GW. We expected the #1 solar module volume leader in the world to show some meaningful growth in the project business. No growth is not a good sign.

The comments from company's management during the earnings conference call were not reassuring either. The management had no meaningful commentary or guidance on how it will deal with the Commerce tariffs in the US market. The US market contributed approximately 20% of Q1 shipments and per prior guidance, is expected to contribute 16% of 2014 sales. Management's answers regarding this major market were evasive and do not inspire any confidence in the guidance. While we can understand that the tariff problem is a tough one to get around and can understand the evasiveness, it would have been much more constructive for the management to identify the scope of the problem than ignore it altogether. Lacking a coherent US strategy, and the likely increased competition in the Japanese market, we have doubts if the management can deliver per the 2014 guidance. To the extent the company meets the 2014 guidance, it would have to be on the strength of the Chinese and Japanese markets. With all of Chinese manufacturers counting on these same two factors, we believe the risk to meeting the 2014 guidance is high.

The company has a massive and increasing debt load and is not generating any cash to pay off the debt. Its interest costs are rising and balance sheet is deteriorating. The only source of positive cash flow is from debt and equity offerings.

Yingli is a troubled company in a dire need of capital and it would not surprise us if the company attempts to raise capital again before the end of 2014. And, that prospect makes us further doubt management's guidance.

Sentiment: Avoid

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