Yingli Green Energy (NYSE:YGE) is a Chinese solar power player that has taken a massive beating in 2014. Yingli's shares have lost close to 40% of their value so far in 2014. The company is involved in photovoltaic operations in China, and this seems to be taking a toll on its shares.
Recently, Yingli shares crashed once again after news emerged that the Chinese government might cut its 2014 solar installation targets. As reported on TheStreet:
The Chinese government previously expected a 2014 installation target of 14GW, with 8GW distributed systems and 6GW utility. The government is reportedly looking to cut its targets due to credit availability issues according to Seeking Alpha.
This news has taken a toll on Yingli's performance. However, it shouldn't be forgotten that Yingli is plying its trade in a fast-growing solar market, and is one of the leading suppliers of PV modules. According to a press release, it was ranked as the strongest solar PV module brand in 2013 in the PV Module Customer Insight Survey 2014 conducted by IHS.
So, will Yingli be able to capitalize on its innovation to get back on track? At least not in the short term.
The company is seeing a slowdown in solar installations. In the first quarter, the industry saw a traditionally slow season, leading to deployment of 630 megawatts of PV modules, down 33% from the fourth quarter of 2013. Weak demand from China, coupled with greater delay associated with certain projects in Algeria, led to this drop.
However, Yingli improved its financial performance, led by a slight increase in the average selling prices of PV modules, and the company's ongoing efforts regarding cost reduction.
Better times ahead
Going forward, the company expects a healthy demand environment, driven by China and emerging markets such as South America, Southeast Asia and Africa from the beginning of the second quarter. Yingli expects this trend to continue in the second half of 2014 as well. Therefore, management expects the company's shipments in the second quarter to be in the range of 870 megawatts to 950 megawatts, and maintains its annual shipment guidance in the range of 4 gigawatts to 4.2 gigawatts for fiscal year 2014.
In addition, Yingli is witnessing a continued evolution of demand diversification, with strong demand from Japan and other emerging markets. It is also seeing steady growth in the U.S. and stabilization in Europe. For example, Yingli's shipments in Japan increased more than 50% quarter-over-quarter, and its customer base quadrupled, primarily driven by the growing acceptance of Yingli's products as the primary choice for both commercial and residential segments.
Moreover, the company is well-positioned for robust growth given its strong relationships with utility-scale project developers and several EPC contractors. Also, Yingli is progressing strongly toward diversification as the U.S. and Europe accounted for 35% of the company's total shipments in the first quarter, up from 16% in the fourth quarter of 2013.
Strategies to drive growth
Yingli also is implementing a balanced downstream strategy through a number of other projects for maximizing profitability, and also reducing risk associated with downstream development. The company has a strong pipeline as well. It has approximately 1 gigawatts of PV projects in the pipeline across 10 provinces in China, namely Hebei, Xinjiang, Yunnan, Guangxi, and Heilongjiang, and is actively involved in developing new PV projects in other provinces.
The solar power major has started the construction of two ground-mounded PV plants, which are expected to be complete by the third quarter of 2014. These plants will have a total capacity of 25 megawatts located in the Hebei province.
Yingli has also started the construction of 110 megawatts of utility-scale projects and 20 megawatts of distributed generation projects located in Hebei, Guangxi and Sichuan provinces. The company expects to build approximately 400 megawatts to 600 megawatts of PV projects by the end of 2014, based on the current project development status and the expectation progress of project pipelines.
Yingli and Sailing Capital, the first large cross-border RMB private equity fund launched in China, have jointly created a RMB 1 billion fund primarily focused on investing in Yingli Green Energy's solar PV projects in China.
An enticing valuation
Finally, from a valuation and growth perspective, Yingli could be a good buy. The company trades at a forward P/E of just 30, and its PEG ratio is also very low at 0.04. Although the company is facing certain near-term risks due to uncertainty around solar deployments in China, its long-term prospects appear strong. Analysts also seem to have a similar opinion, as Yingli's bottom line is expected to jump 68% this year, followed by an outstanding jump of 122% next year.
Hence, considering the rapid developments in Yingli's business and the opportunity in solar, it might turn out to be a good buy on the drop.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.