Yingli Green Energy Holding Company Limited (NYSE:YGE) Q1 2017 Earnings Conference Call June 15, 2017 8:00 AM ET
Pengsong Yuan - General Counsel
Jingfeng Xiong - Chief Climate Officer and Vice President
Fernando Calisalvo - Managing Director, Yingli Spain
Yiyu Wang - Chief Financial Officer
Justin Clare - ROTH Capital Partners
Maheep Mandloi - Credit Suisse
Hello, ladies and gentlemen, this is Fedrick. I will be the operator for this conference call. I would like to welcome everyone to Yingli Green Energy Holding Company Limited’s First Quarter 2017 Financial Results Conference Call.
All lines have been placed on mute to prevent background noise. After today’s presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question.
Now, I would like to transfer the call to the host for today’s call, Mr. Pengsong Yuan, General Counsel of Yingli Green Energy. Mr. Yuan, please proceed.
Thank you, operator, and thank you everyone for joining us today for Yingli’s first quarter 2017 financial results conference call. The first quarter 2017 earnings release was issued earlier today and available on the company’s website at www.yinglisolar.com.
On the call today from Yingli Green Energy are Mr. Miao Liansheng, Chairman and Chief Executive Officer; Mr. Xiong Jingfeng, Vice President and Executive Director; Mr. Wang Yiyu, Chief Financial Officer; Mr. Miao Qing, Vice President of Corporate Communications; Mr. Fernando Calisalvo, Managing Director of Yingli Spain; and Mr. Laurence Wang, Financial Controller.
The call today will feature a presentation from Mr. Xiong, covering business and operational developments. Mr. Calisalvo will talk about the development of Japan, American and other international markets; and then Mr. Wang Yiyu will take you through the company’s financial performance. After that, we will open the floor to questions from the audience.
Before beginning, Yingli Green Energy’s management team would like to remind the audience that this presentation contains forward-looking statements within the meaning of Section 21E of Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Security Litigation Reform Act of 1995.
These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates, and similar phrases. Such statements are based upon management’s current expectation and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond Yingli Green Energy’s control, which may cause Yingli Green Energy’s actual results, performance, or achievements to differ materially from those in the forward-looking statements.
Further information regarding these and other risks, uncertainties or factors is included in Yingli Green Energy’s filing with U.S. Securities and Exchange Commission. Yingli Green Energy does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under applicable law.
I would now like to turn the call to Mr. Xiong. Please begin.
[Interpreted] Good morning and thank you for joining us today. Due to seasonal floating demand situation in China domestic market and reduction of subsidies for PV announced by METI of Japan, in Q1, our shipments to the top two markets, China and Japan, decreased quarter-over-quarter and our total shipment was 330 megawatts, slightly below the lower-end of our previous guidance of 380 megawatts.
However, since the end of April, we see soaring demand in China domestic market contributed by the installation rush before June 30. Our capacity utilization rate has been remarkably improved to almost the full capacity, and we anticipate a significant increase in our shipments or even record high quarterly shipments, which is estimated to be around 950 to 1,050 megawatts for Q2.
Despite of the fierce competition in Q1, we start to securing orders with favorable payment terms to ensure accelerated payment collection and stable operation. We activate development domestic marketing, including establishing offices in Xiang, Nanjing, and Guangzhou, which enable us to better serve our clients from Yangtze River Delta and Pearl River Delta, as well as promptly respond to key clients’ requests.
In the second-half of 2017, we will increase our distribution network in perpetual cities. We are cooperating with more reputed developers and contractors to expand in the market. For example, recently we have entered into a strategic cooperation agreement with Hebei First Electrical Power Construction Engineering Company for all-round strategy cooperation in investment, construction, EPC, and equipment to make full use of mutual advantages, including jointly attending tenders.
Driven by favorable policies and initiatives, such as the Top Runner projects, PV Poverty Alleviation initiatives, DG System, supplementary installation quota and recently launched the green certificates, the first half witnessed strong demand in China domestic market and is expected to continue in the second half.
As the technical update continues and FIT for utility-scale solar plants – solar plant is beingreduced, the demand for DG System is booming. The NEA recently stipulatedtheir quotafor DG Systemmay exceedthe previouslyannounced volume.
Lately, the NEA published the draft for the third batch of Top Runner program to promote technological development, industrial upgrade, and reduce cost for solar energy. In addition, The State Grid Corporation of China just announced a notice for facilitating consumption of new energy in 2017 to make sure there will be enough capacity for electricity generated by new energy. In conclusion, we’re confident about the sustainable development of solar industry in China in the long run.
In R&D, we have adhered to strategies of market-oriented to carry out and take the leadership in R&D to presume outstanding performance in the coming super Top Runner program. In later May, the 50 megawatt Top Runner project in Datong, Shanxi, powered by Yingli passed the acceptance testing conducted by the authorities as the largest N-type and bifacial solar project in the world. Its monthly energy yield is 10.4% to 15.6% higher than normal multicrystalline solar plant, while its cost per watt is lower.
In earlier – in early June, the European’s largest bifacial PV solar plant powered by our PANDA N-type bifacial PV modules were completed in Holland.
Moreover, our PANDA N-type bifacial PV modules and Smart Hot-Spot Free modules are ranked among top 10 highlighted products in SMEC. Following these, the real front power output in our PANDA N-type bifacial PV modules was improved to 315 watts, compared to prevailing power output of 300 watt max for other popular monocrystalline modules in the market so that the PVBOS costs can be reduced.
For Smart Hot-Spot Free modules, currently, we’re still working on equipment upgrading and IEC certifications and its commercial production is expected to be launched in the near future. We believe our Smart Hot-Spot Free modules will be the future Smart PV modules. In addition, the lab efficiency of our IBC Monocrystalline Cells jointly developed by Yingli and ECN has improved to 21.5%, much higher than typical Monocrystalline Cells.
With respect to debt restructuring, the special committee has recently engaged independent financial and legal advisors. The financial and legal advisors will assist the special committee in carrying out its work, including assessment of the company’s operating and financial situations and evaluating the restructuring options potentially available to the company.
In addition, for our bank creditors, the creditors committee, led by China Development Bank, recently expressed in written its confidence and support about helping Yingli regain normal operation and maintain sustainable development in the future. This further ensures our smooth and solid operations by now.
In terms of medium-term notes on May 3, 2017, the company has paid RMB300 million of the 2012 medium-term notes for Yingli China. Regarding outstanding medium-term notes of RMB1,757 million for Tianwei Yingli, we’re still actively negotiating with note holders for mutually beneficial solution and repayments.
Now, I will hand over the call to Fernando Calisalvo, Managing Director of Yingli Spain, for our international market update. Thank you.
Thank you, Mr. Xiong. Starting with Japan, in Q1, we continued to deliver the half amount of the PV modules for Setouchi project, which is 230 megawatts, the largest solar plant in Japan, and signed a 50.6 megawatt solar panel supply agreement with X-ELIO, a leading Spanish developer and operator of utility-scale PV systems for for two Japan solar power plants.
In addition, we are focusing to develop new customers who are continuously developing middle and small size plants not only with feed-in tariff, but also non-feed-in tariff projects on local and rural areas.
Moving to the Americas, Yingli Americas has adjust its market strategy to take back market share from past years. The potential high demand from Yingli Green Energy modules is expanding with increased demand for high-efficient modules. This resurgence in the U.S. market will make for a successful fiscal year in 2017. The Yingli Americas brand will be back to take advantage of demand that match with Yingli’s product development roadmap.
Our presence in the U.S. market continue to benefit from the strengthening of a strategic partnership on the residential, commercial and in the utility sectors. We’re 100% committed as an industry leader in the solar sector with a focus in North America, which is vital for the overall success of the business.
The U.S. market is strong and the current project pipeline for Yingli America is growing north of 300 megawatts for 2017. Additional request for module supply are being executed from the U.S. territories, including Puerto Rico, Guam and Saipan.
For other international markets, we are in the process of optimizing overseas sales network and Yingli Spain will mainly cover the module sales business in regions, including Europe, Africa and Latin America with a talented and experienced team. Especially we have completed the restructuring plan for Latin America in Q1 and started the transition for Europe region with a target to achieve a cost-effective structure, which is able to adapt easily and faster to the market conditions.
To be more specific, in Colombia, we obtained the local RETIE certificate award for our products, making us the top three suppliers in the country who has this certificate. In Mexico, we have reached agreements with local key strategic integrators and distributors regarding to a stock inventory within Mexico territory, which will help us further explore local market.
In Brazil, we have signed agreements with local integrators and distributors to deliver up to 6 megawatts of Yingli solar PV modules on the Q1 2018. Regarding to South Asia, we have signed the first 1 megawatt supply agreement in Pakistan, with delivery to be completed within Q2 2017.
In India, by leveraging our local team based separately in Delhi and Bangalore, we aim to continuously expand our customer base in India market by adding new and upcoming players and also ensure active business from, at least, 50% to 60% of total base.
In September 2017, we will participate in the exhibition of Renewable Energy India, which is the largest renewable energy exhibition in India, taking this activity to build more strong relationship with all customers and seek for new opportunities.
Now, I’ll hand over the call to our CFO, Mr. Wang Yiyu. Thank you.
Thank you, Fernando, and thanks for, everyone, joining our Q1 2017 earnings call. In Q1 2017, the solar industry continued to experience a series of headwinds, such as the decline of PV modules selling price, more intensive competition, as well as other factors, which led to the significant decrease of the profitability for the whole industry.
Facing such kind of circumstances, we focused on maintaining a healthy operating cash flow through various ways and managed to keep the balance between cash position and shipped volume, such as prioritizing orders with favorable payment terms. Finally, we delivered 370.9 megawatts of PV module in Q1 2017, which was slightly below our previous guidance.
Our total revenue and gross profit were US$179.9 million and US$8.9 million, respectively, in Q1 2017, decreased from US$294 million and US$20.5 million in Q4 2016, mainly due to the decrease of PV module shipments from 635.1 megawatt in Q4 2016 to 370.9 megawatts in Q1 2017.
Gross margins were 5% in Q1 2017, decreased from 7% in Q4 2017 – 2016, primarily due to the lower gross margin on sales of PV sales, while the gross margin on sales of PV module were 8.8% in Q1 2017, which was the same as Q4 2016.
Total operating expenses were US$24 million in Q1 2017, significantly decreased from US$280.1 million in Q4 2016. Operating expenses as a percentage of net revenue was 13.3% in Q1, 13.3% in Q1 2017, compared to 95.3% in Q4 2016. The significant decrease of operating expenses quarter-over-quarter was mainly because the company recorded a favorable one-off impairment loss and the provision in Q4 2016, while no such kind of impairment loss and provisions were recorded in Q1 2017.
In addition, the company made US$7.6 million provision for reserve of inventory purchase commitment in Q4 2016, while its record a reversal of US$1.1 million of such provision in Q1 2017. Excluding the impact of the above mentioned impairment loss and the provisions, the decrease of operating expenses from US$45.4 million in Q4 2016 to US$25.1 million in Q1 2017 was mainly the decrease of PV module shipment and also due to more strict and effective control on the general and administrative expenses and the decrease of research and the development activities in Q1 2017.
However, selling expenses and research and development expenses may increase in future periods if the company’s PV module shipment and research and development activities increase. Operating loss and operating margin were US$15 million and a negative 8.4% in Q1 2017 compared to US$259.6 million and a negative 88.3% in Q4 2016.
Foreign currency exchange gain were US$4.3 million in Q1 2017, compared to foreign currency exchange loss of US$15 million in Q4 2016, mainly due to depreciation of Japanese yen against RMB and appreciation of RMB against U.S. dollar in Q1 2017.
Net loss and the loss per ADS were US$26.8 million and the US$1.5 million in Q1, compared to US$275.6 million and the US$15.2 million in Q4 2016. On an adjusted non-GAAP basis, adjusted loss and adjusted loss per ADS were US$27.9 million and US$1.5 million in Q1 2017, compared to US$84 million and US$4.6 million in Q4 2016.
Looking at the balance sheet. As of Q1 2017, we had US$115 million cash and cash equivalent and then restricted cash, compared to US$125.1 million as of Q4 2016. In Q1 2017, the days sales outstanding were 108 – 98 days, decreased – increased from 116 days in Q4 2016. This is mainly due to the significant decrease of total revenue in Q1 2017, while the average accounts receivable for the quarter, mainly related to the significantly high sales from previous quarters.
Our accounts payable of Q1 2017 had a increase to US$375 million from US$356 million as of Q4 2016. The inventory has increased to US$225.6 million as of Q1 2017 from US$189.4 million as of Q4 2016, which was mainly due to the decrease of PV module shipment.
Lastly, let’s move to the guidance for Q4 2017. Based on the current market conditions, the company’s operating conditions, estimated production capacity and the forecasted customer demand, the company expect its PV module shipment to be in the estimated range of 950 megawatts to 1.05 gigawatts for Q2 2017.
Now, I would like to open the call to the questions. Operator, please proceed.
The question-and-answer session will begin now. We will take one question each time from one caller and may take one additional follow-up question if time permits. If you have more than one question, please request to join the question queue, again, after your first question has been addressed. [Operator Instructions] Your first question comes from the line of Justin Clare from ROTH Capital Partners. Please ask your question.
Everyone thanks for taking my questions. So first, in the last quarter you indicated that margins could reach the high-single digits for 2017. So I’m wondering if you could share your expectations for margins in Q2 and then update us on your view for the full-year?
In -- first in Q1, the margin on PV modules is in the range of high-single digits, which I mentioned is roughly 8% close to 9%. But in Q2, even though the volumes are significantly increasing quarter-by-quarter basis, but the PV module average price of our company will be decreased faster than the module production cost.
So it should be in the range in the mid-single-digit range based on the gross margin. However, in the second-half of this year, we expected we can continue to decrease the production cost and the demand in Q3 somehow better than the original expectation, especially when people are talking about – it could be very stressed after the rush of the middle end of June grid connection peak. But on the other side, given the company’s view in the stress of the total cash flow position, so the decrease of the production cost is going to take quarter-by-quarter effort.
Okay, great, thanks. And then you mentioned the ASPs are declining a bit in Q2. Can you share what your expectation is for ASPs in Q2? And then if you could help us understand how you see ASPs trending into Q3 and Q4 that would be helpful?
First is the – the first is our – given our company sales is mainly to the – currently is mainly to the China market, which in Q1 took more than 60% and in Q2 will be even more than 80% of the total volume goes to China. Therefore, in Q1, our ASP is roughly in the ranges – is roughly in the range about US$0.40 level. And in Q2, it should be decreased by roughly 5% to 6%. In the – in Q3, we expect that ASP will continue to decrease, but the percentage will be much lower than the decrease in Q2.
Okay, good, great. And then one more from me. You talked about that you’re almost able to fully utilize capacity in Q2. I’m just wondering if you see sufficient demand in the back-half to also fully utilize your capacity, and then could you also talk about, are there any outstanding financial constraints that would prevent you from utilizing the capacity?
I think the fact is– I’ll say the reason for us to -- how to say to reach our full capacity in Q2 is mainly because of 2. The first is, the market has a very strong demand, especially from China market, so which gives us a lot of room to select those better payment terms sales contract, and also our company put a lot of efforts to control the total operating cash flow.
Therefore, I will say, currently, at this moment, if the market can be – it can be – will not be, say, getting worse significantly in Q3. The current – our company’s current cash position should be able to support the company to render factoring in a higher utilizing ratio level.
However, if the market is getting more and more stressed, the most sensitive factor to the company is the – if the market conditions, if the market payment terms, mostly the sales payment terms condition getting longer, which may make our company to lower the production cost, there could be a lot of orders, we will not take to ensure we still can have a reasonable cash position.
Okay, great. Thank you.
Thank you. Your next question comes from the line of Maheep Mandloi from Credit Suisse. Please ask your question.
Hi, thanks for taking my question. Could you just talk about Q3 demand? And in the previous question, you said Q3 demand is better than previously expected. So where do you see the demand coming from, and how do you think that would look like in Q4?
First is – first for the Q4, it’s a little bit early for me to give the guidance. I think, Q3 originally, I will say, people expected that there will be a very significant drop of volume in July and August. So, however, I think currently what we see the market from China is, there’ll be some continued demand in July and August. So I would say – but, of course, in Q3 the volume at this moment will not be as high as in Q2, but it definitely will be higher than Q1 level, so it could be in the range of level two, could be in the range – the Q3 volume level could be somehow in the range around the average of the first half.
Got that. And on the debt repayment strategy, how are the special committees are working? When can we expect a decision from the special committee?
I think, at this moment, I – the company cannot predict a precise time schedule, because there’s still a lot of internal and external work and communication, et cetera, ongoing basis. So, however, we will, firstly, we are working very hard to try to find an effective solution for the company as soon as we can. So once such kind of significant milestone achieved we will announce it immediately.
Makes sense. And last question for me. In terms of OpEx, you did talk about breaking it down in the past, but in light of the declining volumes in Q3, how do you think OpEx would be as a percentage of sales in Q3 or Q4?
The OpEx as a percentage of Q3 and Q4, I think, it should be – maybe you can use the average number of the first-half as the general guidance for the second-half.
Thank you. Got that. Thank you.
Thank you. [Operator Instructions] And that concludes our call for today. Now, I’d like to transfer the call back to Mr. Yuan for closing remarks.
Thank you, everyone. If you have any questions, please do not hesitate to contact us via e-mail or phone. Thank you. Bye-bye.
Thank you. The conference has ended. You may all disconnect. As for the speakers, please stay on the line, while I transfer you back in the sub-conference room.