Yingli: Sunnier Days Ahead?

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Doug Young

Yingli logoStruggling solar panel maker Yingli (NYSE: YGE) is trying the good news-bad news approach to distract investors from its latest downbeat earnings, announcing its biggest-ever new order on the same day it released its dismal third-quarter results. Based on shareholder reaction, the approach has been quite successful, with Yingli’s stock surging more than 13 percent in Wednesday trade after both announcements came out. Investors seem to clearly be focused on the big new order, and are hoping that Yingli may actually be able to manufacture profitably by the time it delivers the solar cells to this major new customer.

Let’s start with the good news, since that’s clearly the focus of investors who are desperately looking for any signs of optimism in this beaten-down sector suffering through its worst-ever downturn due to a huge global supply glut. The new order will see Yingli supply solar cells with 200 megawatts of direct current capacity to a project being built near San Diego, California. (company announcement)

The massive project was designed to be one of the world’s biggest solar power plants to date. The fact that it’s in the US is also significant, because that means the plant was designed to be profitable and easily connected to the national power grid factors that are sometimes absent in big Chinese projects where politics is often a bigger factor in construction of such plants.

Equally interesting is the fact that the builder of this plant chose Yingli despite a recent US decision levying big anti-dumping tariffs against many Chinese solar panels. Yingli didn’t comment on whether the panels it will supply under this agreement are subject to the new tariffs; but I suspect they probably aren’t since the addition of such taxes would make such a sale highly unprofitable, rather than just slightly unprofitable under current market conditions.

On the subject of unprofitable, let’s move on and take a look at Yingli’s latest earnings report that is quite a bit uglier than the new order announcement. There are so many bad numbers in the report that it’s hard to know where to start. The company’s revenue tumbled by nearly half to about $350 million, and its loss grew more than 5-fold to more than $150 million. (results announcement)

Its margins also tumbled deeply into the negative range, meaning it will be selling the panels from this massive new order at a loss unless its situation improves by the time it delivers the goods. Based on Yingli’s stock reaction, investors must believe the company can start to manufacture panels at a profit within the next 6 months or so, which is when the company will probably start to deliver the bulk of its panels under this big new order.

That kind of optimism looks a bit bullish to me, but perhaps could be possible if Beijing rolls out a rumored rescue package for the sector before the end of the next year’s first quarter. That package would reportedly see Beijing, using state-owned banks, recapitalize the industry and force a major consolidation around 10-12 of the biggest, healthiest players. This big new order seems to indicate that Yingli could well emerge as one of those consolidators, and could ultimately become a leading global player if and when the solar panel-making sector ever returns to health.

Bottom line: Yingli’s award of a major new order from the US indicates it is likely to be chosen as a consolidator when Beijing bails out its solar sector, and could ultimately emerge as a leading player.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .


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