Yingli’s Downward Spiral

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Doug Young

Bottom line: Yingli’s downward spiral will continue as customers abandon the company due to its financial weakness.

Shares of the stumbling Yingli (NYSE: YGE) are coming under pressure after its latest earnings report. The intense pressure solar panel makers continue to feel as their sector still struggles to recover from a downturn that dates back 4 years due to massive oversupply.  Panel prices have rebounded somewhat over the last 2 years and many of the best-run companies have returned to profitability during that time. But intense pressure still remains for less well-run companies like Yingli.

The bottom line is that solar plant construction is a costly business and not many private sector companies want to get involved due to the volatile climate. The situation is particularly difficult in China, even though Beijing has committed to a massive build-up of solar energy. But like many things in China, a wide range of complicating factors exist for anyone who wants to actually try and build solar power plants in the country.

Yingli is being spotlighted in a report that says its shares have tumbled 34 percent in the last 3 weeks over concerns about its future prospects. (English article) The company caused a panic earlier this year when it said it could be in danger of going out of business, but later back-tracked and said investors had misinterpreted its words. Its latest quarterly report looks quite gloomy, with the company saying shipments this year will come in at least 22 percent below its previous forecasts.

Yingli’s shares have traded below $1 since mid-July, and last month it said it was notified that it had until next February to bring its price back above $1 or risk being de-listed. (previous post) The shares now trade at 59 cents, and its quite possible they could fall even lower as Yingli slips closer to insolvency. I don’t see much cheer in YIngli’s future, since its customers are likely to abandon the company in growing numbers as concerns rise about its financial health, which will only further accelerate its downward spiral.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He 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 author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

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