China Sunergy positive despite sequential declines

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Although the Chinese module manufacturer saw a 2.3 percent decline in its revenues from the fourth quarter of 2010, it managed to grow them by 58.9 percent year-on-year to reach US$165.7 million. Of this, module sales represented the lion’s share, at US$160.5 million, or 92.1 megawatts (MW).

China Sunergy, as with the majority of the photovoltaic module manufacturers, cited Italy’s regulatory uncertainty and Germany’s bad weather, as the primary reasons for its sequential decline. However, remaining upbeat, the company said in a statement: "On the positive side, the company’s revenues reflect that it has largely transitioned from selling cells to selling modules."

Falling around four percent, the company’s gross margin went from 16 percent in the fourth quarter of last year to 10.7 percent in the first quarter of 2011. Gross profit, meanwhile, fell by a significant 34.3 percent to hit US$17.8 million. "Falling ASP levels and comparatively high raw material costs contributed to this decrease," said the statement.

Selling, General & Administrative (SG&A) expenses were US$8.5 million in the first quarter of 2011, in comparison to US$7.8 million in the fourth quarter of 2010. However, China Sunergy said that it is not relevant to compare SG&A expenses to the previous quarter, because it owned the two module businesses for only two months in the fourth quarter of 2010.

Operating expenses, on the other hand, were US$9.8 million for the first quarter of the year, thus representing 5.9 percent of net revenues, "a reasonable level given the Company’s transition to a module business," the statement continued.

For the first quarter of 2011, income from operations was US$8 million and net income was US$3.5 million, representing sequential decreases of 56.4 percent and 77.3 percent respectively.

Italy’s regulatory uncertainty really made its mark on both China Sunergy’s first quarter inventories and cash outflow. Inventories, for instance, increased by a significant 71.6 percent from the fourth quarter of 2010 to reach US$124.1 million in the first quarter of 2011. Operating cash outflow, meanwhile, hit US$92 million. "These results," explained the statement, "were directly related to slower than expected sales in Italy."

In terms of second quarter guidance, China Sunergy forecasts that it will ship between 120 and 130 MW of photovoltaic modules. In terms of gross margin, it expects to achieve between 7.5 and 8.5 percent, with an in-house margin of 12 to 13 percent.

Commenting, Stephen Cai, CEO of China Sunergy, said: "We take a long-term view of the industry. Although European demand was soft in the first quarter, there are many untapped and developing markets abroad, not to mention China’s eventual emergence as an end market.

He added that the company will be increasing its in-house cell and module capacities, although it is not clear by how much.

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