Yingli increases Q2 shipments, but low module ASP drags down gross margin

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Yingli Green Energy, formerly the largest module producer in the world before its debt troubles of the past 18 months, has published mixed second quarter (Q2) financial results that have seen the Chinese company turn a profit for the second straight quarter but issue unambitious guidance for Q3.

While a gross profit of RMB 460.1 million ($69.2 million) is relatively modest given the company’s size and history, it is now two quarters in a row that the firm has posted positive profit figures, and only the second time since 2011 that Yingli’s quarterly results have been in the black.

Earlier this year the talk was of a rumored bankruptcy for the debt-saddled firm as its 2015 annual financial report was continuously delayed. With debt burdens of more than $1.6 billion announced last summer, there have been reports that Yingli may not be able to continue operations as a going concern, but a stringent debt restructuring process over the past 15 months appears to have stemmed the losses – setting Yingli, with the assistance of a handful of state-backed banks, on the road to recovery.

This slow turnaround is evident in the firm’s Q2 filings, which show total net revenue of RMB 2,524.1 million ($379.8 million) and shipments of 662 MW. Both figures are an improvement on Q1 of this year, yet fell just shy of Q2 2015 (revenue of RMB 2,716.1 million and shipments of 727.9 MW).

However, despite increased shipments for the quarter, Yingli posted a gross margin of 18.2% – below Q1’s 20%. This contraction is largely due to the lower average selling price (ASP) for the firm’s modules in China, which is far and away Yingli’s largest market.

Yingli’s EBITDA, meanwhile, was reported as RMB 469.5 million ($70.6 million) for Q2, which was a slight sequential contraction (Q1: RMB 482 million) but a solid increase year-over-year (Q2 2015: RMB 198.8 million). Operating income also came in below Q1, reaching RMB 158.3 million ($23.8 million) as compared to RMB 186.4 million earlier in the year. Hence, operating margin contracted slightly from 7.9% in Q1 to 6.3% in Q2.

Debt and repayment update

Yingli’s debt woes have been well documented for some time, and the company is acutely aware that it is far from out of the woods just yet. Medium-term outstanding notes (MTNs) issued in 2010 stood at RMB 2,057 million ($309 million) at the end of the quarter, of which RMB 357 million were due to be repaid in October last year; MTNs issued in 2011 and still outstanding totaled RMB 1.4 billion (all of which became due on May 12 this year), and RMB 300 million worth of MTNs issued in 2012 will become due next May.

Resolutions agreed between the holders of the 2010 and 2011 MTNs and Yingli’s underwriter have already been agreed, and negotiations are ongoing concerning revisions of repayment schedules for the firm’s outstanding debts. Yingli is also seeking additional financing plans that include alternative strategic investors, the possible introduction of new creditors willing to grant new loans, and also the sale of certain long-lived assets that Yingli is in possession of.

Given the constraints of market conditions in China and Yingli’s own operating restrictions, the firm expects vastly reduced Q3 shipments of between 300 MW to 400 MW, with gross margin sinking further to 12.5% to 14%.

However, Yingli CEO and chairman Liansheng Miao tried to remain upbeat, preferring instead to focus on the firm’s net profit and revenue increase over Q1. "Our total PV module shipments, including shipments to our own downstream projects, represent a 30% increase from the first quarter," Miao said.

"We saw robust demand from China in the second quarter of 2016 as PV projects that were operational before June 30 are entitled to a higher FIT, and we increased our module shipments to China by more than 100% from Q1," he added.

The CEO said that Japan will continue to be Yingli’s most important international market, revealing that the country accounted for 20% of its module shipments in Q2. Of the U.S., Miao said: "Following the extension of the ITC policy, the U.S. continued to see a stable demand and continued to be an important international market for us. We continued to supply PV modules for utility-scale projects in western U.S. in Q2."

Alluding to the difficult quarter ahead, Miao confirmed that Yingli expects increasing competition in various markets, a continuation of the downward trend of module ASPs, and higher anti-dumping and countervailing duty tariffs from the U.S.