ReneSola revenue and margin falls in Q2 on slow domestic demand

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Few second quarter (Q2) financial results more accurately reflect the changes afoot in the Chinese and – by extension – global solar market than those published this week by ReneSola.

The Tier-1 PV firm has recorded relatively solid revenue, income and shipments, but in a wider context the various ups and downs threaded through its financial report starkly reveal where the markets are headed.

Wafer shipments were up over the quarter, but module shipments were down – two divergent metrics that point to a rush among developers to complete solar projects before June 30, the date at which China reduced the price paid for PV by grid operators below 1.0 yuan ($0.15) per kWh.

Allied to this was a contraction on wafer average selling prices (ASPs), which was strong enough to drag revenue down despite overall wafer shipments reaching 423.3 MW for the quarter – a 20.6% increase sequentially and a 50% rise on Q2 2015.

Module shipments of 282.4 MW represented a fall of 19.5% on Q1 and a 12.3% drop year-over-year. This meant that revenue was down 4.1% on Q1, and 6.8% year-over-year, falling to $250 million. Due to falling demand for module shipments to external customers, ReneSola is increasing its downstream objectives, growing its project pipeline in Q2 to 938.2 MW. Projects under development by ReneSola span the globe, covering China, Japan, Turkey, North America, Thailand and parts of Europe.

Approximately 323.8 MW of its pipeline is in the late stage of development, while six utility-scale U.K. solar farms totaling 20 MW were connected in the quarter; ReneSola expects to sell these in Q3.

The success of ReneSola’s downstream activities helped to shore up the firm’s gross margin, which came in at 16.5% – the same as Q2 2015 and only slightly below the 17.1% registered in Q1 2016. Net income was $5.5 million, again slightly below Q1 ($5.7 million) but more than double Q2’s $2.3 million.

Operating expenses of $34.8 million represented 13.9% of revenue, which was an increase on both Q1 2016 (12.4%) and Q2 2015 (12.6%). ReneSola said higher sales commissions could account for this increase. Operating margin, meanwhile, fell to 2.5% for Q2, down from 4.7% and 3.9% in Q1 2016 and Q2 2015 respectively.

ReneSola CEO Xianshou Li said that although total revenue was below guidance (due to recognition timing of the four U.K. projects sold during the quarter), the potential sale of an additional six completed U.K. solar farms should boost revenue in Q3. "Our strong monetization outlook and continued growth in the high margin LED initiative gave us confidence in our ability to transition from manufacturing business toward project development and distribution," Li said.

The CEO also stressed a de-emphasis on OEM manufacturing as ReneSola continues its pivot towards project development with quick turnover of assets.

Guidance for Q3 forecasts revenue to fall further, to around $200 million, with gross margin to be squeezed to 10%. ReneSola said that this continued contraction is a reflection of the impact of high polysilicon prices and the further decline of wafer ASPs.

Full year, ReneSola projects revenue to come in around $900 to $1.1 billion, which is below previous guidance of $1 to $1.2 billion – again as a reflection of reduced module shipments and falling wafer ASPs.