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China's Latest Solar Financials Reveal Ups and Downs in 4Q11-1Q12

The latest quarterly financial updates now coming in provide a clearer view of the solar PV supplier landscape, who's doing better and why (or why not). Here's what the top Chinese PV module suppliers are saying, and what the analysts are taking away.

JA Solar

Final numbers won't be ready until mid-March, but JA Solar says shipments in 4Q11 were around 390-410MW, far higher than its previous guidance of 310-330 megawatts (MW). That will put shipments for all of 2011 at 1.68-1.70 gigawatts (GW), vs. expectations of 1.6GW.

Analysts' take: What analysts seem to be picking up from JASO's update is the lack of any clarity on sales and particularly margins. Jesse Pichel from Jefferies calls it "another profitless prosperity" and lowers his gross margin expectations on the basis of pricing pressures and anticipating some inventory writedowns as its peers have been doing. The 80MW upside in 4Q11 shipments, he says, is mainly from projects in the US and China, with some upside from Germany.

Aaron Chew of Maxim doesn't cover JASO, but agrees that the story is more about margins and profits rather than hiking shipments. "It shouldn't be lost that Suntech, Yingli, Canadian Solar, and generally anyone with guidance talks to margins, not just shipments," he says. Both Pichel and Chew calculate next-to-nothing profitability or even a loss for the company.

Suntech Power

4Q11 shipments were better than thought: just a -10 percent decrease sequentially instead of -20 percent, pushing full-year shipments above expectations to 2.09GW (vs. 2GW). Revenues are expected to be $610M-$630M ($3.13B-$3.15B for the full year), with

gross margins of 9-11 percent. The company also brightened its balance sheet, reducing accounts receivable and inventory by $450M (offset by a $85M in accounts payable), reducing net debt by $200M, and boosting cash and restricted cash by $567M.

Analysts' take: "Overall, this report highlights the limited impact of better utilization on margins for these companies and highlights that it is all about input costs," writes Citi's Tim Arcuri, pointing out that sinking polysilicon prices will "have much less favorable impact on margins moving forward." He also gets the M&A drumbeat going: " Fundamentally, we still see very little if any sustainable earnings power here and more financing is clearly necessary but we do believe STP's global sales force is a huge asset and very attractive for a potential acquirer."

Jesse Pichel from Jefferies applauds STP's reduction of working capital, and slashing inventory and AR to 30 percent of 3Q11 levels. But both Pichel and Maxim's Aaron Chew note that STP's price premium vs. Chinese peers Trina and Yingli is more than offset by production costs, and with expected 9-11 percent margins implying roughly a -$0.18 EPS loss, Chew writes, "we do not believe inventory draw-downs and A/R collections represent a sustainable source of cash flow."

Yingli Green Energy

Yingli Green Energy said it now expects a slightly bigger sequential decline in 4Q11 PV module shipments than previously thought (-30 percent, instead of "middle twenties" percent), though guidance for full-year 2011 shipments is unchanged at 1580-1630 megawatts. A bigger update is in Yingli's gross margins: now seen at 3 percent in 4Q11, vs. 10 percent expectations, suffering from a noncash inventory provision (without which margins would have been 12 percent). The biggest news: Yingli is bracing for some big charges and writedowns: $361 million impairment of assets and $43 million in goodwill for its Fine Silicon in-house polysilicon unit, and a $135 million provision for inventory purchases under long-term polysilicon supply contracts, which it is trying to renegotiate.

Analysts' take: While peers (Suntech, Canadian Solar, Trina) are raising their shipment guidance, Yingli is actually lowering its 4Q numbers, but that's probably because its 3Q11 was stronger, explains Maxim's Aaron Chew -- and maybe also because it was less aggressive than other Chinese suppliers in recognizing revenue ahead of possible US tariffs, agreed Jesse Pichel from Jefferies. (Citi's Tim Arcuri pointed out that Yingli "continues to be very aggressive w/shipments and volume in China as it solidifies its brand in the region.") The upside for Yingli is that 1Q12 and beyond will probably look rosier: the big inventory writedown hurting 4Q11 margins will make 1Q12 look better. And the nearly $500 million in polysilicon charges will ultimately be a good thing, removing a "poly[silicon] overhang" that will drop the company's cost/W and improve margins even more. Arcuri, though, feels that "more writedowns are necessary."

Trina Solar

4Q11 revenues outpaced expectations by $80M (to $435M), but losses more than doubled from the prior quarter (profits were $145M in 4Q10). Margins were 7 percent in 4Q, but the company expects margins in the "low teens" in 1Q12 after renegotiating silicon supply deals. Full-year 2011 revenues were up 10 percent to $2.05B, with a $37.8M loss vs. a $311M profit in 2010. The company shipped 1.51GW of solar PV modules in 2011, slightly more than expected (vs. a little over 1GW in 2010), and foresees up to 2.1GW shipments in 2012. The company also expects to hike production capacity by more than 25 percent to 2.4GW in the first half of this year.

Analysts' take: Like most of its peers, Trina reported better shipments and revenues for 4Q11 but also softer margins (mainly due to ASP declines), and the 1Q12 outlook is brighter than analysts' estimates. The 500MW-expansion in 1H12 for the company's multicrystalline-based 'Honey' technology-based module, which is ahead of schedule, provides "volume upside in 2012," note Jefferies' Jesse Pichel and Citi's Tim Arcuri. Maxim Group analyst Aaron Chew, though, calculates the company at $400M sales in 1Q12 (shipments of 400-430MW, at $0.95/W module ASP), but with costs outpacing cost/W ($0.63/W processing, $37/kg poly-Si, $0.42/W wafers) he expects an EPS loss of ($0.28) to ($0.30).

Canadian Solar

Canadian Solar won't report official 4Q11 results until March 7, but has upped its guidance for 4Q11 shipments to 430-440MW, vs. initial 340-360MW expectations, and compared to 355MW and 287MW in 3Q11 and 2Q11, respectively. Gross margins will be in line with previous guidance at 5 percent-8 percent. For the entire year, shipments are projected at roughly 1.3GW, at the high end of previous 1.2-1.3GW guidance.

Analysts' take: Shipment strength really stood out, coming from all customer segments and markets, both to installers and its own expanding project business. Like peers, CSIQ margins were dented by lousy pricing; "even tier one companies will lose money near term," notes Jefferies' Jesse Pichel. He also noted concerns that polysilicon prices are still soft and hovering at $22/kg, and that some projects dependent upon the Section 1603 cash grant are at risk of not getting done.

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