Doug Young
Bottom line: Canadian Solar’s raised revenue guidance hints at rising prices and could signal upside for the company’s profits, while YIngli’s latest signals may show it’s trying to sell itself to a healthier rival.
The strongest and weakest players from China’s lively solar panel sector are in the headlines today, with superstar Canadian Solar (Nasdaq: CSIQ) and the struggling YIngli (NYSE: YGE) both releasing their latest quarterly results. But whereas Canadian Solar has just announced its financials for this year’s first quarter, including a raised revenue outlook for 2016, Yingli is just now releasing its results for the fourth quarter of 2015.
Most companies typically release their quarterly results within 60 days of the quarter’s end, or 90 days at the very latest. But YIngli’s ongoing struggles have led managers to say several times the company could become insolvent, as it sits on a massive pile of maturing debt that it can’t repay. The latest of that debt comes due today, and Yingli is saying it’s unlikely to make the repayment on time.
We’ll return to YIngli later, but let’s begin with the more positive story of Canadian Solar, which is one of the best-run of China’s major solar panel makers and has managed to stay profitable despite difficult conditions in the global solar market. Canadian Solar wasn’t exempt from the ongoing stiff competition, and reported its revenue fell 16 percent in the first quarter to $721 million. (company announcement)
Eroding margins also caused the company’s net income to fall by more than half to $23 million, from $62 million last year. But in an encouraging sign, Canadian Solar raised its revenue guidance for 2016 to between $3 billion and $3.2 billion, versus previous guidance of $2.9 billion to $3.1 billion. At the same time, it kept its actual module shipments forecast unchanged, meaning it expects prices to be stronger than it initially anticipated.
Investors were quite excited by the outlook, with Canadian Solar shares rising 12.4 percent after the report’s release. Canadian Solar has found a strong formula for boosting sales by building solar power plants and then selling them to long-term owners after completion. It filed late last year to make a New York IPO for its plant-building unit, Recurrent Energy (previous post), though the plan appears to be on hold for unspecified reasons.
Looming Default
While the outlook is positive for Canadian Solar, the opposite has been true for Yingli. The company first warned last year that it faced the risk of insolvency, after rising to prominence on a business model that relied on selling low-tech panels at cheap prices. In its latest report Yingli posted a massive 5.6 billion yuan loss ($865 million) in last year’s fourth quarter, or about 4 times its loss a year earlier. (company announcement)
In one slightly encouraging sign, Yingli forecast its shipments this year will total 2.6 gigawatts to 3 gigawatts, representing an actual expansion from nearly 2.5 gigawatts for all of 2015. But the positive news ended there, and investors focused on the part of its report where Yingli discussed its looming default for 1.4 billion yuan worth of bonds that come due on May 12. The company also failed to repay 30 percent of a another 1 billion yuan bond that came due last October, meaning it now needs to find 1.7 billion yuan to repay its maturing debt.
In its latest report, Yingli repeats its previous assessment that it will be difficult for to repay either of the bonds by May 12, and adds it is in ongoing discussions with the bond holders. (English article) None of this is particularly unexpected, which is perhaps why YIngli shares only dropped a modest 1.2 percent after the report came out, giving it a tiny market value of about $60 million.
In a potentially interesting new development, Yingli says in that it is exploring various options that could include the introduction of new investors or lenders to help it repay the debt. That suggests that perhaps Yingli is trying to engineer a sale of itself to a healthier company, which would then take responsibility for negotiating for debt relief with its creditors.
Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. 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.
