China Sunergy reports profit for Q4’10, 2011 guidance is above consensus

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China Sunergy saw its revenues increase sequentially and year over year, while its quarterly shipments came up a bit short of guidance. The company’s results reflect the shift in focus to in-house module manufacturing that occurred in November 2010, following the acquisitions of CEEG (Shanghai) Solar Science & Technology and CEEG (Nanjing) New Energy.

Revenues for fourth quarter were US$169.6 million, representing cell sales of US$51.1 million and module sales of US$116.8 million, an increase of 34.8% sequentially and 73.8% year on year. Shipments for the fourth quarter reached 97.9MW, including 60.6MW of solar modules, and 33.9MW of solar cells, compared to previous guidance of approximately 102MW.

Gross profit for Q4’10 increased by 8.4% to US$27.1 million, which is a 160.6% amplification year-on-year. Gross margin was 16.0%, compared to the previous guidance of 15%, while the integrated gross margin related to China Sunergy’s in-house cell production to solar module was 18.7%.

Net income was US$15.4 million, compared to the net loss of US$3.6 million and net income of US$15.4 million in the fourth quarter of 2009 and the third quarter of 2010, respectively. Operating cash inflow in Q4’10 was US$5.1million. As of December 31, the company had cash and cash equivalents of US$106.5 million.  

For the year as a whole, solar products shipment reached 347.8MW, 277.2MW of which was solar cells, and 67.2MW was solar modules. Total net revenue was US$517.2 million, an 81.5 % increase from 2009, while gross profit for 2010 was US$92.3 million, 456.0% increase from 2009.

Gross margin was 17.8% for the whole year. Net income for the full year was US$51.7 million, compared to the net loss of US$10.3 million in 2009 and net profit per ADS was US$1.29 on basic basis and US$1.26 on diluted basis, compared to a net loss of US$0.26 per ADS on both basic and diluted basis in 2009.

In terms of technical and operational highlights for the company, compared to 2009, average multicrystalline and monocrystalline cell efficiencies in 2010 improved from 15.9% to 16.5% and from 17.5% to 17.9%, respectively. The full-year cell production was 335.6MW, representing a full capacity operation. The nonsilicon cost of cell was reduced from US$0.25 in the fourth quarter of 2009 to US$0.20 per watt in the fourth quarter of 2010.

Stephen Zhifang Cai, CEO of China Sunergy, said, “We are pleased with our solid results in the fourth quarter and 2010 on the whole as we experienced operational and financial progress, and achieved record shipment, revenue, gross profit and net income. Our strategic shift to in-house module manufacturing, following the acquisitions of CEEG (Shanghai) Solar Science & Technology and CEEG (Nanjing) New Energy, has already had a positive impact, as demonstrated by the continued momentum we saw through the fourth quarter that helped us end the year with solid results.”

“We believe the PV market is poised for growth, despite incentive program adjustments in Europe. Demand there remains strong while emerging markets will continue to grow.   2011 will be another year of growth and progress for China Sunergy as we continue to focus on cell efficiency improvement, cost control, sales network expansion and further vertical integration,” continued Cai.

Looking forward China Sunergy has reported that it believes Q1’11 shipments will be between 98MW to 110MW. For the full year of 2011, the company expects to ship 670MW to 690MW of solar products. China Sunergy expects its gross margin for the first quarter of 2011 to be between 9%-10.5%, with an integrated margin between 14%-15%. Such guidance is based on the average exchange rate between the Euro and U.S. dollar from January 1 to March 21, 2011.

Commenting on the results, analysts Barclays Capital said, “Although 2011 shipments guidance is above consensus, we expect investors to question the quality of guidance – visibility even for Q2 seems to be very limited.”

“The company expects Q2 module ASPs to decline from ~US$1.70/W levels in Q1, but the magnitude of ASP decline is still uncertain. Moreover, although volumes are expected to improve sequentially throughout 2011, bulk of the volume growth appears to be back-end loaded.”

“Finally, the company seems to be highly dependent on spot market for poly/wafers and does not have good visibility on Q2 cost outlook,” the Barclays note continued. “We expect Q2 gross margin for the integrated cell/module business to decline from ~US14-15% in Q1 to high single-digit percentage levels and see some risk to 2011 shipments guidance. As such, we are lowering our 2011 estimates from US$0.95 to US$0.50, margin from 12.6% to 8.5%.”

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