Yingli Green warns of a collapse in margins in Q2

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Updated: Tier-one PV manufacturer Yingli Green Energy has taken the unusual step of issuing only piecemeal preliminary financial results for the second quarter of 2015 and delaying full quarterly results until September 8. 

In a statement the company said that overall gross margin in the second quarter would be in the range of 6% to 7%, half the level (14.1%) of the first quarter of 2015 and significantly below reported margins of 16.8% in the fourth quarter of 2014.

Yingli Green had noted in its first quarter financial results that the decline in margins was primarily due to lower production utilisation rates and reiterated in its preliminary statement for second quarter results that lower production utilisation rates had been primarily behind the further significant fall in margins expected in the quarter.

However, the company also warned that PV module margins had declined significantly in the second quarter, guiding the gross margin for the sale of PV module would be in the range of 7% to 8%. This contrasts with PV module margins of 14.8% in the first quarter of 2015, basically half the margin level achieved in the prior quarter.

Yingli Green said that the PV module margin decline was due to average selling price (ASP) of PV modules declining and an increase in the manufacturing cost due lower-than-expected utilisation rate of production capacity.

The company also blamed the PV module margin decline on more shipments within the China market and the depreciation of euro and Japanese yen against the renminbi.

However, PV module shipments for the second quarter of 2015 were guided at between 720MW to 730MW, in line with previous guidance of 720MW to 750MW, a small decrease from shipments in the first quarter of 754.2MW. 

Based on the data provided by Yingli Green, the collapse in PV module margins and an unspecified increase in shipments within China strongly suggests that the company is heavily discounting prices to secure sales and therefore much needed revenue, potentially indicating that overseas orders are becoming increasingly problematic due to its financial condition and announced ‘going concern’ issues in its 2014 annul report. 

The increase in sales within its domestic market and the collapse in PV module margins could also indicate that the company undertook OEM services for other tier-one producers in China that have been running at full capacity and had recently reported shipments higher than current manufacturing capacity, such as Trina Solar, JinkoSolar and Canadian Solar. 

No further financial details regarding the second quarter were announced. 

In a research note to investors, RBC Capital Markets financial analyst, Mahesh Sanganeria said that Yingli Green’s preliminary results indicate that the company could be expected to further reduce shipment guidance for the year.

Yingli Green had already reduced full-year shipment guidance from being in the range between 3.6GW to 3.9GW to approximately 3.6GW in the first quarter.

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