Yingli Green Energy Fueled by Strong Quarter

Trader Mark submits:
The stock of Yingli Green Energy (YGE)
is all over the place, opening up in the $27s, then
falling to the $25s and now in the $26s. This is what happens when
hordes of speculators jump into a stock only for an earnings trade. I
am looking over the earnings released yesterday morning
and it looks quite solid to me on first glance, with the all important
gross margins coming in at the 24% range. Sequential revenue growth was
only 9%, but that is more of a capacity constraint issuerather than
anything to do with demand.
Either way, they crushed the analysts
expectations for earnings (part of it was currency exchange of course),
but since they only guided "in line" for the future in terms of revenue,
perhaps that is leading to the seesaw action yesterday. Who ever really
knows; it makes little sense to me. The key (to me) is maintaining
gross margins and profitability - on both those counts Yingli scored
very well. Also nice to see some new markets open up, France and South
Korea (the United States is still nowhere to be found as we are too
busy promoting corn ethanol) I have cut back this position for now
as its now full of speculators and daytraders, and I was able to lock
in some very good profits, and moved on to other fare in the sector
with better value. But I'll rebuild this position on the next selloff.

• Total net revenues were RMB 1,595.0 million (US$227.5 million), an
  increase of 9.8% from RMB 1,453.2 million in the fourth quarter of 2007
  and an increase of 272.2% from RMB 428.6 million in the first quarter
  of 2007.
• Gross profit was RMB 392.3 million (US$55.9 million),
  an increase of 9.1% from RMB 359.6 million in the fourth quarter of
  2007 and an increase of 337.8% from RMB 89.6 million in the first
  quarter of 2007.
• Gross margin was 24.6% in the first quarter of 2008, in line with 24.7% in the fourth quarter of 2007 and an increase from 20.9% in the first quarter of 2007.
• Net income was RMB 223.5 million (US$31.9 million), an increase of
  61.5% from RMB 138.4 million in the fourth quarter of 2007 and an
  increase of 2,580.5% from RMB 8.3 million in the first quarter of 2007.
  Fully diluted earnings per ordinary share and per American depositary
  share [“ADS”] were RMB 1.73 (US$0.25), compared to RMB 1.07 in the fourth quarter of 2007.
• “Our
  results largely demonstrated the successful execution of our vertically
  integrated strategy at the operating level and growing demand for our
  products in our end markets, including Spain, Germany, the United
  States and Italy, as well as new and emerging solar markets such as Korea and France.
• Our commercialization of 180 micron wafers at the beginning of February 2008 illustrates our strong capabilities in R&D.” (this is key, down from 200)
• “I am also very pleased that our expansion plan remains on track and that we currently expect to be able to achieve production capacity of 600 MW before mid-2009, ahead of schedule.

Key comments on gross margins

• As
  a result of a higher average selling price compared to the fourth
  quarter of 2007, the lower polysilicon usage per watt resulted from
  successful research and development efforts and the lower processing
  cost attributable to continuous improvement in operational efficiency
  of the Company’s vertically integrated
  business model, the Company was able to maintain its gross margin
  despite an increase in the average cost of polysilicon in the first
  quarter of 2008.

Guidance

• PV module shipments in the estimated range of approximately 255 MW to
  265 MW, which represents a 78.9% to 86.0% increase compared to 2007.
• Net revenues in the estimated range of approximately US$969 million and
  US$1,020 million, which represents a 74.1% to 83.3% increase compared
  to 2007.

And as I typed this entry, the stock is already back
to the mid $27s range... daytraders are having a fun time. Bottom line
for us - this is solid execution and a company following through as
promised. The day to day stock machinations we cannot control.
Disclosure: Long Yingli Green Energy in fund; no personal positionComplete Story »