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- Yingli is running to join a growing list of Chinese companies.
- Reasons beyond financing a 4-MW solar system.
- Developing high-efficiency monocrystalline solar application for international market markets.
- Solar panel maker is handling its bad debt situation.
Yingli Green Energy Holding Co Ltd (YGE, Financial) is trying to join a growing list of Chinese companies, including Canadian Solar Inc. (CSIQ, Financial) and JinkoSolar Co. (JKS, Financial) that are fast moving towards yieldcos, and to do this Yingli is looking into innovative ways to finance its projects.
Earlier in June YGE said it is offering $3.2 million in project bonds online, for a 4 megawatt (MW) solar system aiming to attract public investments via a new financing vehicle in which this project and its innovative financing method, will empower individuals to invest in clean power projects while also providing a safe, flexible, and stable investment income. The project bonds will be available to the Chinese public at Shicaidai, a China-based internet finance firm offering P2B (person-to-business) online financial products.
Following the recent disclosure of Yingli’s huge $1.6 billion debt, it makes sense for the company to look into ways of relieving the burden and this project bonds, an alternative form of debt funding, is going to grow in popularity following the 2008 global financial crisis in which resulted in tighter controls on bank lending. It seems that YGE is playing a "major role" in bridging financial gaps while funding its infrastructure projects.
Yingli is the weakest of China’s major solar panel makers and this kind of move shows just how shaky its finances are; the company shocked investors in May when it said it was in danger of going out of business, and then later said its statement was misinterpreted. From the other side Yingli again shocked investors by stating that its debt poses enormous problems, because Yingli ended the last year with $1.57 billion in short-term borrowings, $276.1 million in medium-term notes, and $460.7 million in long-term debt,although the company's Q1 results raised fear among investors.
Let’s take a look at some results:
- Operating margin was down 2.3% in the first quarter of 2015, steadily improved from negative 5.8% in the fourth quarter of 2014 and negative 4.8% in the first quarter of 2014.
- As a result of a lower utilization rate of production capacity in the first quarter of 2015, gross margin was up 14.1% in the first quarter of 2015, compared to 16.8% in the fourth quarter of 2014 and 15.7% in the first quarter of 2014.
- Debt appears to be a big issue for Yingli, as it does not appear to be slowing down for the company.
- The gross profit had decrease since last quarter in 2014, and it was as a result of decrease in total net revenues and increasing manufacturing cost.
- While Yingli reported bad results for the Q1, the company will have to rapidly improve margins in order to turn things around . During the last 12 months revenue dropped by 1.50% and book value by 79.50%.
But regardless all those negative results we can’t consider it as if it is going bankrupt because of the following reasons:
- The company had a historically high record of first quarter growth as the shipment of PV modules in the first quarter of 2015 increased by over 19.6% year over year
- Yingli has partnership with fellow Chinese solar manufacturer LONGi to "cooperatively manufacture monocrystalline silicon wafers, and ingots, solar cells and solar panels. In which it will enabling Yingli to integrate LONGi's highly competitive technology into its production lines. Yingli/LONGi partnership also plans to "develop high-efficiency monocrystalline solar application markets from home and abroad and consider to use monocrystalline modules for their self-developed power plants, further to explore the possibilities to jointly develop monocrystalline silicon ingot plants."
- The solar panel manufacturer is doing a great job focusing on the higher margin downstream business, which should help alleviate its debt problems in the future.
More than this, Yingli 's share price is trading at $1 and it appears undervalued according to Peter Lynch earnings line which gives it a value of $19.1. Despite this big margin of safety, returns of the company are negative and Guru Focus gives a profitability & growth ratio of 6/10.
Conclusions
In the end solar panel maker’s decision to focus more heavily on the higher-margin downstream solar business is a good decision for its mounting debt situation and if Yingli could find a way to become profitable, its valuation could easily skyrocket, otherwise the high debt will make Yingli one of the riskiest plays in the solar business and it may go bankrupt or at least affect the company’s share price and overall value.
About Yingli Green Energy
Yingli Green Energy Holding Company Limited, known as "Yingli Solar" or "Yingli," is one of the world's leading solar panel manufacturers. Yingli Green Energy's manufacturing covers the photovoltaic value chain from ingot casting and wafering through solar cell production and solar panel assembly. Headquartered in Baoding, China, Yingli Green Energy has more than 30 regional subsidiaries and branch offices and has distributed more than 13 GW solar panels to customers worldwide.
