Yingli Green Energy Holding Co. Ltd.
(YGE) reported better-than-expected second-quarter results, aided by reduced costs for manufacturing silicon-based solar modules. Quarterly earnings per ADS, excluding one-time charges, came in at RMB 0.91 (14 cents), significantly above the Zacks Consensus Estimate of 4 cents.

However, on a year-over-year basis, Yingli Green’s adjusted earnings per share fell 46%, while revenue declined 25% to RMB 1.5 billion ($219.5 million), hurt by lower average selling price.

Healthy Growth in Shipments & Margins

Highlight of the quarter was a 72% sequential rise in shipments, buoyed by better project financing and demand, with Germany being the chief driver. Gross margin of 18.3% was down from 25.8% in the year-ago quarter. However, it increased from 15.3% in the first quarter on lower blended cost of polysilicon.

European Market Expansion

Yingli Green’s European sales rose about 73% from the previous quarter and about 46% from the year-earlier period, reflecting the benefits of distribution to diversified markets.

Operating Statistics

Quarterly operating expenses climbed 44% year over year to RMB 167.0 million, while operating income was down 73% to RMB 106.8 million. This rise in costs is primarily attributable to higher R&D spending and higher selling expenses. Operating income was down on lower sales.

Balance Sheet

As of June 30, Yingli Green had RMB 2.45 billion in cash and RMB 4.36 billion in working capital. Long-term debt was RMB 1,971.9 million, while the company had short-term borrowings of RMB 1,817.5 million.

Demand Recovery Expected

Yingli Green expects the global economy to improve in 2009. Consequently, the company also sees product financing and market conditions picking up in its key markets. It expects higher product demand for the next few quarters and is pinning its hopes on the rapidly growing demand for solar energy in China.

Margin Forecast Trimmed

Management maintained its photovoltaic (PV) module shipment outlook for fiscal 2009, hoping to send out between 450 megawatts to 500 megawatts (an increase of 60% – 78% from 2008). However, as a result of slumping solar panel prices, Yingli Green cut its gross margin forecast for the year to 18% – 20%, down from the previous range of 23% – 25%.

Yingli Green is a leading vertically integrated manufacturer of photovoltaic products in China. It was incorporated in the Cayman Islands and operates through its principal operating subsidiary, Baoding Tianwei Yingli New Energy Resources Co. Ltd. or Tianwei Yingli, based in Baoding, Hebei Province, 85 kilometers south of Beijing.

Since Yingli Green began production of polysilicon wafers, its annual production capacity has expanded from 3 megawatts of PV modules to 95 megawatts of polysilicon ingots and wafers, 90 megawatts of photovoltaic, or PV, cells and 100 megawatts of PV modules.

We currently rate Yingli Green shares as Neutral.

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