Earnings note for Q4 FY08 - Suntech Power Holdings (STP)

STP reported EPS decline of 71 cents y/y to $(0.42)
Factors impacting earnings:
Ø Rapid deceleration in revenue growth due to a decrease in shipments and the ASP of PV products. Revenues were up 4% y/y to $414 M compared to an average quarterly year-on-year growth of 55% during the past three quarters.
Ø Shipment for FY08 stood at 497.5 MW compared to 364 MW in FY07. Average selling price dropped about 8% q/q in USD terms.
Ø Gross margin dropped to 1% from 21% in the year-ago quarter primarily due to a decline in ASP and a provision for inventory and purchase commitments of $50.7 M. The provision for inventory and purchase commitments had a 12.2% negative impact on margins
Ø Operating expenses rose to 11% of sales from 6% in the year-ago quarter primarily due to an increase in provisions for doubtful debts and additional compensation expenses attributable to employees at Suntech Energy Solutions, which was acquired during the fourth quarter. Operating loss was $44 M compared to a profit of $57 M in the year-ago quarter
Ø Non-operating loss was $31 M compared to a loss of $1M in the year-ago quarter. Loss was higher due to an investment impairment of $48.8 M for Suntech's investments in Hoku and Nitol, and higher interest expenses

Guidance-the company expects:
For FY09
Ø Shipments of more than 800MW; this includes atleast 50 MW of the low cost Pluto modules
Ø PV cell production capacity to remain at 1GW until credit market visibility improves
Ø Silicon cost to reduce by more than 30% in FY09
Ø Capital expenditures of approximately $100 M; the majority of capital expenditures will be utilized to retrofit existing production capacity to the high efficiency Pluto technology and the completion of the thin film facility
For Q1 FY09
Ø Revenues to be in the range of $340-380 M, assuming an exchange rate of $1.28 USD dollars to the Euro
Ø Average selling price to decline by 10% sequentially in dollar terms
Ø GAAP gross margin to be in the range of 12-15%

Other significant events
Ø STP acquired minority stake in Asia Silicon for $8.1 M. Suntech previously entered into an agreement to purchase high purity polysilicon from Asia Silicon with a total value of up to $1.5 billion over a seven-year period.
Ø STP amended a 10-year supply agreement with MEMC to increase the volume at a lower price

Data source: Gridstone Research

Earnings note - Yingli Green Energy Holding Co. Ltd. (YGE)

4Q FY08 EPS dropped 26% y/y to RMB(0.28); impacted by lower shipments and fall in ASP
Factors impacting earnings:
Ø Rapid deceleration in revenue growth due to lower shipments and declining ASP. Revenues were up by just 21% y/y to RMB 1,761 M compared to an average quarterly growth of 155% during the past three quarters.
Ø Shipments declined 1.5% q/q to 78.8 MW, while ASP dropped 17% y/y and 21% q/q to $3.19. The sequential decline in both shipments and ASP was driven by weakened demand, changes in the feed-in tariff policy in Spain and tighter credit for PV system project financing. ASP was also negatively impacted by the depreciation of the Euro against the Renminbi.
Ø Operating margin plunged 1200 bps y/y to 6%. Research and development expenses increased to 1.32% of sales from 0.10% in the year-ago quarter
Earnings were supported by:
Ø Foreign currency gains of RMB 68 M compared to a loss of RMB 29 M in the year-ago quarter
Ø Tax benefit of RMB 17 M in the current quarter compared to income tax expense of RMB 15 M in the year-ago quarter
Guidance-the company expects:
For FY09
Ø PV module shipment to be in the range of 550-600 MW; an increase of 96-114% compared to FY08. The company has about 317 MW of contracts in place for FY09, the German market will account for 55-60% and the rest of the European countries will account for 20-25%
Ø Gross margin to be in the range of 22-24%
Ø Blended polysilicon cost to approximate $130-150 per kilo
For 1Q FY09
Ø PV module shipment to be lower than Q4 FY08 due to weakened macroeconomic conditions, winter season in Germany, and lower level activities in the Spanish market
Ø ASP to decline by approx. 10-15% from 4Q FY08 levels
Ø Gross margin to be above 15% due to a 20-25% decline in blended polysilicon cost from 4Q FY08 levels, and due to reduced polysilicon usage per watt

Data source: Gridstone Research