Storming Weather ahead for Solar Industry: Green Energy Technology’s Financial Underperformance

published: 2011-09-02 9:42 | editor: | category: Analysis

According to the 1H11 financial statement of Taiwanese solar company Green Energy Technology, the 2Q11 revenue totaled NT$ 5.187 billion and the gross profit margin dropped to -3%, which resulted in an after-tax loss of NT$ 294 billion, a 149.3% QoQ decrease and a 172.1% YoY decline. Notably, the price drop in 2Q11 turned out a loss of NT$ 120 million, while the inventory level increased from NT$ 1.686 billion in December, 2010 to NT$ 2.593 billion in June, 2011 and the days of inventory on hand surged to 39 days. The fast-changing economic climate contributed to the inaccuracy of Green Energy Technology’s financial estimation; Green Energy posted earnings per share (EPS) of NT$ -2.9 instead of NT$ 15.82 as previously predicted in the 2011 financial estimation.

Data Source: Green Energy Technology (Million NTD)

The CFO Kuo-hsiung Hsieh indicated that although the gross profit has been trending up before 1Q11 and the shipment has hit record high in Mar’11, the QoQ downturn of 30-40% in 2Q11 revenue mainly attributed to the steep drop in product average selling price (ASP). Furthermore, in addition to the cost reduction triggered by technology breakthroughs, the product ASP in August slightly increases compared to July. Hence, the gross profit in August is expected to exceed that in July. With respect to Green Energy’s wafer production excluding the thin film products, its gross profit margin is 13.5%, superior to that of Sino American Silicon Products (10%) and that of Danen Technology (8%).

Data Source: Green Energy Technology (Million NTD)

Due to the fact that many polysilicon material suppliers are located in Europe and America, with cost taken into account, the company has changed its logistics from sea shipping to air shipping and raised its safety stock in response to the market change. On the other hand, no loss caused by inventory price drop is expected in 3Q11; the latest financial estimation expects 3Q11 and 4Q11 to total respectively a loss of NT$ 587 million with an EPS of NT$ -2.27 and NT$ 536 million with an EPS of NT$ -1.93; the 2011 revenue is estimated to conclude an after-tax loss of NT$ 611 million. In regard to capacity, Green Energy’s capacities of ingot, wafer and thin film are 2010MW, 1550MW and 45MW, respectively.

EnergyTrend points out that Green Energy’s wafer production accounts for about 10% of the total wafer capacity in Taiwan, and its financial underperformance in 2Q11 suggests that the revenues of Taiwanese wafer manufacturers have been compromised by the price-cutting strategies of battery makers. If the silicon material suppliers maintain their prices at the current level, the downturn among Taiwanese wafer manufacturers is expected to persist in 3Q11.

Data Source: Green Energy Technology

As for Green Energy Technology’s management of raw material and supply chain, polysilicon makes up a large portion of the total cost. On account of the high price of polysilicon and the steep price drop in the product ASP, presently the priority is to strengthen the relationships with polysilicon suppliers, in seek of better quality and a favorable price negotiation system. As for the demand end, currently Chinese clients account for 20-25% of Green Energy Technology’s production. The lessons from the Taiwanese LED manufacturers suggest that it is hard to directly benefit from the market prospects propelled by the 12th Five-Year Plan. When the end market is in China, companies should seek joint effort with Chinese companies with great promise. Green Energy Technology plans to place more emphasis on the Chinese market and establish a solid industrial supply chain with experienced cell and module makers.

On the other hand, the CEO Hur-lon Lin remarked that no ASP rebound is in sight in the solar market in 3Q11, not to mention the forth quarter is usually the slow season. Although the global solar demand is mainly underpinned by Europe, the end-market demand in German and Italian markets is expected to decline after September. The market demand in 3Q11 is estimated to remain unchanged compared to 2Q11, and demand in 4Q11 depends on the financial conditions. However, in the Taiwanese solar industry, the capacity of solar cell surpasses that of ingot by 50-70%. Unless the decline in the end market dramatically intensifies and the production of cell manufacturers decreases to below 50% of current level, Green Energy’s shipment is expected to remain stable.

Presently, in light to the high inventory level in the end market, Green Energy Technology remains conservative on its financial estimation, presuming that ASP and material price remain the same. Green Energy Technology still endeavors to negotiate a lower price with material suppliers, diversify material sources or even adopt substitute materials to ensure its cost competitiveness. Moreover, the company reduces the cost through technology breakthroughs and recycling. In order to increase slicing efficiency, Green Energy Technology plans to install new diamond slicing equipment. Currently, the company is operating at full capacity with additional demand to be in place by the end of September 2011. If the ASP remains unchanged, the shipment and revenue in 4Q11 are expected to grow; the revenue is predicted at NT$5.945 billion as a result of capacity expansion, which will also help reduce the cost per unit through economies of scale.

According to EnergyTrend’s observation on the per-watt price trend of module, module manufacturers started to feel the price pressure at the beginning of March; along with the drop in cell price, battery makers began to face the pressure to cut price at the beginning of April. As for wafer, the product ASP took a dip at the beginning of May, but the price of polysilicon has been relatively stable in the midst of the downtrend.

Data Source: Green Energy Technology

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