This Solar Stock Leads Its Peers, But Shareholders Aren't Benefiting

With so many companies competing for market share in the solar industry, it can be difficult to identify which ones will be able to persevere and succeed. One of the companies at the front of the pack is Yingli Green Energy (NYSE: YGE  ) , a global leader in photovoltaic module, or PV, manufacturing in terms of production capacity and shipments.

With the release of its third quarter earnings, Yingli showed that it had plenty to be excited about. Revenue climbed 8% quarter over quarter and 63% year over year, while gross margin improved from 11.8% in to 13.7% quarter over quarter.

There's more to the story than just that, though. So, while we wait for the release of the fourth quarter earnings report, let's examine some other aspects of the company.

A different type of cell service 
According to NPD Solarbuzz, Yingli hit the top of the charts for 2013 in two separate categories: in-house cell production and PV module shipments. 

Yingli doesn't quite have the luxury of resting on its laurels for too long, though. Recognizing the value that resides in in-house cell production, Trina Solar (NYSE: TSL  ) announced this week that it has acquired a majority stake in Shenzhen S.C.'s wholly owned subsidiary, Hubei Hongyuan PV Science and Technology. Hubei Hongyuan expects to achieve a production capacity of 420 MW by the middle of the year.

This will substantially supplement the 2,400 MW of annualized cell production thatTrina recorded for 2013. According to NPD Solarbuzz, the company ranked No. 3 for 2013 in in-house cell production. Like Yingli, Trina's gross margins improved over the same period, from 11.6% to 15.2% in the third quarter. The deal with Hubei Hongyuan may improve those margins further.

Success in China 
Yingli is not limiting itself to traditional PV projects. The company is  working on the development of the world's largest hydropower and PV hybrid project, which is being constructed in Qinghai Province, China. Having begun grid connection and commissioning, the hybrid project has a total capacity of 320 MW, of which Yingli has supplied 15 MW of PV modules. 

An unusual deal was also struck with state-owned China National Nuclear Corp. and its subsidiary, China Rich Energy. The joint venture will develop 500 MW of distributed generation solar projects across China. Mr. Hongchao Xu, Chairman of the joint venture and Deputy General Manager of China Rich Energy, said, "While CNNC remains committed to nuclear power development, we are increasing our activities in the renewable energy space, in order to expand our development space."

The hybrid PV-hydropower project and the deal with China National Nuclear Corp. demonstrate Yingli's ability to adeptly pursue non-traditional projects -- both utility-scale and distributed generation -- and gain greater market share in China. This is increasingly important for the company as it tries to geographically diversify, relying less on Europe.          

Don't let the sunny news blind you 
With so many things going well for the company, it's all too easy to miss some of Yingli's weaknesses. And, as far as weaknesses go, one of the most troubling is the company's debt -- Yingli sports a dizzyingly high debt-to-equity ratio of 12.34, which is significantly higher than its peers.

YGE Debt to Equity Ratio (Quarterly) Chart

YGE Debt to Equity Ratio (Quarterly) data by YCharts

Another area of concern for Yingli is its return on equity, which is the lowest among its peers. This is another sobering reminder that just because the company is leading the pack when it comes to PV module shipments and in-house cell production, it doesn't mean that shareholders are benefiting.

YGE Return on Equity (TTM) Chart

YGE Return on Equity (TTM) data by YCharts

The bottom line 
Well, for Yingli, it may just be that its PV module shipments and in-house cell production achievements have come at too great of a cost. For the third quarter, Yingli's Diluted EPS came in at ($0.25). Earning the No. 1 ranking isn't what shareholders are most concerned with after all. Look at three of the other companies on the top ten list: Canadian Solar (NASDAQ: CSIQ  ) , Jinko Solar (NYSE: JKS  ) , and Trina. Like Yingli, their return on equity and debt-to-equity ratios are also cause for concern; however, unlike Yingli, they are profitable. Third quarter diluted EPS for these three companies came in at a respective $0.50, $0.71, and $0.15.

Foolish final thoughts
There's plenty to be excited about when it comes to Yingli Green Energy, but, as always, one must look at the bigger picture. Surely, Canadian Solar, Jinko, and Trina investors are happier with their companies' profits than they are disappointed at ranking below Yingli in PV module shipments and in-house cell production. Regardless, fourth quarter earnings reports are right around the corner, and their releases will, undoubtedly, shed some light on the ever-changing solar sector landscape.

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Read/Post Comments (7) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 17, 2014, at 11:18 AM, energyforecast wrote:

    You forgot that Trina (symbol TSL) also aquired 500 MW of production capacity from Yabang Group a few months ago. Trina actually runs their 2.4 GW nameplate capacity at about 2.8 GW (see their earnings transcripts for comfirmation). Plus, they acquired 500 MW Yabang and this past week another 420 MW via Hubei. That's a total of over 3.7GW! In summary, they're acquiring competitors for pennies on the dollar, growing larger than Yingli, they are already profitable and getting more profitable. Finally, their production costs continue to decrease which dramatically increases their profit margins. Price target of $21 to $24 with endless possibilities as grid parity is met in more and more regions globally. Investors should get in on their story while you still can.

  • Report this Comment On February 17, 2014, at 2:54 PM, Sampat01 wrote:

    And don't forget TSL's 1GW agreement in Xinjiang for which they are also expecting to setup (unspecified MW) production base in Xinjiang. But if there going to install 300MW this year, I think the production capacity would be at least as much this year.

  • Report this Comment On February 17, 2014, at 3:41 PM, energyforecast wrote:

    Yes, you're right, even more production over near Xinjiang. TSL's production growth for ridiculously low cost is stunning. Trina's CEO is calling this their "asset light" strategy, and it's perfect given the industry's swings. In the current upswing, and it'll be a huge upswing, TSL will lock in the 20%+ profit margins of building power plants, put a dent in China's smog problems, and thereafter offer grid parity systems in all other regions (via mass production efficiencies, increased energy conversion efficiency in their panels, etc). From there the rocket called TSL should really start to take off. What we've seen in TSL's stock price over the past year will pale in comparison.

  • Report this Comment On February 17, 2014, at 8:23 PM, stockbutterfly wrote:

    I have been to China a dozen times and sense that solar is going to become the main new energy soource to power China. Coal is known to be the bottleneck of their economy and is killing them with pollution. I decided to invest in TSL, CSIQ and JASO. I like JASO in they seem to have low debt and the best technology. How do others see JASO as there is little news in the west about it. It seems slower to become profitable than the others as they seem more conservative in their unwillingness to take on huge debt to expand. My feeling is the fossil fuel guys don't know whats going to hit them when these huge Chinese factories start turning out cheap and efficient panels while fossil fuel production slowly gets more expensive every day.

  • Report this Comment On February 18, 2014, at 3:42 AM, butthurt wrote:

    So despite all the efforts to promote Trina Solar over Yingli since day 1, you actually recognize that Trinar is number 3 solar company that us strangely overpriced and you bought into it.

    Well Yingli is still number 1? and still leading the Chinese Solar world as an undervalued stock.?

    I like your nice graphs but it still doesn't convince me, until the day Trina actually catches up rather than just a hope of it happening. I'm sticking with Yingli.

    Being the larger company it is not strange to have a higher debt.

  • Report this Comment On February 18, 2014, at 9:05 AM, stockbutterfly wrote:

    Oh yes Yingli's strategy has been tried in North America, being the mass producer almost bankrupted GM. A good company will invest strongly in innovation R and D and focus on profitability and create a plan for future growth. JA solar just announced today they have reached 19% efficiency, the best in China. To me they look like the Sunpower of China, the clear technology leader. Lets face it folks the smaller the footprint solar has the better in terms of asthetics, investment costs and maintenance (even washing). In North america i like Sunpower and in China i like JA solar, build a quality product and the buyers will come.

  • Report this Comment On February 18, 2014, at 7:11 PM, stockbutterfly wrote:

    Hey folks, that was quite a heavy flow of nectar (13% is sweet) that the stock buttefly fed on today from JASO. There are several things to like about JASO as i mentioned earlier. However an important point is it also hasn't moved like the others in the last year. I think JASO is going to be the best performing solar stock this year. All the other stocks i play (FSLR, SPWR, TSL, RSOL, and CRIQ) I will buy and sell depending on the price but JASO I only sell half as I am afraid I won't be able to buy back. Only fossil fools aren't make money on the best solar companies these days, and those are real fools as they don't know what's about to hit them. After solar reaches parity then its time to reach deeper and lay the knock out punch on the fossil fuel industry.

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