Last week, we began seeing which Chinese solar manufacturers are separating themselves from the field. Canadian Solar (NASDAQ:CSIQ), Hanwha SolarOne (NASDAQ:HQCL), and Yingli Green Energy (NYSE:YGE) reported earnings, and the big winner may not be the one you expected.
Solar earnings tell all
If you want to see how solar leaders and laggards are separating themselves, all you have to do is look at their earnings trends. Leaders are increasing margins and sales, while laggards are continuing to lose money and seeing balance sheets worsen.
Hanwha SolarOne was the biggest loser of the week, reporting a 1.1% sequential shipment decline in the third quarter and a 4% drop in revenue to $185.5 million. The company lost $75.2 million, or $0.89, per share, not a good sign when industry leaders are now posting consistent profits. To make matters worse, Hanwha is planning to sell $70 million in American depositary shares, further diluting investors.
Yingli Green Energy was a little better, reporting a 5.1% increase in shipments and an 8% rise in revenue. Gross margin of 13.7% was an improvement, but still not enough to pay for expenses, which resulted in a $38.5 million loss.
The big winner was Canadian Solar, which reported a 5.1% increase in shipments, a 29% jump in revenue to $490.9 million, and net income of $27.7 million, or $0.56 per share. Canadian Solar is helped immensely by its system sales in North America and the fact that 29.5% of shipments went to Japan last quarter. Japan is the market's new hotspot, and it presents a high-margin opportunity for those who can sell there.
Not every Chinese solar company will survive over the next few years. I'd watch out for those with deteriorating income statements and high debt. Yingli Green Energy and Hanwha SolarOne don't look to be moving in the direction investors should be hoping for.
Another leap forward for solar
The other significant news this week was SolarCity's (NASDAQ:SCTY.DL) announcement of the first residential solar securitization. The offering will be for $54.4 million and pay investors a 4.8% interest rate from contracted lease payments.
This was a widely expected move, and SolarCity was expected to complete the deal, but it's good to see it nearly completed. Securitization opens up a new financing options and long-term should lower the cost of capital for solar installers.
I sought out more details about the offering, but SolarCity couldn't answer my questions because of SEC rules, so we'll learn more after the deal closes later this week. I'd expect that SolarCity had to hold a significant amount of the same assets backing the notes on its balance sheet, effectively raising the cost of capital for this first deal. I'll report more when the quiet period for SolarCity is over.
What to watch for this week
Trina Solar (NYSE:TSL) is the big earnings report to watch for this week. The company will present results on Tuesday and has already said it shipped 750 MW to 780 MW last quarter and generated gross margins of 14.5% to 15.5%. Keep an eye on what Trina Solar guides for Q4 and where it's shipping modules. These will help determine whether the company becomes a leader or a laggard in Chinese solar.
Foolish bottom line
Chinese solar companies are worth watching in the next few months. There's concern that easy money from Chinese state-run banks is coming to an end, and that would mean those with high debt won't be able to invest in the next generation of equipment.
On the U.S. side, new financing options are opening up, which is great for everyone in solar. A lower cost of capital and the ability to finance deals without selling them completely will be a long-term positive for the industry.
Stop back to fool.com for the latest on the solar industry and my recap every week.
Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends and owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.