Emeren Group Ltd (SOL) 2013 Q1 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for ReneSola Ltd's first quarter 2013 earnings conference call. At this time all participants are in a listen-only mode. After management's prepared remarks there will be a question and answer session. As a reminder, today's conference is being recorded.

I would now like to turn the call over to your host for today Mr. Tony Hung, ReneSola's Vice President of International Corporate Finance and Corporate Communications. Please proceed, Mr. Hung.

Hello, everyone, and welcome to ReneSola's first quarter 2013 earnings conference call. ReneSola's earnings results were released earlier today and are available on the Company's website as well as our newswire services. You can follow along with today's call by downloading a short presentation available on the Company's website at www.renesola.com.

On the call today are Mr. Xianshou Li, our Chief Executive Officer; Mr. Henry Wang, our Chief Financial Officer; and myself. I will discuss ReneSola's business highlights and strategy and Mr. Wang will go through the financials and guidance. We will all be available to answer your questions during the Q&A session.

Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the Company's annual report on Form 20-F and other documents filed with the US Securities and Exchange Commission. ReneSola does not assume any obligation to update any forward-looking statements except as required under applicable law. Please be reminded that unless otherwise noted all figures mentioned during this conference call are in US dollars.

If you have downloaded our presentation, please turn to page 14 for our Company highlights, and see page nine for a snapshot of our financial progress.

Market conditions remain challenging for the industry as a whole, and continue to impact our business in the first quarter of 2013. Although low ASPs continue to affect our margins, we have been successful in building up our traditionally higher margin module business, as compared with wafer production. Leveraging our leading wafer technology, we've expanded our sales and marketing efforts and transformed our company into a leading global solar brand and technology leader over the past year. Additionally, we've invested in downstream products like AC modules, small-scale storage systems and residential PV solutions, which we hope to market soon.

Despite a difficult first quarter, we believe the solar market is continuing to stabilize. We will continue to invest in technology to reduce our costs and improve efficiencies so that we are poised for growth as the market improves.

I will now quickly review our shipments. Total solar product shipments in the first quarter of 2013 were 662.1 megawatts, a decrease of 7.2% from 713.2 megawatts in the fourth quarter.

Wafer shipments decreased 14.6% quarter over quarter to 335.5 megawatts, as more wafers were used internally to produce our own branded modules. While module shipments increased slightly quarter over quarter to a record high of 326.6 megawatts as a result of increased demand for ReneSola's products as well as the increasing competitiveness of solar power as a viable power source.

ASPs continued to decrease in the first quarter of 2013 with wafer ASPs dropping to $0.22 per watt and module ASPs dropping to $0.61 per watt in the first quarter. This compares to $0.24 per watt and $0.63 per watt in the fourth quarter of 2012.

The combination of declining ASPs and lower wafer shipments resulted in revenues of $284.2m, down 7.3% quarter over quarter. Fortunately, we are seeing prices begin to stabilize and even rise. And our low cost structure and increased module shipments should position us well as conditions improve.

Please turn to slide six for an update on our R&D efforts. We continue to invest in R&D in the first quarter of 2013 to improve the technology behind our brand, products and manufacturing. Our next generation Virtus A+++ wafer which has an average efficiency of 0.15% to 0.20% higher than that of Virtus A++ will begin mass production this quarter.

Our full line of solar module products has achieved PID-free status. And a number of our modules has been accredited by TUV NORD to withstand difficult desert-like and dusty conditions, further substantiating the reliability of our products.

In addition, our 210 watt monocrystalline and 260 watt multicrystalline modules are now in full production due to the joint efforts of our wafer, cell and module departments. We continue to develop a frame --integrated, second-generation Micro Replus micro inverter, which will reduce cost to our customers by 20% compared to the first generation model.

Furthermore, we are developing an AC module that combines a solar module with Micro Replus. At the same time, a specialized, small-scale storage research team has been established to develop a series of systems that will significantly increase the efficiency of our products.

Please turn to slide seven for an update on our cash and debt position. As of March 31, 2013, we had debt of $958.6m, excluding $111.6m in convertible notes. Total bank borrowings increased by $168.5m sequentially at the end of the first quarter.

In March of this year we signed a 15-year loan agreement with China Development Bank totally RMB320m, or approximately $50.9m.

Our net cash and cash equivalents position, plus restricted cash, was $442.7m at the end of the first quarter, an increase from $268.1m at the end of the fourth quarter due to the receipt of additional financing and positive operating cash flow which we expect to continue.

Our net cash inflow in the first quarter from operating activities was $4.2m compared to a net cash inflow of $25.8m in fourth quarter of 2012. We are expecting an operating cash inflow of over $40m in the second quarter of 2013.

I would now like to turn the call over to Henry, who will discuss our financial results in more detail.

Thanks, Tony. Please turn to slide 9, through 9 to 12 for a look at our financial progress. A challenging supply demand situation and the lower ASPs contributed to lower revenues and margins in the first quarter. Fortunately, our lower production costs have helped to minimize losses. We are confident we can continue to lower costs and increase our higher margin module business delivering a [positive] gross margin in the same quarter and to capitalize on any improvements in the marketplace.

I will now review the details of our financial results. Net revenues for the first quarter were $284.2m, exceeding our guidance and representing a sequential decrease of 7.3% from $306.5m due to a decrease in ASPs and the lower wafer shipment.

Gross loss for the first quarter was $5.6m compared to a gross profit of $10.3m in the fourth quarter, primarily due to the faster decline in ASPs and the lower wafer shipments as well as the temporary halt in the production at the Sichuan polysilicon plant to upgrade the facilities and equipment.

Gross margin for the first quarter was negative 2% compared to gross margin of 3.3% in the fourth quarter. Operating loss for the first quarter was $33.4m compared to an operating loss of $23.8m in the fourth quarter. Total operating expenses for the first quarter were $27.8m, down 8.2% from $34m in the fourth quarter. The sequential decrease in operating expenses was primarily due to a reduction in our R&D expenses.

Operating expenses represented 9.8% of total revenues in the first quarter compared to 11.1% in the fourth quarter. Operating margin for the first quarter was negative 11.8% compared to operating margin of negative 7.8% in the fourth quarter last year.

Net loss attributable to holders of ordinary shares for the first quarter was $39m compared to a net loss of $88.9m for the fourth quarter last year. This represents basic and diluted loss per share of $0.23 and basic diluted loss for ADS of $0.45.

Now, please turn to our guidance, which can be found on slide 13. For the second quarter we expect total solar wafer and module shipments to be in the range of 700 megawatts to 720 megawatts, with solar module shipments expected to be in the range of 400 megawatts to 420 megawatts.

Revenues are expected to be in the range of $310m to $330m. And gross margin is expected to be in the range of 3% to 5%.

We are expecting operating cash flow of over $40m in the same quarter. For the full year 2013 we expect total solar wafer and module shipments to be in the range of 2.7 gigawatts to 2.9 gigawatts, with solar module shipments to be -- expected to be in the range of 1.4 gigawatts to 1.6 gigawatts.

At this time we would like to take any questions from you. Operator, please.

Right, thank you. We will now begin the question and answer session. (Operator Instructions). Thank you, and our first question comes from the line of Philip Shen from Roth Capital. Please go ahead.

Good evening. This is Matt on for Phil. Thanks for taking my questions. I just wanted to start by exploring your guidance for a moment. If we take the mid-point of your Q2 guidance and 2013 guidance, it seems to imply another 1,400 megawatts for the remainder of 2013. Could you give us a sense for how this breaks down between Q3 and Q4?

Sure. (Interpreted). Hi, Matt. So we think that it actually should be fairly even, should be 700 per quarter.

Okay. That's helpful. And then in terms of ASPs, are you guys seeing pricing resilience in Q2 and further down to 2013? On the last call I think you guys said you saw maybe a potential $0.02 or $0.03 rebound in module pricing during Q2. Is that still the case?

Okay.

(Interpreted) Okay. Hi, Matt. So in terms of our thinking, we think that yes, in the second quarter it will go up from the $0.61 or so on average in the first quarter by $0.02 to $0.03. And I would think that in Q3 it might go a little bit higher than that, so it may hit, say, $0.65. And Q4 is a little too far away for us to see right now.

Great. That's helpful. Then just one more, if I may. Could you break down your shipments during Q1 by geography for us?

Sure. Let me double-check with the team on that.

(Interpreted) Hi, Matt. So for Europe it took up about 50% in the first quarter, US about 10%, China about 28% to 30%, and Australia and Japan the remainder.

Okay. Great. That's it for me, thank you.

Thank you. And our next question comes from the line of Satya Kumar from Credit Suisse. Please go ahead.

Hi, this is Brandon Heiken speaking on behalf of Satya Kumar. Thanks for taking my questions, guys. I was wondering if you could --

Our pleasure.

I was wondering if you could talk about your expectations for cost reductions for the rest of the year. I know you addressed it on the last call. I was wondering if there were any changes to that and then I have a follow-up question.

(Interpreted) Okay. Hi, Brandon. So on the wafer side, we think that maybe we can lower by a penny sometime this quarter. So something like $0.22 per watt to $0.21. Modules, depending on how you do the math, I think it'll be something like from also lowering a penny, so from $0.55 to $0.54.

Great. And how do you expect that to progress for the rest of the year?

(Interpreted) So we can't say right now for the second half of the year. And we think that maybe -- it may be stable at around this type of cost level. But we're going to, as a result of that, put some focus on improving the ASPs and improving the value of our products to our customers.

Okay. Thanks. And I was wondering how the EU tariffs may affect your operations, and if you're making any plans to deal with that?

(Interpreted) So Brandon, generically speaking, as you know, from our press releases and some of the other things we talked about in the past, we're already planning to outsource quite a bit this year. And right now you're probably seeing the news from our side. We've got outsource capacity in South Africa, in [Owin] etc. So in essence this is an eventuality, the European tariffs will be rolled out we've been preparing for. It may even be interpreted in some ways as a positive for us. So we think that, depending on exactly what happens, we'll adjust accordingly. But certainly, we've been preparing for this for a long time.

How much capacity do you have outsourced or planned?

Right now, we have 400. But as you know from our earnings call last time that essentially our guidance was from 2.7 gigawatts to 2.9 gigawatts. So no matter what, we would need to outsource something like 700 megawatts and 900 megawatts.

Good point, yes. Thanks.

Right, thank you. And our next question comes from the line of Sanjay Shrestha from Lazard Capital. Please go ahead.

Thank you. It's Victor (inaudible) for Sanjay. Two questions. First is on China. Could you help us understand your go-to-market strategy in China? And then as we look at the Chinese market for this year with the expectation about 10 gigawatts, how do you expect the second half to progress given that installations were relatively slower in the first half, so we get a big uptick in the second half. And how do you make sure that you take on some of these new projects which come on in the second half? And then I have a follow-up.

Sure. Let me break up your question into three questions and answer them individually.

(Interpreted) To answer your first question about to market, obviously we've done some business in China, in particular, the end business and in particular, towards the end of last year. While we're very, very positive that we're sure that it's going to be a very, very big number, and there's going to be substantial demand, we don't look upon the overall market conditions as being favorable. There's many, many suppliers, it's quite competitive, and terms can be bad. So on one hand we're very positive on the Chinese market in the sense that it will be a big number. On the other hand, in terms of how we will deal with the market, we'll be very, very cautious and try to avoid the difficult terms that are out there.

And let me now ask your second question just now about the breakdown of demand.

(Interpreted) With regard to your second question, actually we think that in the first half, in particular in the current quarter, the second quarter, the market has been quite active. We think that when it's all said and done, the first half of the year for China will probably add up to 5 gigawatts.

Now unfortunately, a lot of policies aren't set. So we think that the second half of the year, unless the policies are set, may actually become more difficult. So we think actually it might not have looked that good in the first quarter. But certainly in the second quarter it looks like there is a lot of demand out there.

I'm sorry, what was the third question that you asked?

That essentially answers that -- answers my questions. I'll ask a quick follow-up here.

Okay.

When you look at capacity in China, what is your sense of what is happening in terms of capacity being idle? And do you get any sense that if the market, as you mentioned, is essentially strong in the second quarter, is there any potential for some of the idle capacity to come back in the market? And do you think it is out of the market on a structural basis? Thank you.

Okay.

(Interpreted) Yes, so Mr. Li says that there was a capacity that's idle, but a lot of it has certainly been coming back online. In fact a lot of the smaller factories are taking advantage of the Chinese demand and are very, very active right now in the second quarter. So hence, actually there isn't that much idle capacity as perhaps people may be expecting. That said, Mr. Li believes that once the European countervailing duties come into place, we will probably see some permanent closures of the smaller capacities that are out there.

Great. Thanks. That's all I had.

Right, thank you. And our next question comes from the line of Emily Liu of Arete Research. Please go ahead.

Hi. Thanks for taking my question. I have two questions, if I may. The first question is I wonder whether you can update us your poly plant status in terms of capacity, debottlenecking, utilization and cost structure.

And my second question is actually a follow-up on the Chinese demand. I think the Chairman mentioned he estimated first half a run rate in China is 5 (gig). Can he give us idea on how this break up between first quarter and second quarter? And what is his expectation on Chinese demand for the whole year? Thanks.

Okay. And Emily, as we speak, feel free to interrupt and ask further questions in Chinese.

(Interpreted) Okay, so Emily, I think you understood that. Don't know if we have any further on that, but for the other analysts on the call, so right now we basically started the poly plant and it is progressing. Right now we're thinking sometime in June we should be able to reach 80% utilization.

Okay. So Emily, I think you understood that. So first half, because holiday, it may be hard to sort out some of the details. But the second quarter should be far and away larger than the first quarter. Third quarter is going to be probably a tough time for Chinese demand as a lot of policies are uncertain. So it's a little hard to see exactly how it will play out.

Okay. (Spoken in Chinese) Let me just follow-up. (Spoken in Chinese)

(Spoken in Chinese)

So for everyone else on the call, Mr. Li indicated to Emily that given the strong demand in China in the second quarter, we're probably looking at a 5% increase in Chinese domestic sales modules ASPs. And also given the fact that we think we're going to be fully up and running in June. So we think for the second half of the year, our poly production should be about 5,000 metric tonnes.

Right. (Operator Instructions). Next we have a follow-up question from Philip Shen of Roth Capital. Please go ahead.

Hi guys. It's Matt again. Just a brief follow-up for you. Last call you guys gave an outlook for 2013 by geography. Do you still expect the same geographic shipment mix for the full year? And then how do you see ASPs trending in HQ region?

Additionally, what are ASPs in each country or region currently?

Okay.

(Interpreted) Okay. I think right now there may be some adjustment overall. But in terms of what we're looking at for what we'd like to do starting from Q3, and in terms of our goal, is to derive something like a third of our revenues starting from the third quarter from the US, about a third from Europe, and a third from Asia Pacific.

And now let me ask the question that you had about ASP.

(Interpreted) Okay. So Mr. Li indicated that because of what's likely to happen with the European tariffs, we're thinking European ASPs could be something like $0.70. For the US we're probably looking at something in the third quarter, $0.65 to $0.70. But the AsiaPac region, a lot of focus will be placed on Japan as well as one of our traditional strongholds, Australia. I think that some place like Japan might take up 60% or 70%. As a result, we'll probably be able to see ASPs of at least $0.65 per watt if we're successful upon the execution of the strategy. And hence overall big picture we think in the second half of the year for our Company as a whole we should be able to see ASPs above $0.65.

Great. That's really helpful, guys. Thank you.

Thank you. (Operator Instructions). Next a follow-up question from Emily Liu of Arete Research. Please go ahead.

Hi. (Spoken in Chinese)

(Spoken in Chinese)

So just for the sake of everyone else on the call, Emily's question was regards to Japanese market as well as our overall strategy. And big picture is, as a Company we're going to be very much focused on the end users and the end consumers because ultimately the terms there are a little bit better. And this is based on our experience in selling modules. And into Japanese market this is of course especially important. So we'll continue to have increasing focus on the consumer market.

Okay. Thank you.

Thank you. And our next question comes from the line of Wei Feng from (inaudible) Management. Please go ahead.

Hi, Tony and Mr. Li. The first question is on the 400 megawatts you have overseas, third party sourcing. Is that including wafer cell and module, the full production line? Or it's just module?

(Interpreted) Okay. I think you understood that, but for the purpose of making sure everybody understands, it's 400 megawatts overseas of modules. The cell capacity that we can outsource easily is actually more, 600 megawatts. And the wafers are in the planning stage.

And for each product, what is the actual cost for -- compared to your own costs and what is the outsourcing cost?

(Interpreted) Okay. So I think you understood that. But for outsourcing to Europe, on the module side, probably cost $0.03 to $0.04 more. For India or South Africa on the module side, it'll probably cost a penny to $0.02 more. For -- on the sales side when we outsource, this is actually where the costs increase the most. It's $0.06 to $0.07. And on the wafer side, we're still planning, so we don't know yet.

And last question. If you're running 80% utilization at your poly segment, what is the average cash cost at the end of June?

(Interpreted) Okay. So we target to reach $15 per kilogram cash costs by the end of June.

Thanks. That's all from me.

Thank you. (Operator Instructions). Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect the line.

Portions of this transcript that are noted interpreted were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.