Emeren Group Ltd (SOL) 2013 Q2 法說會逐字稿

Hello, ladies and gentlemen, thank you for standing by for ReneSola Ltd's second-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, Ms Juliet Yang, ReneSola's Investor Relations Manager. Please proceed, Ms Yang.

Hello, everyone, and welcome to ReneSola's second-quarter earnings conference call. ReneSola's earning 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 unless otherwise noted, all figures mentioned during this conference call are in US dollars. If you have downloaded our presentation, please turn to slide four for our Company highlights, and see slide 10 for a snapshot of our financial progress.

We are thrilled to report that in addition to achieving a gross margin of more than 7% in the second quarter, we delivered record total shipments of 849 megawatts. As ASP has steadily improved overall. We have continued to strengthen our high-margin module business as well as our long-standing expertise in wafer production. By leveraging our proprietary wafer technology and expanding our sales and marketing efforts we have transformed our company into a global solar brand and technology leader. Furthermore, we continue to invest in downstream products like microinverter, string inverter, off-grid small-scale storage systems and mounting systems, which may become our future growth drivers.

Coming out of what was a challenging 2012, we're starting to see positive indicators showing that the global solar market is stabilizing. As such, we will continue to invest in our proprietary 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 shipments in the second quarter of 2013 were 849.3 megawatts, an increase of 28.3% from 662.1 megawatts in the first quarter. Wafer shipments increased 23.8% quarter-over-quarter to 415.2 megawatts, while module shipments increased significantly quarter-over-quarter to a record high of 434.1 megawatts as a result of increased global demand for ReneSola products, especially in the US and Europe, as well as in Japan.

ASPs continued to increase in the second quarter of 2013 with wafer ASP increasing to $0.23 per watt and module ASP increasing to $0.63 per watt in the second quarter. This compares to $0.22 per watt and $0.61 per watt in the first quarter of 2013. Such price stability combined with our low-cost structure and increased module shipments should position us well as conditions continue to rebound.

If you turn to slide seven, you will see a breakdown of our module sales by geographic region, along with data regarding ASPs trends. We achieved tremendous growth in the US market with module shipments more than tripling sequentially from approximately 14 megawatts in Q1 of this year to more than 56 megawatts in Q2. In the EU, despite an extended period of regulatory uncertainty, we managed sequential growth in module shipments from 195 megawatts in Q1 to 214 megawatts in Q2. At the same time, in the EU as a whole showed a significant increase in module ASPs, up to $0.64 per watt overall in Q2.

For Japan, one of our newest priority markets, we shipped 10 megawatts in Q2, up from 3 megawatts in Q1 of this year. India, another of our newer markets, has shipments of more than 45 megawatts in Q2, up from 17 megawatts in Q1.

Our strong international sales performance in Q2 has reinforced our belief in the value of our global network of regional sales and marketing teams and the benefits of our targeted brand-building efforts.

Furthermore we're confident in the overall upward trends of module ASPs and expect to see prices of $0.66 and $0.68 per watt in Q3 and Q4 respectively.

Please turn to slide six for an update on our R&D efforts. We increased our R&D spending in Q2 2013 to improve the technology behind our brand products and manufacturing process. Also we continued to invest in the technology and production of the modules and wafers, as well as second generation Micro Replus microinverter, string inverter, off-grid small-scale energy storage system and mounting systems, which are a key element of our downstream strategy.

With the regard of solar wafers, our next generation Virtus A+++ wafer, with an average efficiency of 0.15% to 0.20% higher than that of Virtus A++ achieved mass production in Q2 2013. With the new technology, the Virtus A+++ wafer has shown highly concentrated cell efficiency distribution and an improved efficiency rate.

As for solar modules, our ZEP-compatible module, which is easy to install and handle, achieved mass production.

We have also invested in the development of light PV panels with strengthened frame structures, as well as black-color modules with low working temperatures, which can significantly increase their efficiency.

We continue to invest in our second-generation Micro Replus microinverter, while optimizing the first generation of the model based on firsthand data from our worldwide network of microinverter plants.

During the second quarter, the Micro Replus microinverter and string inverter received numerous certificates including ETL, TUV SUD, VED and CE in many key markets. At the same time over 70 models of our LED products have received TUV certification. We have also developed a tile roof system and pitched tin roof system and are expected to receive Australia AS/NZS 1170 certification and TUV certification, and that are already available for order.

Additionally, our first off-grid small-scale energy storage systems model has also been completed and is now available for order.

As you may have heard, a large section of China experienced heavy rainfall and flooding this summer. In July, our polysilicon production was temporarily affected as a result of the flooding in Sichuan Province. However, our third-quarter polysilicon production output is expected to be in the range of 1,100 metric tonnes to 1,300 metric tonnes.

Please turn to slide eight for an update on our cash and debt position. As of June 30, 2013 we had debt of $909.9m, excluding $111.6m in convertible notes. Total bank borrowings decreased by $48.7m sequentially as of the end of second quarter.

Our net cash and cash equivalents position plus restricted cash was $405.8m as of the end of second quarter, a decrease from $442.7m as of the end of third quarter.

Our net cash inflow in Q2 2013 from operation activities was $65.5m compared to a net cash inflow of $4.2m in Q1 2013.

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

Thank you, Juliet. Please turn to slide 11 through 13 for a look at our financial progress. An increase in the demand of our solar modules across a number of geography regions, particularly in the US, Europe and Japan, along with an improvement in ASPs, contributed to the increase in revenues and margins for 2013. Moreover, we are confident we can continue to lower costs and improve our high-margin module business to deliver a positive gross margin the third quarter, while capitalizing on an improvement in the solar market.

I will now review details of our financial results. Net revenues for the second quarter were $377.4m, which exceeded our guidance and represents a sequential increase of 32.8% from $284.2m, mainly due to an increase in ASPs and to greater module shipments.

Gross profit for the second quarter was $27.4m, compared to a gross loss of $5.6m in the first quarter, primarily due to an increase in ASPs, as well as an increase in solar module sales. Gross margin for the second quarter was 7.3% compared to gross margin of negative 2% in the first quarter.

Operating loss for the second quarter of 2013 was $16.6m, compared to an operating loss of $33.4m in the first quarter. Total operating expenses for the second quarter were $44m, up 58.3% from $27.8m in the first quarter. The sequential increase in operating expenses was primarily due to a significant increase in R&D investment for the production of modules, wafers and downstream products, as well as an increase in sales and marketing expenses as a result of an increase in shipping fees and logistics expenses which were consistent with the increase in our solar module shipments.

Operating expenses represented 11.7% of total revenues in the second quarter of 2013, compared to 9.8% in the first quarter. Operating margin for the second quarter of 2013 was negative 4.4%, compared to an operating margin of negative 11.8% in the first quarter.

Net loss attributable to holders of ordinary shares for the second quarter of 2013 was $21.1m, compared to a net loss of $39m for the first quarter. This represents basic and diluted loss per share of $0.12 and basic and diluted loss per ADS of $0.24.

Now please turn to our guidance, which can be found on slide 14. For the third quarter, we expect total solar wafer and module shipments to be in the range of 730 megawatts to 750 megawatts, with solar module shipments expected to be in the range of 430 megawatts to 450 megawatts. Revenues are expected to be in the range of $360m to $380m and gross margin is expected to be in the range of 7% to 9%.

For the full year 2013, we expect total solar wafer and module shipments to be in the range of 2.8 gigawatts to 3 gigawatts, with solar module shipments expected to be in the range of 1.6 gigawatts to 1.8 gigawatts.

At this time we would like to take any questions what you may have. Operator, please.

(Operator Instructions) Your first question comes from the line of Brandon Heiken from Credit Suisse. Please ask your question.

Hi, thanks for taking the question. I was wondering if you could talk about your expectations for the ASP to improve through the rest of the year. Is that due to mix, or what else are you seeing in the market?

I'm sorry, Brandon, you were saying the ASP due to what?

Is it due to geographical mix or are there other reasons that you expected the ASP to improve through the year?

Okay.

(spoken in Chinese)

Okay, Brandon. Mr. Li was saying that the ASP increased due to two reasons. One, the geographic distribution that we have been working on is definitely a reason that we have increased shipments to US and Japan, which are the higher ASP regions, and decreased our shipments to China and India, which were the traditional lower other ASP regions.

Another reason is we were seeing that demand is picking up and we are willing to raise our ASPs.

Okay, thanks. And can you talk about your costs in the second quarter and expectations for the rest of the year, please?

Cost of wafer and module or -- ?

Yes, please.

(spoken in Chinese)

Okay, Brandon. For the modules we have our in-house total cost of $0.52 to $0.53, and our in-house wafer cost is $0.20. And we expect to remain the same level throughout the year.

Your next question comes from the line of Timothy Lam from Citigroup. Please ask your question.

Thank you for taking my questions (spoken in Chinese). This is Timothy from Citi. I have a couple of questions. Firstly, about the polysilicon plant, I understand that the Company is looking to be producing polysilicon of 1,100 to 1,300 in third quarter, can you tell me (technical difficulty) for Company and what's the selling price Company can expect from the polysilicon? Or it's going to be used mostly for in-house at this point?

Now the second question I have is regarding the Company's plan to reduce the wafer cost. I understand many competitors have lowered their costs further with some of their equipment changes and changing using diamond wire, for example. What is Company's plan in terms of lowering its wafer costs going forward? Thank you.

(spoken in Chinese)

Tim, I think you understand that for everybody else on the line, Mr. Li says the poly we produce are all 100% used internally. And for the wafer production cost -- how to lower the wafer production cost, it is really -- it's getting more and more difficult to reduce the cost since the demand is picking up and it's best case scenario just to keep the current level.

Just as a follow up on these two questions, what's the production cost right now for your poly and whether your companies will look to use a larger ingot produce as you say the larger ingot equipment at this time -- at this point in time. Thank you.

(spoken in Chinese)

Okay. Tim, I think you understand that for -- Mr. Li was saying that as of this moment, our production cost is still relatively high with the 20 metric tons per daily that our cost is still above $20 and that's the main reason that's being affecting our growth margin. We'll get back to you on that on the next month maybe we will have a clear view on the cost.

And for your second question on the ingot, we think we have enough capacity right now and we do not plan to extend any capacity on wafer or ingot. So, no, to that question.

Your next question comes from the line of Philip Shen from Roth Capital. Please ask your question.

Good evening. Thank you for taking my questions. I'd like to start off by asking about lead times and how they are -- what they are today. Perhaps you could tell us how -- what they are by region. And so what are the lead times for module orders today and how have they changed versus Q2?

I'm sorry, Philip, what do you mean by lead time? What is that? Can you repeat it?

Sure. So how have -- how long do your customers have to wait and before they receive their modules? And is that (multiple speakers)

By geography, right?

-- and is that changing as well? Yes.

What as well?

I'm sorry, what's your question?

I'm sorry, Philip? You said (multiple speakers)

So, the question is how are your lead times changing? And perhaps you could tell us how they're changing by region?

Okay.

(spoken in Chinese

Okay. So Mr. Li was saying we have sold out throughout this year. The customer has to wait for next year to get our products and we're selling next year's capacity right now.

Great. That's really helpful. And is that true for -- okay, I understand. So, let's move on to the question. You may have answered this already. I was having some technical difficulties with my line but I noticed that your US mix is growing aggressively. I think you had 4% US shift in mix in Q1 and 13% Q2 and you're expecting for the whole year 38%. Talk to us about your strategy for hitting this sales goal and what kind of investment will this require, if anything at all. Thanks.

(Spoken in Chinese)

Okay. So Mr. Li would like to introduce our current US market situation. We have three local offices in US. One is in San Francisco and Los Angeles, another is in Massachusetts and we'll have over 40 employees in United -- 50 employees in US, and we have eight local warehouse. Based on the July's number, we're currently the top two supplier in the US market.

For next -- for the second half of the year, we would like to reinforce that position. So, we didn't join any projects in US, just pure sales.

(Operator Instructions). Your next question comes from Brandon Heiken from Credit Suisse. Please ask your question.

Yes. Thanks for taking the follow-up question. Can you talk about the new products that you're starting to roll out and maybe your expectations for revenue and gross margin from some of these products. I know the microinverter you've been offering for a while. But it sounds like the energy storage system is new, and you mentioned the LED products offer on the press release. Thank you.

(Spoken in Chinese)

Okay, Brandon. Mr. Li says all these new products we're selling -- setting over 20% gross margin, and the Micro Replus inverter -- microinverter is a success. For all these products, we have received numerous certificates around all the key markets and we have seen strong growth in the US and Australia market and we also have shipped some to UK and Germany. And the other string inverter and small energy storage system and LED products is in the early stage of testing and we're at the relatively early stage.

For the microinverter we have over 10 OEM factories that have been helping us. We're looking for this microinverter to be one of the key drivers next year for profit.

What are your expectations on that? How much revenue do you think they come from that, if it's a key driver of next year's profit?

(Spoken in Chinese)

As to the large-scale revenue we have right now, it will be relatively a small portion. Probably a couple millions but it is the future growth point. It is a future product.

The next question comes from Philip Shen from Roth Capital. Please ask your question. Mr. Shen, your line is open. Please ask your question. Your next question comes from Mr. [Brad Nickel from Nickel Capital]. Please ask your question.

Hi. Good evening. Just want to follow up on your comments about being sold out for the year. So have you gotten allocation in for Europe in terms of what your shipments are going in the second half? And how long have you been sold out for the year?

What do you mean how long we've been sold out through the year?

Well, I mean since July or June. Are these new developments for the industry to be sold out after a period of oversupply? So I was wondering how long you've had that [inability] for?

(Spoken in Chinese).

Thank you, Brad. Mr. Li is saying that for -- we started to see in August. We realize we had sold out until the end of this year. And for the allocation in EU, we expecting the EU shipment will take about 40% through Q3 and Q4.

Okay. Thank you. And what's your expectation for supply and demand in 2014? Do you see demand growing and do you see supply growing? And what is your feeling on pricing after the fourth quarter of this year?

(Spoken in Chinese).

Okay. Mr. Li thinks the whole market is definitely looking up and there's strong demand, we're seeing strong demand. So, for next year, the ASP will definitely grow and so as the poly price, we expect the poly price to reach $25 per kilogram. And as for ReneSola, the ASP will definitely go up to $0.70 per watt.

There are no further questions at this time. I will now hand back to today's presenters. Please continue.

Thank you for joining today's conference call. You may now disconnect.