Emeren Group Ltd (SOL) 2013 Q4 法說會逐字稿

Hello, everyone. Thank you for standing by for ReneSola Limited's fourth quarter and full year 2013 earnings conference call. (Operator Instructions). As a reminder, today's conference is being recorded.

I will now turn the call over to your host for today, Miss Juliet Yang, ReneSola Investor Relations Senior Manager. Miss Yang, please proceed.

Hello, everyone, and welcome to the earnings call. ReneSola's fourth quarter and full year results were released earlier today and are available on the Company's website as well as by way of 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; Miss Laura Chen, our Investor Relations Director and myself. I will discuss ReneSola's operational highlights and strategy and Mr. Wang will go through the financials and guidance. We'll 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 note that unless otherwise stated all figures mentioned during this conference call are in US dollars.

I shall now begin with our business highlights of the fourth quarter and full year 2013. We achieved strong results in the fourth quarter with record solar module shipments and revenue leading to the recognition of profits for the first time in two years. In a year in which the global solar industry showed real signs of recovery amid persistent challenges, we are happy to have not only endured, but to be returning to profitability.

In Q4 we achieved module shipments of 505.3 megawatts and gross margin of 10.8% which was at the upper end of the guidance we provided in Q3. Our module shipments again achieved solid sequential growth. At the same time, module ASPs increased from $0.66 to $0.67. In all our net revenue in Q4 were $438.8m, representing sequential growth of 4.7% quarter over quarter.

Our module shipments increased from 713 megawatts in 2012 to 1.7 gigawatts in 2013, representing an increase of 142.5%, illustrating our current position as a major global module provider and after only 18 months of scale production.

Also, by strategically targeting regions with higher ASPs, we have become one of the top module suppliers in key markets like the United States, Europe and Japan.

Our results reflect a global increase in demand for solar products as well as the success of our international module business which was driven by the expansion of our OEM capacity, vigorous sales and marketing efforts and the opening of new sales and distribution centers in our target markets.

As you may know, we started our own global OEM deployment two years ago. In 2013 we saw remarkable progress in that strategy. We currently have total overseas OEM module capacity of approximately 1 gigawatt with facilities in Poland, South Africa, India, Malaysia, South Korea, Turkey and most recently Japan.

Moreover, an increased proportion of our total module shipments came from our OEM facility last year. As such, we were able to grow our business with minimum capital expenditure. We also have greater flexibility in terms of capacity expansion which we can base on actual market conditions.

Furthermore, given the potential of extended and additional anti-dumping and countervailing measures regarding Chinese solar products, our global OEM capacity puts in a very favorable position to manage such regulatory restraints -- constraints.

With our rapid growth in our international business development last year, we now have 15 overseas sales offices with our most recent openings in established markets like France and emerging markets like Panama, Turkey and Thailand. We are also in the process of setting up new offices in South East Asia, Latin America, the UAE, Africa, Russia and Canada. And now we have 27 warehouses around the globe.

With our local team and distribution centers serving the majority of our overseas markets, we are able to provide tailor-made local support and solutions as well as instant product delivery. Moreover, we are able to extend the reach to our brand image and enhance our reputation for quality, which is the key to our goal of becoming an integrated service and solution provider.

I will now review our shipments. Our module shipments increased 9.1% (sic - see press release "9.2%") sequentially to a record high of 505.3 megawatts. The sequential growth was mainly due to an increase in demand in China.

Total solar product shipments in Q4 were 784.1 megawatts, a decrease of 7.9% from 851 megawatts in Q3 due to a decrease in our wafer shipments reflecting our strategy of focusing on module business including using more of our wafer production to support our module assembly. As I mentioned earlier, our total solar module shipments were 1.7 gigawatts, representing a year-over-year increase of 142.5%.

Full year 2013 total shipments rose to a record of 3.1 gigawatts, an increase of 42.4% from 2.2 gigawatts in 2012. The increased shipment was the result of strong overall demand for our solar modules which we attribute to a steady and continued increase in our brand recognition and to our current position as a major module supplier.

As noted, our module ASPs increased again in Q4 rising to $0.67 per watt compared to $0.66 per watt in Q3 and $0.63 per watt in Q4 of 2012. The annual growth of the module ASPs reflects the success of our strategy to increase our share of shipments to regions with higher ASPs as well as an overall recovery of the global solar market. For full year 2013, average module ASP was $0.65 per watt.

In Q4, in terms of the geographic breakdown of our module shipments, the United States and Europe accounted for 27% each, Japan 5%, China 22% and the rest of the world 19%. For full year 2013, the United States accounted for 20%, Europe 42%, Japan 2% -- Japan 6%, China 16% and the rest of the world 16%. We expect our shipments to Japan to increase proportionately in 2014.

Our shipment data reflects the success of taking our module business global, marked by a significant increase in the share of our shipments to the United States. We will continue to work on expanding our share of shipments to our target markets and are confident our recent operational development will support this goal, particularly in Japan.

Nevertheless, given the likelihood of continued trade friction between the United States and China regarding solar products, we remain cautious in our US shipments since this March.

I will now review our R&D developments. During the fourth quarter we began trial production of the new A+++ wafer and expect to begin mass production in Q2 of this year. The new A+++ wafer will have an average efficiency increase of 0.25% compared to the A++ wafer.

We also expect to launch a new Virtus III module using our own A+++ wafer in Q2. The increased efficiency of the new module is expected to result in a slightly lower cost per watt compared to the Virtus II module.

We began mass production of our full-black mono-cell module during Q4. This is a high end, limited supply module designed for residential rooftop use. The full-black module blends seamlessly with the black back panel and provides high efficiency along with the sleek appearances.

The design of our newly-developed glass-glass module which features exceptional reliability in terms of fireproof performance as well as great durability under hostile natural environment such as desert conditions and salt and snow exposure. It is expected to start the certification process and enter the trial production soon.

Our micro-inverter now features remote regulation functionality which enables the customer to regulate the voltage and the frequency range of the grid to meet the field requirements. In Q4 we obtained certification for our string inverter across a number of markets including Germany, South Africa and the United States.

We now have developed 600 modules of LED products and expect to obtain TUV-CE, UL and CUL, SAA and CTICK certification for over 100 of these modules in Q2 of this year. Our full line of LED products is already being marketed globally.

I will now give you an update on our polysilicon factory. Our total output of polysilicon for the full year of 2013 was 2,800 metric tonnes including an output of 1,768 metric tonnes in Q4. Operation of our Sichuan polysilicon factory was temporarily suspended in Q1 of this year for equipment maintenance and optimization purpose and has returned to full operation this month.

With polysilicon price recently going up and remaining stable, we expect to benefit from our in-house polysilicon capacity going forward and see this as a distinct advantage over our fellow module manufacturers.

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

Thanks, Juliet and hello, everyone. I will now walk through our financial results. We achieved record shipments and revenue during the fourth quarter, with both shipments and gross margin coming in at the upper end of the guidance we provided in the third quarter of last year.

Our revenue growth and cost control efforts led us to recognize positive net income for the first time in two years. We have been actively managing our balance sheet items. As a result, as of the fourth quarter 2013, we saw a quarter-over-quarter decrease in both accounts receivable and accounts payable.

Also since we signed an agreement to sell our China projects, we saw reduced total borrowings at the end of 2013. We are constantly working to improve our financials and believe we will have a more solid and sustainable financial position in year 2014.

I will now review some of our financial highlights. Net revenue for the fourth quarter was $438.8m, representing a sequential increase of 4.7% from $419.3m and a year-to-year increase of 43.2%, from $306.5m in the fourth quarter 2012.

Net revenues for full year 2013 were $1,519.6m, representing a year-on-year increase of 56.8% from $969.1m in the year 2012.

Gross profit for fourth quarter was $47.4m compared to gross profit of $34.1m in the third quarter primarily due to the increased sales of our solar modules which have higher margins than those of our wafer business.

Full year 2013 gross profit was $103.3m compared to a gross loss of $35.7m in year 2012. The return to gross profit in year 2013 was driven by an increase in solar module shipments and an overall recovery in the global solar market.

Gross profit margin for the fourth quarter was 10.8% compared to a gross margin of 8.1% in the third quarter. Full year 2013 gross profit margin was 6.8% compared to a gross margin of negative 3.7% in 2012.

Total operating expenses for the fourth quarter were $39.2m, down $15.2m -- sorry, down 15.2% (sic - see press release "15.3%") from $46.2m excluding the impairment charge and the one-time gain in the third quarter. The sequential decrease in operating expenses was primarily due to more efficient research and development investment and effective control of our general and administrative expenses.

Operating expenses represented 8.9% of total revenues in the fourth quarter compared to 11% in the third quarter. Excluding the impairment charges and one-time gains, operating income for the fourth quarter was $8.2m compared to an operating loss of $180.3m in the third quarter.

Full year operating expenses were $325.3m. Excluding the impairment charge of $202m primarily associated with the Sichuan polysilicon factory and a one-time gain of $34.7m related to a forfeiture regarding a long-term supply contract in the third quarter, operating expenses were $158m, representing 10.4% of total revenues compared to $127m and 13.1% in 2012.

Full year operating loss was $222.1m compared to an operating loss of $179m in 2012. Excluding the impairment charge, operating loss was $20m in year 2013.

Operating margin for the fourth quarter was 1.9% compared to a negative 43% in the third quarter. Full year operating margin was negative 14.6% compared to negative 18.5% in 2012.

Operating margin excluding the impairment charge for 2013 was negative 1.3% compared to an operating margin excluding impairment charge of negative 16.8% for 2012.

Net income attributable to holders of ordinary shares for the fourth quarter was $0.8m compared to a net loss of $200.3m in the third quarter. The basic and diluted earnings per share are almost zero cents and basic and diluted earnings per ADS are $0.01 for the fourth quarter.

Net loss attributable to holders of ordinary shares for full year 2013 was $258 -- $259.5m compared to $242.5m for the full year 2012. The basic and diluted loss per share was $1.42 and basic and diluted loss per ADS was $2.85 for 2013. Excluding the impairment charge, net loss was $57.5m for 2013.

As of the end of Q4, we had total debt of $742.6m, excluding $111.6m due in convertible notes, compared to $831.2m at the end of third quarter 2013 and $790.2m as at the end of 2012.

Our net cash and cash equivalents plus restricted cash totaled $348.9m at the end of fourth quarter 2013 compared to $438.5m at the end of third quarter 2013 and $278.1m at the end of 2012.

Our net cash outflow from operating activities in the fourth quarter was $29.3m compared to a net cash inflow of $70.97 -- $79.6m in the third quarter. Net cash inflow from activities for the full year 2013 was $119.8m compared to a net cash outflow from operating activities of $94.7m in 2012.

Now please turn to our guidance. For the first quarter 2014 we expect total solar module shipments in the range of 500 to 520 megawatts. Gross margin is expected to be in the range of 9% to 11%.

For full year 2014 we expect total solar module shipments to be in the range of 2.3 gigawatts to 2.5 gigawatts. For the full year 2014, we currently do not have any plans for internal capacity expansion.

This concludes our prepared remarks. We will take your questions you may have. Operator, please go ahead.

(Operator Instructions). Brandon Heiken, Credit Suisse.

Hello, congratulations on reaching profitability and thanks for taking the question. I was wondering if you can clarify --

Hi, thank you.

I was wondering if you could clarify the outlook for pricing and costs for the first quarter and the rest of the year please.

(Spoken in Chinese).

Okay. So Brandon, for the Q1 ASPs, Mr. Li expects to increase from the current $0.67 per watt to a range of $0.68 to $0.69 per watt. And the cost will remain around the same level.

And for the full year we expect our ASP remains stable. And as for -- starting from Q2 we will be benefit from our polysilicon production, our costs will decrease. So our margin will increase in a good way starting from Q2.

Okay. For shipments I know you've guided module shipments for the quarter and the year. What do you expect the wafer shipments to be and what do you expect for shipments of new products like the LEDs?

You mean Q1 or the full year?

Both please, if possible.

(Interpreted). Our total module shipments we guided around 2.3 gigawatts to 2.5 gigawatts. We have abandoned a few lower ASPs markets, so our shipments of module is still gradually increased.

As for the wafer there will be less and less long-term contracts and we'll (background noise) of our internal wafers for our own module production. For full year we are guiding around 800 megawatts for module -- for wafer shipment. As for Q1 the wafer shipments is going to below 200 megawatts, probably around 180, 190.

And for the LED products we did not include it in our forecast. We're still doing a lot of marketing efforts. So you can mark zero for this year.

Okay, thanks. And just to clarify when you said stable pricing this year, do you mean flat with the Q1 pricing or do you mean flat year over year with last year?

(Interpreted). It is compared to the Q1 ASP.

Right, thank you.

Matt Koranda, Roth Capital.

Hey, guys, congrats. This is Phil, Phil Shen on for Matt.

Hi, Phil.

I want to -- hey, Laura.

Hello.

-- follow up on one of the -- can you hear me?

Yes.

Great. You know you guys talked about what the potential or lack of potential for LED revenues might be in the year. Can you talk to us about what kind of shipments you could see in the micro-inverter product?

(Interpreted). So as for the micro-inverter shipments we remain at stable shipment of 5,000 to 10,000 piece per month. But compared to the module shipment, it's still a very small fraction. So we did not put it in our forecast and outlook.

What geographies are you primarily shipping the micro-inverters to?

(Interpreted). The top three countries will be the US, Australia and Mexico.

Okay, great. You talked about ASP stability through the year. How do you expect gross margins to trend as we go through 2014?

Okay. As for Q2 we're expecting to increase to 13% and gradually go up to 15%. However, the gross margin is going to be slightly affected by the Sichuan suspended production. So Q1 will be a little bit lower. But overall, we hope to achieve an annual gross margin of 13%.

Great. Speaking of polysilicon and what you're doing there, you guys had a nice production quarter in Q4. Can you help us understand what the cash costs were in Q4, and then what kind of production could you see relative to nameplate of polysilicon in 2014?

(Interpreted). Hi, Phil. As for the Q4 cash costs, it is around $19 per kg. That's the cash cost. Plus depreciation, it will be around $21.50 per kg. As for the full year 2014, because we're doing the annual maintenance work, it's going to be slightly affected, the annual production, but the full year is expected to around 7,000 metric tons.

Great. Thank you. One more for me, and I'll jump back in queue. You guys have certainly differentiated module strategy relative to many of your peers. Can you talk to us about what your CapEx expectations are in 2014?

Okay, Phil, let me take this question. This is Henry speaking. Our estimated CapEx for cash payment in the year 2014 will be $80m, which mainly contained the payments which is already invested in the year 2013. And also in that figure, it will contain about $20m for the maintenance CapEx, but we will not have any plan for any new investment in new capacity expansion.

Okay, great. Thank you, Henry. And thank you, Chairman Li and Laura, as well. I'll jump back in queue.

Okay, thank you.

James Medvedev, Cowen & Company.

Good evening, folks, and congratulations on achieving profitability in the fourth quarter.

Thank you.

Thank you.

My question, could you refresh us, what is your wafer and module capacity now?

(Interpreted). The wafer is 2 gigawatt and the module is 1.2 gigawatt, internally.

Okay, so that's what I thought. So then the question is, how will you achieve twice that amount of module production in 2014?

(Interpreted). Hi, Jim. The OEM capacity, currently, we have overseas OEM capacity of around 1 gigawatt, overseas, and we also have 1 gigawatt OEM capacity optional in China, so we don't need to expand any of our internal capacity, and that's how we achieve our annual targets.

What is the difference in margin when you use outsourced module production?

(Interpreted). So for our in-house production, our gross margin will be around 15%, and for OEM production, it's a little bit lower, around 11% to 12%.

Okay. Just one more here. What was the -- actually, a couple more, if I may. What was the ASP on wafers this quarter, in Q4?

(Interpreted). It's $0.22 in Q4.

Okay, and the -- I'm sorry, the poly and non-poly costs in Q4? And also Q3, if you have them? Hello?

(Interpreted). Yes, for Q4, the non-polysilicon cost is around $0.10 and the processing cost is around $0.10.

Okay. Thank you, and congratulations again.

Thank you.

Okay, thank you.

Emily Liu, Arete Research.

Hi. Thanks for taking my question. I think previously you mentioned your cash costs for polysilicon manufacturing is $19, and I just wondered, what's your expectation on the poly spot pricing, and where do you source your polysilicon, from the spot or long-term contracts? Do you have a breakdown? Any color would be appreciated. Thank you.

(Spoken in Chinese).

Okay. Emily, I think you understand that.

Yes, I just wondered --

Let me just translate for --

Yes, it would be great.

I will just translate for everybody else that's on the call. Our cash cost in Q4 is $19, and the cash cost is expected to be further reduced, starting from Q2. The cash costs will reduce to around $17 per kg. And as for the spot market, right now for the poly is around $22.50 per kg, and Mr. Li think it's going to go up to $24 to $25 per kg starting from this May. As for our long-term contracts, we originally have two long-term contracts with Wacker and OCI. We have already finished the long-term contract with Wacker, so we only have the OCI contract. For the 2014, we'll probably have 15% of our polysilicon be supplied internally, and 25% is going to be long-term contract, and the 25% rest is going to be purchased from the spot market.

Just a quick follow up, can I know why Chairman Li expects the poly spot price to go up in May, and if it does, would that impact your gross margin as a whole for your module business?

(Spoken in Chinese).

Emily, I think you understand that, but for everybody else that's on the call, Mr. Li explained why he projects the polysilicon cost to be around $24 to $25 per kg starting from May. It's because January to April is the traditional slow, slow season, and also Europe and China, it's very slow this year. Starting from the spring, the demand from China will increase significantly, so as the European market. The European market's demand is going to be much larger than the demand was in the second half of last year. So with those two factors, we expect the polysilicon price to increase starting from May.

As for us, because we have our internal poly capacity and our ASP is quite stable, the effect to our gross margin is very limited.

All right. Thank you, Emily.

Thank you.

Paul Strigler, Esplanade.

Hey, guys. Congrats on the great quarter. It looks like you guys have done a fantastic job maintaining a huge presence in Europe, and it looks like you expect that to grow more in 2014 to maybe 60% of your shipments. Obviously, that's a very high-priced market. Can you talk about your pricing in non-European markets and, Mr. Li, if you could update your view on the Chinese market? I think on the Q3 call, you were one of the few CEOs that were not quite as bullish on China as some of your peers, and I was wondering if you see any tangible signs that would change that view. Thank you.

(Spoken in Chinese).

Hi, Paul. Mr. Li wanted to first give you an overlook of our 2014 shipments. In 2014, we expect the European shipments to take around 35% of our total shipments. That's going to be around 800 megawatts, and Japan is going to increase significantly. We already have 600 megawatts order in hand, which represents around 25% of the total shipments, and the US still remains a large portion of our shipments, which is around 400 megawatts; that takes around 15%,

And we also remain the leading position in the Australian market. In Australia, we still have 100 megawatt shipments this year, and India, another 100 megawatts. That total takes around 85% of our total annual shipments, and China will take a portion, around 10% to 12%, and the rest is going to be South Africa, Turkey and other emerging markets. And I'll let Mr. Li to get back to your pricing question.

(Interpreted). For our premier target markets, European, Japan and the US, the ASP will be around $0.70 per watt, and as for Australia, Mexico and South Africa, it's a little bit lower. It's from $0.63 to $0.65 per watt, and China will be lowest. It's only around $0.60 per watt.

And so has Mr. Li's view on China changed since the Q3 call, or is he still not quite as optimistic as some of his peers?

Yes, I'll let him to get back to you on that.

(Interpreted). China still has a lot of potential to grow. Especially in the second half of this year, it's going to be looking good, but not in the first half of this year, because there's weather issues.

One uncertainty will remain on the policy regarding distributed generation. As the policy encouraging and pushing, we might be looking at a very promising second half of the year in the China market.

Great. And just one last quick question. How much poly capacity does Mr. Li estimate is in Sichuan? Just because electricity prices are typically lower in Q2 and Q3, and I'm wondering if as we head into Q2 and Q3, we might see more polysilicon, not just from you guys in Sichuan, but from some of your other peers, with even more capacity.

You mean just in Q2 or in the whole --

I mean what's his estimate of how much polysilicon capacity exists among all suppliers in Sichuan Province? Just because in Q1, none of those guys produced, because electricity prices are too high. But as we enter the high water season and electricity prices come down, I just wonder how much potential poly capacity could come back online from Sichuanese producers and potentially help supply a starved market.

(Interpreted). The overall layout for the polysilicon manufacturing has already settled. A lot of polysilicon manufacturing has went out of business. A few years ago, we have 60 to 70 manufacturing in China. Now, there are less than 10 poly manufacturing. As far as [Mr.] know there are only us in the Sichuan that's still producing polysilicon right now.

Great. Thank you very much.

Wei Feng, Luminus Management.

Hi. Just one short question on operating expense? Can you give us a guidance, color for the year, operating expense trending as a percentage of revenue, please?

Okay, let me take this question. From our plan, in line with our revenue growth, totally, the operating expenses will be down a little bit compared to year 2013. The average percentage could be like 9.5%, something like that.

9.5% for the full year, right? Hello?

Yes, 9.5%.

Got you. And on the product mix, I saw you sold your product in China, but the sales is not complete. Can you talk about the sales completion timeline? And you still have some products, assets for sale on your balance sheet. What is the timeline for that sales and also the gross margin, if you can?

Okay. Actually, we already announced that we signed an agreement to sell our Chinese solar projects. We tried to complete the transaction in the first quarter. That means about 60 gigawatts, and after those Chinese solar projects, we still have 25 megawatts which can be sold in the future, which is mainly located in Romania and the Bulgaria countries.

And your targeted gross margin for those projects, both Chinese and overseas projects, please?

Okay. For Chinese projects, the gross margin could be about 15%, something like that, 15%. And for those overseas projects, because we still are not getting exact quotation for those projects, it is difficult to speak now.

Thank you. That's all my question.

Okay, thanks.

Brandon Heiken, Credit Suisse.

Thanks. Excuse me. I was wondering if you could talk about your view on projects. Is your view still that you would like to minimize further project development in China and elsewhere?

You mean our as ReneSola or overall Chinese manufacture?

Yes, your own project development.

(spoken in Chinese)

Mr. Li says it's a little bit hard to say right now, but overall, he thinks the project business is better than manufacturing business. However, it is more of a financial situation related to the banks and the interest rate. So as for the Chinese projects, we will be involving in developing some of the projects but will not engage in any investment or EPC. However, for the overseas projects, like the UK, we might be a participant in some of the BOT type of transactions, because we wish to do such business in a very stable environment, with very stable law environment.

Got it. And can you talk about your relationships with banks? It sounds like some of the lending criteria have tightened in China. Is it still relatively easy to roll over loans, and can you talk about your expectations for the convertible notes that might be put-able?

Actually, if you look at -- if you download our PPT, probably you can, under our press release, you can find -- from the cash flow statement, that in the year 2013, we already -- we borrowed $1.4b from the bank and returned $1.4b back to the banks, which means that almost all the loans we already roll over from the banks. So until now, although the bank controls the new facility, but we still -- we can renew those facilities we already borrowed from the bank. I think with the encouraging, and the government is also encouraging the banks to give the facility to the manufacturers to survive the difficult time, definitely we think ReneSola can be rolled over all those loans within this year.

For the convertible -- for the CBs, I think probably we need to find other finance solutions to deal with that repayment. Maybe we need to get a new [CP], something like that.

Okay thank you.

(Spoken in Chinese).

Thank you, Brandon.

Thank you.

(Operator Instructions). All right. This concludes today's conference call. Thank you for your participation. You may now disconnect the lines.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.  The interpreter was provided by the Company sponsoring this Event.