Emeren Group Ltd (SOL) 2014 Q1 法說會逐字稿

Hello, everyone. Thank you for standing by for ReneSola Limited's first-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, today's conference is being recorded.

I will now turn the call over to Miss. Laura Chen, ReneSola's Investor Relations Director. Please go ahead, Miss. Chen.

Thanks, Victor. Hello, everyone. Welcome to our earnings conference call. ReneSola's first-quarter results were released earlier today and are available on the Company's website as well as from 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. Li Xianshou, our Chief Executive Officer, Mr. Daniel Lee, our Chief Financial Officer and myself. So first of all let me take this opportunity to welcome Mr. Daniel Lee on board. I'm sure he will have lots to bring to ReneSola going forward.

I will first discuss ReneSola's operational highlights and strategy and Daniel will go through the financials and guidance. After our prepared remarks we will be available to answer your questions.

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 will now begin with our first-quarter business highlights.

Our OEM strategy continues to be the core of our global sales and distribution strategy. Our overseas OEM module capacity now exceeds 1.1 gigawatts, with a total of 11 facilities in Europe, Africa, South Asia and the Asia-Pacific region. This approach allows us to grow our business with minimal capital expenditure.

Furthermore, as we recognize regulatory uncertainties regarding trade frictions across a number of major solar markets, including the United States and possibly India and Australia, we continue to be well positioned compared to our peers by virtue of our OEM facilities around the world.

Moreover, we may even be able to gain market share from the expected market changes. At the same the potential for higher ASPs in those markets served by our OEM capacity will also boost our profitability.

Our OEM manufacturing network will continue to play a key role in our business model for becoming a brand and technology provider with sales channels spread across multiple continents.

Additionally, we continue to grow our sales network across the globe, with 22 offices and 37 warehouses overseas. Our ever-growing local sales teams provide us with greater adaptability in dealing with changing market conditions and meeting client needs as they emerge.

We are gradually switching our business development focus from big-scale utility projects to small-scale projects, specifically, commercial and residential rooftop projects. We are seeing a stronger and more sustainable growth in this retail end of the market across different continents and are able to sell at a higher price to these types of smaller projects.

With our recognized brand, local warehouses and on-site technical support we are providing retail customers with integrated solar services and solutions which could not only allow us to charge a premium, but also positions us a stronger brand and higher-profile technology provider in the industry. We expect that by the end of this year retail market sales will account for nearly half of our module shipments.

One of our biggest Q1 highlights was the tremendous sales pickup in Japan. We expect that sales volume will continue through the rest of this year, providing another example of our strong sales and marketing capabilities across international markets.

Our polysilicon factory, after a brief period of maintenance, has been back to full production since the end of March and we expect it will contribute positively to our overall profitability from Q2 onwards.

We have made the reduction of our module production costs one of our priorities for the year 2014. We have a detailed plan in place and will implement it gradually throughout the whole year. We expect the cost of our in-house polysilicon will further decline, as we are approaching the lowest electricity price season, which will help to reduce our internal module production cost.

We also expect module costs to be further reduced primarily from increased product efficiency and more efficient sourcing of other materials, among other factors. We are aiming to be a cost-leading module supplier in the industry while maintaining the same high level of product quality that the market has come to expect from us.

I will now review our shipments.

Total solar module shipments in the first quarter were 521 megawatts, up from 505 megawatts in Q4 and 327 megawatts in the year-ago period.

Our wafer shipments totaled 189 megawatts in Q1 compared to 279 megawatts in Q4 and 336 megawatts a year ago. This again reflects our focus on growing sales from our module business while using our wafers internally to support our module production.

Our module ASPs continued to increase, from $0.67 per watt in Q4 to $0.69 per watt in Q1. At the same time wafer ASPs rose from $0.21 per watt to approximately $0.23 per watt.

In Q1 our Japan sales jumped substantially to account for 23% of our total module shipments. We expect to maintain a high level of shipments to Japan through the rest of the year. We also managed strong module sales growth in Europe, especially in the UK.

Our Q1 shipments data reflects our continued push to expand our shipment volumes to more profitable markets. We shipped 205 megawatts to Europe in Q1, representing a quarter-over-quarter increase of more than 53%. For Japan we shipped 117 megawatts in Q1 compared to 26 megawatts last quarter, representing a quarter-over-quarter increase of 346%.

As brand awareness of our world-class products and leading technology continues to rise and our international sales and marketing teams establish even stronger local networks we expect that as global market conditions continue to stabilize our overall shipment volumes will continue to rise.

I will now give you an update on our polysilicon plant.

Our total output of polysilicon in Q1 was 175 metric ton compared to an output of 1,768 metric ton in Q4 2013 and nil in the year-ago period.

Operations of our Sichuan polysilicon plant were temporarily halted in the first quarter for maintenance and technical improvements, which negatively impacted our Q1 net income and gross margin. Full operations of the plant resumed in late March and are currently at 100% capacity.

With the recent rise in overall stability in polysilicon prices and further production cost reduction coming from seasonally-lower electricity prices the Company expects to benefit from its in-house polysilicon production capabilities going forward.

I will now review our R&D developments.

In the first quarter we maintained our level of R&D investment to support continued innovation in our technology, products and manufacturing. Regarding our wafers and modules, we expect to start manufacturing our A Plus Plus Plus wafer 100% in June. This wafer has a conversion efficiency rate of 17.8%.

We have also begun the process of optimizing our module structure while ensuring the carrying capacity and reliability. Such structural improvements will help reduce packing and transportation costs going forward.

Our glass-glass module is now in certification process. With a differentiated design, the glass-glass module will enjoy a cost advantage and a higher ready-for-sale product rate.

Among our inverter products, our second-generation micro-inverter, Micro Replus II, has received ETL certification in the US and is undergoing pilot-scale experimentation now.

We have also launched our second-generation string inverter in Australia, ranging from 3 kilowatt to 5 kilowatt in power output, featuring higher efficiency, lighter weight and longer working life.

Our 18 kilowatt and 20 kilowatt string inverters have received BDEW certification in Germany. We have also launched new string inverter products in India and South Africa.

In the category of energy storage systems we have launched an off-grid, all-in-one storage system product that incorporates a controller, MPPT battery charger, inverter and fast power switch in one system, and supports both acid and lithium batteries.

We have also introduced a lithium battery pack and will provide customized products ranging from 10 amp hour to 500 amp hour and 12 volt to 360 volt in power requirements.

For our mounting systems we have completed the research and development phase of the 30-degree tripod system, which is now in trial production and awaiting patent approval.

We have also completed research and development of AE Clamp Group products, which can hold in position solar panels with a thickness ranging from 35 millimeters to 50 millimeters. The program now is in trial production and awaiting patent approval.

Regarding our LED business, currently we have 600 models of LED products and have obtained 125 UL certificates for North America; 118 CUL certificates for Canada; 150 TUV-CE for EU; 203 TUV-CB certificates for IECEE member countries; and four SAA and RCM certificates for Australia.

We expect to obtain more certifications for different models of LED products across these regions as well as certifications for other regions, such as Japan, Russia and Mexico. The certification process is expected to be completed by June 2014.

I will now turn the call over to our CFO, Daniel Lee, who will provide additional details regarding our financials.

Thank you, Laura, and thank you everyone for joining us.

Before I begin, please note that as of Q1 2014 the Company has changed its accounting classification regarding its gross margin in order to better reflect our global OEM business and to allow for more accurate comparisons to our industry peers.

Our warranty expense is now recognized as a selling expense and not as a cost of goods sold, as had previously been the case. This is a common practice in China's solar industry and we decided to adopt this accounting classification mainly because nearly half of our current module production is from our OEM network, which effectively [transfers] the warranty obligations [to] our OEM partners.

All the figures I will reference today from previous quarters that are impacted by the adoption of the new accounting classification, specifically gross profit, gross margin and operating expenses, have been adjusted accordingly for the sake of comparisons.

I will now walk you through our financial results for Q1.

Net revenues were $415m compared to $439m in Q4 of last year. Gross profit was $44m compared to gross profit of $49.7m in Q4. Gross margin was 10% compared to gross margin of 11.3% in Q4. The contraction was largely related to the temporary maintenance shutdown of our polysilicon factory in Q1, which is now back at 100% production.

Total operating expenses were $52.8m, representing 12.7% of total revenues, compared to $40.9m and 9.3% in Q4. The sequential increase in operating expenses were primarily due to reversals of accrued expenses in Q4 2013 as well as higher shipping costs due to increased overseas shipments and a provision of accounts receivable in Q1 2014.

Operating loss was $8.7m. Operating margin was negative 2% compared to operating margin of 2% in Q4. Net loss attributable to holders of ordinary shares was $14.6m, which represented basic and diluted loss per share of $0.07 and basic and diluted loss per ADS of $0.14.

As of March 31 we had total debt of $723.9m compared to $742.6m as of the end of Q4, and excluding $111.6m in convertible notes. Our net cash position including cash and cash equivalents plus restricted cash was $214.9m as of the end of Q1, compared to $348.9m at the end of Q4.

Lastly, net cash outflow from operating activities was $112.3m in Q1 compared to a net cash outflow of $30.8m in Q4 2013, mainly to pay off accounts payable.

Turning now to our guidance for Q2, we expect our total module shipments to be in the range of 480 megawatts to 500 megawatts and overall gross margin to be in the range of 12% to 14%. For full-year 2014 we expect our total solar module shipments to be in the range of 2.3 gigawatts to 2.5 gigawatts.

We will now open the line for questions. Operator, please go ahead.

(Operator Instructions). Brandon Heiken, Credit Suisse.

Thanks for taking the question. And welcome and congratulations, Daniel Lee, on the new position.

Thank you, Brandon.

You guys have the comment in the press release and in the prepared remarks of a mix shift to 50% of retail sales. What have retail sales been recently?

And there's also this new focus, it sounds like, on doing smaller projects like residential and commercial at higher prices. Will you be doing the project development for those projects, or is it selling panels only into the projects? Thanks.

Yes, Brandon, so let me translate this for Mr. Li.

(Spoken in Chinese).

(Spoken in Chinese).

Yes, Brandon, so let me translate for you.

So actually [we've] started doing the smaller-project business in Australia already, because Australia has a lot of land, but they don't have a lot of big-scale projects there. And we are currently the number-one module supplier for the Australia market.

So we have accumulated hundreds of customers there. And we have also accumulated a lot of experience developing these smaller projects. So we believe that the smaller-projects business, I mean the retail market, is a sustainable market.

And now we are doing the retail business in Japan and UK with, actually, very good gross margin. Currently the gross margin for Australia for the retail market is around 20%.

And we not only sell module to them, but also we can sell inverter and mounting system. So we believe the retail market, the residential commercial rooftop are the direction of the solar industry development.

So with the trend that there will be less and less big-scale utility projects available in EU we believe that the commercial and residential rooftops will grow substantially and there are lots of potential for making profit.

Okay. And there were a couple of press releases in the quarter about the US trade investigation. Are there any comments, or any updates that you can offer us about the investigation?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, so Mr. Lee said you should know that next week there will a preliminary ruling for the anti-countervailing investigation. We are very well prepared right now and are getting ready with our Korea, India and Turkey modules to ship to US.

Okay, great. Thank you very much.

Okay, thank you.

[Tyler Frank], Robert Baird.

Hi, guys. Thanks for taking the question. I was wondering if you can discuss what took place that interrupted polysilicon manufacturing and what you're seeing there in the market in terms of pricing, and how you view that both in Q2 as well as throughout the remainder of the year.

You mean the price across different regions?

Correct.

Okay.

(Spoken in Chinese).

(Spoken in Chinese).

So generally speaking there is some pressure for a price drop in the module ASP. So in Q2, because of this anti-dumping countervailing investigation process in America, the US ASP is going up. And Mr. Li just said the ASP in the Japanese market is going down.

Okay, great. Can you discuss what you're seeing in terms of polysilicon prices as well?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, the price for polysilicon compared to module price is actually quite stabilized right now.

Okay, thank you.

Thanks.

Vishal Shah.

Yes, hi, thanks for taking my question. Can you talk about the breakdown of shipments in the second quarter, where you expect the growth to come from, and also why such a wide range of gross margins in the second quarter?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, so Vishal -- yes, Mr. Li said that in Q2 we were actually reducing a bit our shipments in US and also Chinese shipments will be reduced as well. And for geographic breakdown the percentage would be around same as Q1.

We gave the geographic breakdown, for example, in Japan about 23, Europe about 39 to 40 and other markets remain similar. And the gross margin growth for Q2 will come from the cost reduction.

(Spoken in Chinese).

Yes, because the polysilicon production cost will be reduced in Q2.

Can you tell us about why you're releasing your shipments into China? It looks like a lot of your peers are actually expecting significant growth in the Chinese market. So what's going on there? And how do you think the second-half shipments into both China and the US market look like?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, Mr. Li said he thinks that for the bottom half of this year the Chinese demand will be really good. For the decreased shipments in Q2 he said because there are not too many permits right now, the approved projects, these permissions are not available yet.

So it's probably -- you'll probably have to wait until June to see the first batch of [mix] to go out of the government. That's why the Chinese shipment in Q2 will be reduced a little bit.

Okay, and then just one last question in terms of the policy change in China. Do you expect any change at all in the first place? And what do you think happens for the [distributor] generation market in China? Do you expect a new policy or new feed-in tariffs to be introduced some time in the next couple of months? Thank you.

(Spoken in Chinese).

(Spoken in Chinese).

Yes, Vishal, Mr. Li just said he thinks that the total installation for utility-scale projects will be exceeding the target, because there are lots of applications right now, about several dozens of gigawatts right now under application.

For the DG market current policy is not quite mature, but the government is making a lot of effort to push the development of DG market.

As for the policy-change side, it's very hard to predict how it will go in the future. But at least we can see that the government is very much determined about development of DG. And we believe that DG is definitely the future of solar industry.

Okay, thank you.

Philip Shen, Roth Capital.

Hi, everyone. Thank you for taking my questions. What kind of traction are you getting with your non-module downstream product offerings? How much revenue did you generate from that set of offerings in Q1 and how much revenue do you expect to generate from these products in 2014?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, as you know, these businesses are quite new to us. We believe -- we expect to make a revenue of $20m in Q3 and there will be further growth in Q4 this year.

Okay, great. With your increased focus on residential markets how should we expect your G&A to trend? There's a large jump in this quarter. What do you see ahead?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, so -- yes, when we say we focus on the retail market definitely the expenses for, let's say, logistics, warehouses keeping and employee salary is going to increase a little bit.

But we adopt this strategy of [doing] product diversification, so let's say these expenses will be spreading out quite much. So, yes, we actually attach greater importance to the retail market right now and it's becoming our strategy now.

Okay, great. And, to drill in just a bit more on that, we saw $20m of G&A in Q1 versus $13m in Q4. Is $20m the new level we should expect by quarter going forward?

You mean $20m for sales and marketing expense?

For G&A.

Yes, right.

(Spoken in Chinese).

Phil, this is Daniel. Yes, for G&A we should expect a lower number for the Q2 quarter. In Q1 basically we had a couple of AR provisions that ranged between [$3m to $3.5m]. So we don't expect that to happen in Q2 and going forward.

Okay, great. Thanks, everyone.

Thank you.

Thanks, Phil.

[Shamal Por], ReneSola.

Good morning, everyone. This is Shamal Por, a Private Investor. How has been the business condition in Africa and Latin America?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, just talk about the African market right now. So we have set up an office in Johannesburg in South Africa and we're going to set up an office in Dubai and Lagos. Lagos is in Africa. Dubai is in Middle East. So our office and sales [net] will be wide spread out across the whole Africa and Middle East.

So in Africa we're actually developing some off-grid projects. We try to cooperate with diesel energy to develop some electricity projects. And we try to cooperate with the local parties and will develop the local market in Africa.

(Spoken in Chinese).

(Spoken in Chinese).

So for Latin America we've set up an office in Brazil already, but let's say it's still a premature market. It's probably too early to talk about the solar development boost in this market. For example, in Brazil, Mr. Li believes that this year the total installation would be probably less than 100 megawatts.

And let's talk about Chile. So they talk very big, but currently we don't see very big projects, or many projects going on really. So in Latin America our business focus will be more on the lighting business and on the storage system business rather than solar industry.

But because there are -- it's very -- it's a very populous area in Latin America, so we believe that it's a very big market for all the emerging markets. We will certainly keep an eye on the solar industry opportunities as well.

Brandon Heiken, Credit Suisse.

Thanks for the follow-up question. I just wanted to clarify on your poly costs now that the factory's back running. Are you able to say what poly costs are, or maybe a change through the year in poly costs, please?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, currently in May our total cost is $21.5. And the total cost in June will be reduced by $2. Actually, I can give you a cash cost. Cash cost now is around $19, or $18 to $19. And cash cost in June will be $16 to $17.

Okay. And where do you think that might be by the end of the year?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, let's put it this way, the total average production cost for poly for us this year is around $19 to $20.

Average for the year? Okay.

Yes.

Okay. And what sort of improvements do you hope for on wafer and module costs for the year?

(Spoken in Chinese).

(Spoken in Chinese).

Yes, Brandon, so Mr. Li said we put in a lot of effort to try to reduce our production cost. On [this] side we have internal module production costs and OEM module production cost.

For internal module production cost we will reach $0.50 in June. For OEM module production cost we will reach $0.60 in June. So it will definitely contribute very positively to our Q3 profitability.

Okay, and that $0.50, where was it maybe in the first quarter and where do you think it might be at the end of the year?

(Spoken in Chinese). Do you mean internal production cost?

Sure, or both.

(Spoken in Chinese).

(Spoken in Chinese).

(Spoken in Chinese).

Yes, so Q1 actually the production cost internal is $0.53 and OEM is around $0.63. So by the end of this year there's a potential for a further cost reduction by £0.01 to $0.02.

Okay, for both in-house and OEM?

Yes.

And is that £0.01 to $0.02 from the June cost you mentioned, or from Q1? [Yes], it looks like you see it from June.

(Spoken in Chinese).

(Spoken in Chinese).

Yes, [the] June level.

Okay. And just for cash flow -- for operating cash flow and CapEx do you have any thoughts on what those could be for the year?

Yes. Right, so operating -- let me just get Mr. Li.

(Spoken in Chinese).

(Spoken in Chinese).

Yes. So, Brandon, we actually paid off some PPE costs -- expense, I mean, in Q1 for the previous projects, so the total CapEx this year would be around $50m to $60m.

And for the cash flow -- operating cash flow, because we're recovering our business, it's trending definitely upward, so we expect the operating cash flow to actually turn better and better.

So let's say because -- let me just add some comment here.

Because you can see that the operating cash flow this year is -- this quarter is not very good because we paid off some accounts payable. You can see we have a good level of reduction in accounts payable. And it is definitely quicker than the normal speed that we're paying off this accounts payable.

So we expect to return to a normal status to pay off these money. So let's say this -- going forward the cash flow -- operating cash flow will definitely be better and better, be better than this quarter definitely.

(Spoken in Chinese).

Thank you.

Okay, so -- yes, so Mr. Li adds some comment here. We have $90m depreciation and also $30m projects that we can actually recognize as revenue that we haven't.

Okay, thank you very much.

(Operator Instructions). Since there are no further questions in the queue, with that, we conclude our conference call for today. Thank you all for participating. You may all now disconnect.