Emeren Group Ltd (SOL) 2014 Q3 法說會逐字稿

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

I will now turn the call over to Ms. Juliet Yang, ReneSola's Senior IR Manager. Please go ahead, Ms. Yang.

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

Joining the call today are Mr. Xianshou Li, our Chief Executive Officer and Mr. Daniel Lee, our Chief Financial Officer. I will read Mr. Li's prepared remarks regarding ReneSola's operational highlights and strategy and Daniel will then review our shipments and financials, after which our team 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 the conference call are in US dollars.

I will now begin with an overview of our third quarter business. Our results in Q3 were mainly impacted by our foreign exchange loss of $13.7m and a delay in shipments due to the anticipation of lower minimum imported prices in Europe, which were announced towards the end of Q3.

However, our fully integrated platform of international sales, support, and logistics, along with our global manufacturing footprint and focus on retail-oriented and downstream opportunities, continue to keep us in an advantageously competitive position.

Our global platform gives us the flexibility to adjust to changes in demand across all of our major markets while maintaining operating efficiencies and, as in Q3, improving our gross margin to 15.3%.

At the same time, we continue to move away from low-ASP markets and are directing more of our resources toward higher-margin commercial and residential projects, as well as total-solution opportunities.

In Q3 the company continued to expand its diversified customer base. Over 500 new customers successfully closed deals with ReneSola in Q3 and as of October of this year the company has built a customer base of 2,314 across 87 countries. We expect these numbers to continue to grow as our retail and commercial business generates a larger portion of our total revenue.

While we remain focused on our retail and residential-oriented business development, we selectively pursue high quality, low risk downstream project opportunities in developed countries such as the United Kingdom. As of this month, we have started construction on a second downstream project of 6.4 megawatts in the UK which is expected to connect to the grid in February 2015. The first 13.4 megawatt project is expected to connect to the grid in December of this year. We expect to sell both of the projects in the coming quarters. We're also in the process of conducting late-stage due diligence on other quality projects in the UK.

Currently, we have a total of 62 megawatts in existing projects including a 25 megawatt in utility-scale project in Bulgaria and Romania and 37 megawatt in distributed generation Golden Sun projects in Mainland China. All of our existing projects are completed and connected to their respective grids. While collecting income from power generation, we're actively evaluating the sales of these assets.

Regarding our polysilicon production, total output of polysilicon in Q3 was 1,694.3 metric tons, compared to an output of 1,815.6 metric tons in Q2. Currently our polysilicon plant is running at full capacity and continues to generate positive cash flow.

As for our R&D development, in Q3 we invested $13.3m in research and development compared to $13.9m in Q2 and $14.2m in the year-ago period. We will continue to invest in R&D to enhance our technical capabilities and expand our green energy product portfolio.

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

Thanks, Juliet, and hello, everyone. I will first walk you through our product shipments. Total solar module shipments in the third quarter were 462 megawatts, compared to 499 megawatts in the second quarter and 463 megawatts in the same period last year.

Our wafer shipments totaled 202 megawatts in the third quarter and compared to 200 megawatts in the second quarter and 388 megawatts a year ago.

Our module shipments were below our Q3 guidance as a result of some project delays, they are now scheduled for Q4 and Q1 delivery. The large decrease in wafer shipments year over year reflects our strategic decision to continue to use the majority of our wafers for our own module production.

The geographic breakdown of module shipments in Q3 is as follows. Europe represented 47% of our total shipments, Japan 25%, China 12%, US 8% and the rest of the world 9%.

Our module ASP rose from $0.66 per watt in Q2 to $0.67 per watt in Q3, as a result of our focused targeting high ASP markets such as Europe and Japan.

I will now walk you through our financial results for Q3. Net revenues were $372.5m compared to $387.1m in Q2. Gross profit was $57.1m, up from $56.9m in Q2. Gross margin was 15.3%, increased 60 basis points from 14.7% in Q2 and representing our second straight quarter of gross margin expansion.

Our total operating expenses were $48.6m representing 13.1% of total revenues compared to $46.3m and 12% in Q2. The sequential increase in operating expenses was mainly the result of an increase in sales and marketing expenses in the international markets and a bad debt provision of $1.9m recorded in Q3, compared to a bad debt reversal of $1.7m in Q2.

Operating income was $8.5m compared to operating income of $10.6m in Q2. Operating margin was 2.3% compared to an operating margin of 2.7% in Q2.

Net loss attributable to holders of ordinary shares was $11.7m, representing basic and diluted loss per common share of $0.06. Net income loss was mainly due to a foreign exchange loss of $13.7m during the quarter.

As of September 30, the company had debt of $749m, compared to $760m as of the end of Q2, excluding $112m in convertible bonds.

Our net cash position including cash and cash equivalents plus restricted cash was $197m as of the end of Q3, compared to $219m at the end of Q2.

Lastly, net cash outflow from operating activities was $10.7m in Q3, compared to a net cash outflow of $40.6m in Q2.

Overall, we continue to follow a prudent financial approach and asset-light strategy in order to grow our margins while improving our cash flow.

Turning now to our guidance. For Q4 we expect our total module shipments to be in the range of 460 megawatts to 480 megawatts and our overall gross margin to be approximately 13%.

We will now open the call to questions. Operator, please go ahead.

(Operator Instructions). Patrick Jobin, Credit Suisse.

Hi, thanks for taking my question. This is Maheep on behalf of Patrick Jobin. Can you help us understand your gross margin in Q4, why is it declining? It is due to a mix shift in geography shipments or is it more due to foreign exchange movements? And can you just help us with how you look for gross margins in Q1?

Yes, foreign exchange was the main reason for the drop in ASP. As you know, Europe and Japan represent a big chunk of our total revenues and in Q3 and Q4 these two currencies have been mainly negatively impacted. There's a big depreciation of these two currencies, so that's the main reason.

For Q1, well, our strategy is, we have been focusing more and more on the downstream because our local presence in a lot of the key international markets we were able to find some quality downstream projects and these are the projects that have buyers LOI already. So we are very optimistic about working on these projects and sell them in the first half of next year. Most of them will be sold in the first quarter of next year so, as a result, our margin should improve in Q1 of next year.

Thanks. Regarding downstream, how many shipments are you targeting in the first half for next year?

Well, right now we have 20 megawatts in construction. We're working on more than, another more than 50 megawatts in the late stage of due diligence right now. So we want to finish all of these by the first quarter of next year and want to build more pipeline after that.

And can we expect the 62 megawatts you have right now operating revenue recognition on them sometime in Q4 or next year?

It will be more likely next year, first half of next year.

Thanks.

Thank you.

Philip Shen, Roth Capital Partners.

Hi, everyone, thank you for taking my questions.

Hi, Philip.

Hi, Philip.

Hi. So I'd like to start off with just an update on your OEM strategy. It looks like you guys are still at 1.1 gigawatts of OEM capacity as of Q3. I think on the last earnings call you indicated that you have plans to get to 1.2 gigawatts by the end of this year and then 1.5 gigawatts by mid-2015. Can you just give us an update on this? Is it still on track and are you still committed to this plan overall?

Yes, Phil, as far as the capacity goes we want to keep it, at this point keep it around the same capacity as we have now. Mainly it's because there's a lot of policy changes, we're still waiting for the outcome of the US and in China the discussion regarding the tariff issues. So things like that, if there's a compromise that means we do not need as much OEM capacities. So we're going to wait and see. So for now we will keep capacity what we have now, around just over 2 gigawatts.

Okay great, thank you, Daniel. Then with, I think your ASPs in the quarter were $0.67. How do you expect your ASP to trend in Q4 and perhaps you can give us an update on what the ASPs are by region that you're seeing, especially in Europe?

You want the ASP for Q3 or what's happening right now?

Sure, maybe the regional breakout in Q3 and then what you see for Q4. Thank you.

Okay so, for Q3 let me just give you the ASP for the different regions. For the US our ASP was $0.73, Europe was $0.70, Japan $0.67, China $0.56 and rest of world $0.63.

What we see in Q4 is there's going to be a downtick in ASPs across the board other than China which, where there's a stable low price at $0.56. In the US we'll probably see a penny or two decrease but what we see as the biggest decline will be in Europe and Japan, mainly to the reason we mentioned before, due to the currency, depreciation of these two major currencies. So we see the ASP on average for us probably will be in the low 60s, around $0.62 to $0.63.

Okay great, that's helpful, thank you. Then one final question from me, in terms of your operating expenses, we saw them tick up a bit. With your asset-light strategy you are investing in operations globally, your sales force. So, how do you expect OpEx to trend in Q4 and beyond given that strategy?

Our goal is to keep the operating expense around 12% of revenues. In Q3 it was slightly higher at 13%, that's really because our volume wasn't up there. But we expect to keep the OpEx around the same level, at 12%. As we announced earlier we have increased our customer base by more than 500 in Q3 and that shows you that we have been really getting into the retail side of the solar business and that's the trend we want to continue, move more away from the big-sized, utility-scale project and move more into commercial and residential types of projects.

Great. Thank you, Daniel. I'll jump back in the queue.

Thanks, Phil.

Vincent Yu, SWS Research.

Oh hi, Daniel, hi, everybody. Thank you for taking my questions. This is Vincent from SWS Research. My question is that you've guided a 13% gross profit margin in Q4, is that mainly because of the higher cost of the polysilicon facility your side or is that because of the lower ASP in Q4? Because you have -- you're saying that maybe there is some delay in the Europe market here? So this is question one.

And question two is that, for the next year can we have a higher visibility? For example, what is the order book for next year, can we see an order book until Q2 for example? That's my question, yes.

Yes, with Q4, like we said, the ASP was mainly effected by the currencies, the Japanese yen has fallen by 7%, 8% just from the beginning of Q4 to now, so that really has a big impact on us. And Japan and Europe represent a big chunk, more than 50% of our revenues, that's the main reason why.

I'm sorry, what was your second question?

Yes. The second question is about the visibility of your order backlog, for example what is your current order book? Can we see a more clear view next year?

Yes, going into Q1, like I said, Europe and Japan represent a big portion of our business. In Japan we have several very long-term contracts, so Japan is very stable for us. And for Europe, especially UK, there's going to be a big build out in solar projects leading to the March deadline of the ROC subsidies. So we should have a pretty good visibility going to at least the first quarter of next year.

Okay, thank you.

That's on the module side. On the downstream project side, as we mentioned before, we're doing construction on 20 megawatts right now and we have more than 50 megawatts we are doing late-stage DD on. Those are very high quality and high visibility projects that we intend to sell in the first half of next year and most of them should be sold in the first quarter of next year.

Okay. Is there any more projects in the coming quarters, I mean for the existing pipeline? Is there any further updates on that?

Well, there are more projects but they're not in the late-stage yet so we don't want to talk about those yet at this stage yet.

Okay, thanks.

Great. Thanks, Vincent.

Thanks.

(Operator Instructions). Patrick Jobin, Credit Suisse.

Hi, this is Maheep here again on behalf of Patrick. A quick question on the wafer shipments in the quarter, can you please tell us, sorry in Q4, how much do you expect for Q4? And regarding 2015 do you still expect the total rate for shipments to continue to go down? Thanks.

Yes, Maheep. Yes, regarding wafers, we're going to gradually decrease the volume because we have some long-term clients that we have a pretty good relationship with. So we're still going to honor the contracts that we have with them, but over time will gradually reduce the wafer shipments.

Thanks. And last question from me, what is the internal poly cost and what do you expect for the next few quarters? Thanks.

Yes. Right now we have lowered the poly costs to about $20, just a little bit below $20. Right now the poly market price is about $20 to $21, so right now we're benefiting from the internal production of the poly at this stage.

Thanks for taking my questions.

Great, thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.