Best stock to invest in – Canadian Solar Boosts Outlook; Yingli Hopes For Sale



Best stock to invest in

Doug Young

Bottom line: Canadian Solar’s raised revenue
guidance hints at rising prices and could signal upside for the
company’s profits, while YIngli’s latest signals may show it’s
trying to sell itself to a healthier rival.

The strongest and weakest players from China’s lively solar panel
sector are in the headlines today, with superstar Canadian
Solar
(Nasdaq: CSIQ)
and the struggling YIngli (NYSE: YGE)
both releasing their latest quarterly results. But whereas
Canadian Solar has just announced its financials for this year’s
first quarter, including a raised revenue outlook for 2016, Yingli
is just now releasing its results for the fourth quarter of 2015.

Most companies typically release their quarterly results within
60 days of the quarter’s end, or 90 days at the very latest. But
YIngli’s ongoing struggles have led managers to say several times
the company could become insolvent, as it sits on a massive pile
of maturing debt that it can’t repay. The latest of that debt
comes due today, and Yingli is saying it’s unlikely to make the
repayment on time.

We’ll return to YIngli later, but let’s begin with the more
positive story of Canadian Solar, which is one of the best-run of
China’s major solar panel makers and has managed to stay
profitable despite difficult conditions in the global solar
market. Canadian Solar wasn’t exempt from the ongoing stiff
competition, and reported its revenue fell 16 percent in the first
quarter to $721 million. (company announcement)


Eroding margins also caused the company’s net income to fall by
more than half to $23 million, from $62 million last year. But in
an encouraging sign, Canadian Solar raised its revenue guidance
for 2016 to between $3 billion and $3.2 billion, versus previous
guidance of $2.9 billion to $3.1 billion. At the same time, it kept its actual
module shipments forecast unchanged, meaning it expects prices
to be stronger than it initially anticipated.

Investors were quite excited by
the outlook, with Canadian Solar shares rising 12.4 percent
after the report’s release. Canadian Solar has found a strong
formula for boosting sales by building solar power plants and
then selling them to long-term owners after completion. It filed
late last year to make a New York IPO for its plant-building
unit, Recurrent Energy (previous post), though the plan appears to
be on hold for unspecified reasons.

Looming Default

While the outlook is positive for Canadian Solar, the opposite
has been true for Yingli. The company first warned last year that
it faced the risk of insolvency, after rising to prominence on a
business model that relied on selling low-tech panels at cheap
prices. In its latest report Yingli posted a massive 5.6 billion
yuan loss ($865 million) in last year’s fourth quarter, or about 4
times its loss a year earlier. (company announcement)

In one slightly encouraging sign, Yingli forecast its shipments
this year will total 2.6 gigawatts to 3 gigawatts, representing an
actual expansion from nearly 2.5 gigawatts for all of 2015. But
the positive news ended there, and investors focused on the part
of its report where Yingli discussed its looming default for 1.4
billion yuan worth of bonds that come due on May 12. The company
also failed to repay 30 percent of a another 1 billion yuan bond
that came due last October, meaning it now needs to find 1.7
billion yuan to repay its maturing debt.

In its latest report, Yingli repeats its previous assessment that
it will be difficult for to repay either of the bonds by May 12,
and adds it is in ongoing discussions with the bond holders. (English article) None
of this is particularly unexpected, which is perhaps why YIngli
shares only dropped a modest 1.2 percent after the report came
out, giving it a tiny market value of about $60 million.

In a potentially interesting new development, Yingli says in that
it is exploring various options that could include the
introduction of new investors or lenders to help it repay the
debt. That suggests that perhaps Yingli is trying to engineer a
sale of itself to a healthier company, which would then take
responsibility for negotiating for debt relief with its creditors.

Doug Young has lived and worked in China for 20 years, much of
that as a journalist, writing about publicly listed Chinese
companies. He currently lives in Shanghai where, in addition to
his role as editor of Young’s China Business Blog, he teaches
financial journalism at Fudan University, one of China’s top
journalism programs.. He writes daily on his blog,
Young´s
China Business Blog
, commenting on the latest
developments at Chinese companies listed in the US, China and Hong
Kong. He is also author of a new book about the media in China,
The
Party

Line: How The Media Dictates Public Opinion in Modern China.

– Best stock to invest in

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