STP Q1 2010 Earnings Call Transcript:
seekingalpha.com
0.56$/W module manufacturing cost, non-silicon. Unchanged from last quarter. Still predicting 0.50$ by end-2010.
the average efficiency of Pluto mono cells in mass production is above 19%
demand for Suntech products is still very high, and we expect to be able to maintain our euro ASP at current levels... ...(2010 production is) fully sold out. We don't have enough products to fulfill our customers' demand. So we can't fulfill all the orders basically...
They, like everyone else, are trying to be less dependent on Germany and Europe. Gaining market share in California (5% in 2008, to 13% in 2009, and 18% so far in 2010).
We have delayed our expansion of thin film manufacturing and are utilizing the space to add our advanced crystalline silicon technology... ...thin film...efficiency is only about 6% to 7% and also there's no very obvious competitiveness for thin film to compete with crystalline silica at this moment...
First Quarter 2010 Highlights:
ir.suntech-power.com
-- Total net revenues were $588.0 million in the first quarter of 2010, representing 0.8% growth sequentially and 86.3% year-over-year
-- Total PV shipments increased 11% sequentially and 182% year-over-year
-- Gross profit margin for the core wafer to module business was 22.1% in the first quarter of 2010
-- Consolidated gross profit margin was 19.5% in the first quarter of 2010
-- Net income attributable to holders of ordinary shares was $20.7 million, or $0.11 per diluted American Depository Share (ADS). Each ADS represents one ordinary share
-- Suntech increases 2010 annual shipment target from 1.25GW to 1.3GW, which represents an 85% increase above 2009 total shipments
-- Suntech achieved 1.2GW of PV cell and module production capacity at the end of the first quarter of 2010
"We are pleased to announce 11% sequential growth in shipments for the first quarter of 2010," said Dr. Zhengrong Shi, Suntech's Chairman and CEO. "To meet strong global demand for Suntech's premium solar products, which we expect will continue through the rest of 2010, we maximized the utilization of our facilities and added an incremental 100MW of PV cell and module capacity during the quarter. We also maintained our focus on enhancing our regional service teams to support our growth.
"We are pleased about the solar growth trends that we are seeing across all geographies. Europe's commitment to achieving 20% renewable energy generation by 2020 is proving to be the foundation for long-term stable growth. Our North American dealer network and utility initiatives should enable us to triple our sales to that region in 2010. And, we are continuing to build our presence in emerging markets. In fact, Asia, Africa and the Middle East represented close to 21% of our sales in the first quarter, and we continued to diversify our geographic sales mix globally. Clear customer recognition of Suntech's superior track record and highly bankable products is a key driver of our demand in all of these markets.
"As the leading producer of crystalline silicon solar panels, we are proud to have reached another important milestone with the shipment of our 10 millionth solar panel during the first quarter. To date, the cumulative solar energy generated from Suntech panels alone is enough to provide clean and renewable power for around one million households. This is only the beginning for Suntech and for widespread solar adoption. Suntech remains strongly committed to investing in the technology, capacity and global service platform that will offer even greater access to nature's most abundant energy resource."
Recent Business Highlights
Markets
-- The 10 millionth solar panel produced by Suntech was delivered during
the first quarter of 2010. Since inception, Suntech has delivered over
2.2GW of solar products to over 1,400 customers in more than 80
countries. Cumulatively these panels generate enough power for around
1,000,000 households.
-- The Finnow Tower 24.5MW project was recently connected to the grid on a
former military airbase in Germany by Solarhybrid using 90,000 Suntech
270 watt modules. This is one of the five largest PV projects in
Germany.
-- Suntech received official certification under the UK Microgeneration
Certification Scheme (MCS) for its most popular models, a pre-requisite
for selling solar panels in the UK market. The certification will
enable customers and value-added resellers in the UK to utilize
Suntech's solar panels for reliable electricity generation.
-- According to data published by the California Solar Initiative, Suntech
has consistently increased market share in California's solar market
from 5% in 2008, to 13% in 2009 and 18% so far in 2010. California's
market accounted for approximately 45% of solar sales in North America
in 2009.
Capacity Expansion
-- Suntech has decided to delay expansion of thin film manufacturing
capacity in Shanghai and has designated the Shanghai manufacturing
facility as a new site for expansion of Suntech's high performance
crystalline silicon PV cell and module manufacturing capacity. Suntech
plans to add 1GW of manufacturing capacity in Shanghai within the next
three years.
Technology
-- Suntech's high performance Pluto technology is currently achieving an
average of over 19% conversion efficiency on mono-crystalline PV cells.
Suntech is currently producing and shipping approximately 4MW of IEC
certified Pluto modules per month.
-- The Victoria-Suntech Advanced Solar Facility was recently launched in
collaboration with the Swinburne University of Technology. The facility
has been partially funded by an AUD3 million grant under the Victorian
Science Agenda Investment Fund and will provide a platform to develop
super high efficiency solar cells based on nanoplasmonic technology.
-- Suntech initiated a research project with the University of New South
Wales and Silex Solar to improve conversion efficiency of crystalline
silicon solar cells. The three-year collaborative research project was
awarded an AUD5 million grant from the Australian Solar Institute.
Convertible Notes
-- In the first quarter of 2010, Suntech repurchased an aggregate of
$221.2 million principal amount of its 0.25% Convertible Senior Notes
due 2012 for a total consideration of $221.2 million.
First Quarter 2010 Results
Total net revenues for the first quarter of 2010 were $588.0 million, a slight increase of 0.8% from $583.6 million in the fourth quarter of 2009 and an increase of 86.3% from $315.7 million in the first quarter of 2009.
For the first quarter of 2010, consolidated gross profit was $114.5 million and gross margin was 19.5% compared to consolidated gross profit of $138.7 million and gross margin of 23.8% in the fourth quarter of 2009. The sequential gross margin decline was primarily due to a lower average sales price as a result of the substantial depreciation of the Euro versus the U.S. Dollar.
Operating expenses for the first quarter of 2010 decreased to $51.0 million compared to $51.7 million in the fourth quarter of 2009.
Income from operations was $63.5 million for the first quarter of 2010 compared to $87.0 million in the fourth quarter of 2009.
Net interest expense declined to $22.6 million in the first quarter of 2010 compared to net interest expense of $24.2 million in the fourth quarter of 2009. Net interest expense in the first quarter of 2010 included $8.6 million in non-cash expenses of which $7.3 million was related to the adoption of FASB Codification 470-20-65, Accounting for Convertible Debt Instruments that May be Settled in Cash Upon Conversion. This compares to $12.7 million in non-cash net interest expense in the fourth quarter of 2009. The decrease in interest expenses was primarily due to the repurchase of the significant majority of the outstanding 0.25% Convertible Senior Notes due 2012, which had a put option in February 2010.
Foreign currency exchange loss was $24.5 million in the first quarter of 2010 compared to $13.2 million in the fourth quarter of 2009. The foreign currency loss in the first quarter was primarily related to the substantial depreciation of the Euro versus the US Dollar.
Net other income was $2.8 million in the first quarter of 2010, compared with a net other expense of $3.6 million in the fourth quarter of 2009. The net other income in the first quarter of 2010 was mainly due to gains from hedging activities. Foreign exchange loss net of hedging gains was approximately $21.9 million in the first quarter of 2010.
Net income attributable to holders of ordinary shares was $20.7 million, or $0.11 per diluted ADS for the first quarter of 2010, compared to net income of $44.0 million, or $0.24 per diluted ADS, for the fourth quarter of 2009.
In the first quarter of 2010, the major non-cash related expenses were share-based compensation charges of $3.0 million; $8.6 million of non-cash interest expenses, as mentioned above; and depreciation and amortization expenses of $18.7 million.
In the first quarter of 2010, capital expenditures, which were primarily for the addition of new production equipment, totaled $72.4 million.
Cash and cash equivalents decreased to $677.2 million as of March 31, 2010, from $833.2 million as of December 31, 2009. The decrease in cash and cash equivalents was primarily due to the additional investment made to GSF, repurchase of the 0.25% Convertible Senior Notes due 2012, and sequential increases in restricted cash, accounts receivable and inventory.
Accounts receivable totaled $467.7 million as of March 31, 2010, compared with $384.4 million as of December 31, 2009. The increase was mainly due to a higher shipment level in the last month of the quarter. Days sales outstanding were 72 days in the first quarter of 2010, compared to 60 days in the fourth quarter of 2009.
Accounts receivable due from investee companies of GSF was $104.0 million as of March 31, 2010, compared with $110.2 million as of December 31, 2009. The sequential decrease in the related accounts receivable was due to the depreciation of the Euro versus the USD.
Inventory was $314.1 million as of March 31, 2010, compared with $280.1 million as of December 31, 2009. The increase in inventory was in line with the growth of production and shipments.
Accounts payable totaled $384.3 million as of March 31, 2010, compared with $264.2 million as of December 31, 2009. The increase in accounts payable was primarily due to extended credit terms from suppliers.
Business Outlook
In the second quarter of 2010, Suntech expects single digit percentage growth in shipments sequentially. Consolidated gross margin in the second quarter of 2010 is expected to be in the high teens, which is based on an assumed exchange rate of 1.23USD to the Euro.
Due to strong demand, Suntech has increased its 2010 shipment target from 1.25GW to more than 1.3GW, which is 85% higher than 2009 shipments.
Suntech is on track to expand PV cell production capacity to 1.4GW by the end of the second quarter 2010 of which 450MW will be Pluto-enabled. To achieve 1.4GW capacity, Suntech expects capital expenditures of approximately $200 million.
Note: The quarterly consolidated income statements are unaudited. The condensed consolidated balance sheets are derived from Suntech's unaudited consolidated financial statements.
SUNTECH POWER HOLDINGS CO., LTD.
CONDENSED CONSOLIDATED BALANCE SHEET
(In $'000)
As of As of
Mar 31, Dec 31,
2010 2009
ASSETS
Current assets:
Cash and cash equivalents 677,159 833,158
Restricted cash 162,762 124,877
Inventories 314,119 280,054
Accounts receivable 467,677 384,416
-----Investee companies of GSF 103,970 110,231
-----from others 363,707 274,185
Value-added tax recoverable 58,948 41,219
Advances to suppliers 50,195 48,820
Short-term investments -- 200,817
Other current assets 268,391 242,625
Total current assets 1,999,251 2,155,986
Property, plant and equipment, net 816,558 777,580
Intangible assets, net 162,692 166,687
Goodwill 84,209 86,062
Investments in affiliates 330,958 251,347
Long-term prepayments 187,399 188,085
Long-term loan to suppliers 54,340 54,667
Amount due from related parties 180,515 193,577
Other non-current assets 107,378 109,663
TOTAL ASSETS 3,923,300 3,983,654
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings, including
current portion of long-term bank
borrowings 835,541 800,390
Accounts payable 384,316 264,235
Convertible notes-current 4,218 223,982
Other current liabilities 213,263 229,473
Total current liabilities 1,437,338 1,518,080
Long-term bank borrowings 132,425 138,021
Convertible notes-non-current 524,242 516,912
Accrued warranty costs 60,116 55,152
Other long-term liabilities 138,724 142,730
Total liabilities 2,292,845 2,370,895
Total Suntech Power Holding Co. Ltd.
Equity 1,616,677 1,598,049
Noncontrolling interest 13,778 14,710
Total equity 1,630,455 1,612,759
TOTAL LIABILITIES AND EQUITY 3,923,300 3,983,654
SUNTECH POWER HOLDINGS CO., LTD.
CONSOLIDATED INCOME STATEMENT
(In $'000, except share, per share, and per ADS data)
Three months Three months Three months
ended ended ended
Mar 31, Dec 31, Mar 31,
2009 2009 2010
Total net revenues 315,656 583,619 588,034
- Investee companies of GSF 100,547 -- --
- Others 215,109 583,619 588,034
Total cost of revenues 259,369 444,916 473,491
Gross profit 56,287 138,703 114,543
Selling expenses 11,401 20,493 19,984
General and administrative expenses 18,820 18,164 21,477
Research and development expenses 4,922 13,023 9,561
Total operating expenses 35,143 51,680 51,022
Income from operations 21,144 87,023 63,521
Interest expense -26,743 -25,667 -23,436
Interest income 5,098 1,449 851
Foreign exchange loss -6,191 -13,198 -24,542
Other income (expense), net 12,567 -3,646 2,776
Income before income taxes 5,875 45,961 19,170
Tax provision (expense), net 78 -2,643 -3,150
Net income after taxes before
noncontrolling interest and equity
in earnings of affiliates 5,953 43,318 16,020
Added Equity in (loss) earnings of
affiliates, net of taxes -3,874 452 4,622
Net income 2,079 43,770 20,642
Add: Net (loss) income attributable to
the noncontrolling interest -292 253 63
Net Income attributable to ordinary
shareholders of Suntech Power
Holdings Co., Ltd. 1,787 44,023 20,705
Net income per share and per ADS:
- Basic 0.01 0.25 0.12
- Diluted 0.01 0.24 0.11
Shares and ADSs used in
computation:
- Basic 155,881,265 179,047,395 179,298,622
- Diluted 156,794,603 182,322,610 182,268,491
Each ADS represents one ordinary share
my comments:
QOQ sales flat, manufacturing costs flat, margins down, earnings down sharply. They are gaining market share, but at a cost of falling margins. Not very impressive quarter. Last I looked, they were supposed to earn 0.75$ GAAP EPS in 2010. I didn't hear any earnings guidance for 2010, but they won't make 0.75$ at this rate.
21M$ net earnings, GAAP
25M$ foreign exchange loss
23M$ interest expense
Not a good sign, when interest expenses are greater than earnings.
1679M$ debt (not including 372M$ of "other liabilities", current and longterm)
1034M$ cash (including ST investments, but not including restricted cash)
STP is retreating from thin-film, just like AMAT.
STP gaining market share in California is more bad news for Sunpower. |
