Solarfun Reports Third Quarter 2009 Results

Submitted by orville on November 18, 2009
in

Solarfun Power Holdings Co., Ltd. (Nasdaq: SOLF), a vertically integrated manufacturer of silicon ingots, wafers and photovoltaic (PV) cells and modules in China, today reported its unaudited financial results for the quarter ended September 30, 2009.

Third Quarter 2009 Results

  • Total net revenues were RMB 986.8 million (US$144.6 million) in the third quarter of 2009, representing a decrease of 22.6% from RMB 1,274.8 million in the third quarter of 2008 and an increase of 15.5% from RMB 854.6 million in the second quarter of 2009. The sequential increase was primarily related to higher shipment volumes reflecting improved industry demand.
  • PV module shipments reached 102.6 MW in the third quarter of 2009, an increase from 41.8 MW in the third quarter of 2008 and from 64.3 MW in the second quarter of 2009. The increase from the second quarter of 2009 was due to increases in both PV module shipments and PV module processing services. PV module processing services represented approximately 40% of the total PV module shipments in the third quarter of 2009. In the third quarter of 2009, excluding module processing, the Company recorded greater geographic diversity in its sales, with Germany accounting for 60% of the Company's total PV module shipments, down from 83% in the previous quarter. The Czech Republic, a relatively new market for the Company, continued to grow to 9% of total shipments, and a rebound was seen in Portugal and Spain, representing 11% and 6% of total shipments, respectively. Australia, Italy and Korea combined for another 14% of total shipments.
  • Average selling price, excluding module processing services, declined, as expected, to US$2.03 per watt in the third quarter of 2009 from US$2.66 per watt in the second quarter of 2009, primarily due to the decrease in the market prices of PV products.
  • Gross profit was RMB 204.4 million (US$29.9 million) in the third quarter of 2009, compared to a gross profit of RMB 46.1 million in the third quarter of 2008 and a gross loss of RMB 53.0 million in the second quarter of 2009. Gross margin was 20.7% in the third quarter of 2009, compared to negative 6.2% in the second quarter 2009. No provision for pre-payments on supply agreements were made in the third quarter of 2009, compared to a provision of RMB 236.5 million in the second quarter of 2009. Gross margin in the third quarter of 2009 reflected lower raw material costs primarily as a result of renegotiated supply agreements and increased spot market purchases. Vertical integration to the ingot and wafer level also led to reduced costs from higher utilization and continued process improvements.
  • Operating profit was RMB 129.4 million (US$19.0 million) in the third quarter of 2009, compared to an operating loss of RMB 25.9 million in the third quarter of 2008 and an operating loss of RMB 121.9 million in the second quarter of 2009. The operating margin for the third quarter 2009 was 13.1%. The Company continued to maintain tight discipline on operating expenses, which as a percent of revenues should trend lower as revenues grow.
  • Interest expense was RMB 40.8 million (US$6.0 million) in the third quarter of 2009, an increase from RMB 21.6 million in the third quarter of 2008, and an increase from RMB 36.1 million in the second quarter of 2009.
  • Fair value of the conversion feature of the Company's convertible bonds increased by RMB 82.4 million (US$12.1 million) in the third quarter of 2009, due to a number of factors including changes in the Company's ADS prices during the third quarter of 2009. This line item has fluctuated, and is expected to continue to fluctuate quarter-to-quarter in line with standardized accounting practices, of which the Company has no control.
  • Net income attributable to shareholders was RMB 136.6 million (US$ 20.0 million) in the third quarter of 2009, compared to a net loss of RMB 44.3 million in the third quarter of 2008 and a net loss of 319.9 million in the second quarter of 2009. Net income per basic ADS was RMB 2.53 (US$0.37) in the third quarter of 2009, compared to a net loss per basic ADS of RMB 0.86 in the third quarter of 2008 and a net loss per basic ADS of RMB 5.95 in the second quarter of 2009.

Peter Xie, President of Solarfun, commented, "We are extremely pleased with the continued progress achieved in the third quarter of 2009. Of particular note were quarterly shipment volumes exceeding 100 MW for the first time in the Company's history, gross margins reaching 20%, and a return to profitability. We also improved our capital structure by reducing short-term bank borrowings and raising additional equity capital."

Financial Position

As of September 30, 2009, the Company had cash and cash equivalents of RMB 793.2 million (US$116.2 million) and working capital of RMB 1,738.0 million (US$254.6 million). Total short-term bank borrowings as of September 30, 2009 were RMB 1,013.7 million (US$148.5 million), a decrease from RMB 1,394.0 million as of June 30, 2009. The Company believes that cash on hand and additional undrawn bank credit lines provide adequate funds for near-term future growth.

Accounts receivable increased to RMB 707.2 million (US$103.6 million) as of September 30, 2009 from RMB 514.3 million as of June 30, 2009. This increase was primarily due to an increase in shipments as well as a large percentage of shipments occurring in the latter part of the third quarter of 2009. Days sales outstanding increased from 38 days in the second quarter of 2009 to 56 days in the third quarter of 2009, primarily reflecting the prevailing credit terms for the current market environment.

Inventories increased to RMB 808.4 million (US$118.4 million) as of September 30, 2009 from RMB 695.7 million as of June 30, 2009, primarily because the Company anticipated a growth in PV module sales in the fourth quarter of 2009 and the first quarter of 2010.

Capital expenditures were RMB 28.7 million (US$4.2 million) in the third quarter of 2009. The Company expanded its module capacity by 50 MW during the third quarter of 2009 to over 500 MW, and remains on track to further increase its module capacity to 700 MW in 2010.

Equity Distribution Agreement

Under the equity distribution agreement entered into with Morgan Stanley & Co. Incorporated on September 17, 2009, at the end of the third quarter of 2009, the Company sold 1,955,310 ADSs, raising US$12.5 million in gross proceeds, of which US$0.3 million was paid to Morgan Stanley & Co. Incorporated as manager for the sale. As of November 18, 2009, the Company has raised a total of US$23.1 million in gross proceeds from the sale of 3,888,399 ADSs, of which US$0.6 million was paid to Morgan Stanley & Co. Incorporated as manager for the sale. The Company has the option to recommence sales, subject to market conditions, after this earnings release under this existing agreement.

Business Outlook

The Company provides the following guidance based on current operating trends and market conditions.

The Company expects for the fourth quarter of 2009:

  • Shipments to be approximately 110 MW, with module processing services accounting for about 20% of the total shipments.
  • Average selling prices to decline by approximately 5% from the previous quarter, in constant currency.

For the first quarter of 2010, the Company expects to see continuing good demand, with prices declining slightly from levels in the fourth quarter of 2009.

Peter Xie concluded by noting, "We expect to see a healthy demand environment in 2010. The preliminary shipment target for 2010 is 500 MW. We expect strong demand from Germany as project development is accelerated in response to expected feed-in-tariff reductions, from new markets like China and the United States, and as the general availability of funding for solar projects improves. We have made some important additions to our senior management team this past quarter and will continue to recruit critical talent in the near future. We will continue to drive product and process innovation, and reduce processing costs through increased scale, manufacturing efficiencies and technological advancements."

About Solarfun

Solarfun Power Holdings Co., Ltd. manufactures ingots, PV cells and PV modules, and provides PV module processing services to convert PV cells into PV modules. Solarfun produces both monocrystalline and multicrystalline silicon cells and modules. Solarfun sells its products both through third-party distributors, OEM manufacturers and directly to system integrators. Solarfun was founded in 2004 and its products have been certified to meet TUV and UL safety and quality standards.

Source: Solarfun