Bookkeeping: Closing Yingli Green Energy (YGE)

I just had a tiny position left in Yingli Green Energy (YGE) so based on the non-reaction to earnings (which I thought were quite tidy) I closed it earlier today. The market simply hates solar right now and is to the point of pricing in every uncertainty short of extinguishment of the actual sun. (that would be bearish indeed) ;)

I sold the 0.4% stake in Yingli Green Energy in the mid $16s. We've lost about $1800 on this position; nothing enormous. We restarted this position in mid April and this is the second go around without much success with YGE. [Apr 21: Starting Stake in Yingli Green Energy] A few trades during the serious dips, and then selling off on spikes are the only things we could do to offset the primary trend (down).

I transformed from a focused (1-2 stocks) exposure to the solar sector to a more broad based exposure a few months ago due to the extreme volatility in the names. That said, I have 4 Chinese solar names which essentially trade in 1 group at times like this (I literally treat them as "1 stock" because the market does so) - so if the group falls back into favor the other names I hold will give me the same performance (or very similar) to Yingli. So in essence I have lowered my exposure to my "1 chinese solar stock" (even if its made up of 4 individual companies, now 3). While there are some pretty significant differences among the boatload of Chinese solar stocks the market does not seem to distinguish 80% of the time - they are either all "in favor" or "out of favor". Only when they are in favor do you see certain names separate from the rest. But guessing which will be in favor each time they run is anyone's guess.

If/when risk appetite returns to this market I expect this group to charge ahead but risk aversion seems currently ingrained. If/when the market can break through some key technical levels I believe that would bring more risk appetite and these are the type of stocks that can jump 40% in 2 weeks when the "mood" is correct.

To keep the "solar" exposure consistent instead of adding to the Chinese solars I've added to the best chart in the group, Energy Conversion Devices (ENER). So out from YGE and into more ENER.

A quick look at Yingli's results below - on first glance they impress me but the same boogeyman that haunt the polysilicon based producers continue to hover. The overall multiples given to this group continues to border on absurd in light of growth rates.

• Solar power company Yingli Green Energy Holding Co Ltd (YGE) said on Wednesday quarterly earnings more than tripled, and raised its revenue outlook for the year, on strong global demand for renewable energy.
• The company's stock, however, slid 7 percent on concerns that Yingli could be stuck paying high prices for its key raw material, polysilicon, while an expected pullback in government subsidies in Spain could hamper demand.
• Profit in the latest quarter was equal to $30.2 million, or 23 cents per share, Yingli said.
• Revenue was $289.7 million, above Wall Street analysts' average estimate of $234.27 million, according to Reuters Estimates.
• Yingli Chief Executive Liansheng Miao said the company benefited from operational efficiencies and demand from emerging photovoltaic solar markets including Korea, Italy, France, Belgium, the United States and China. (should help to offset all the stress from lower subisides in Spain that is battering the sector)
• Investors, however, are concerned that a cloudy outlook for key subsidies in Spain and the United States could create difficulties for solar companies, and Yingli said on Wednesday that its 2009 contracts have not been fully priced yet.
• "People are concerned that there is going to be sort of a tumultuous demand environment, married with their lack of polysilicon procurement," said American Technology Research analyst John Hardy, who has a "buy" rating on Yingli shares. "So they still could be having to pay expensive prices for polysilicon while the demand is less certain."
• Yingli said prices should start to move down in the fourth quarter, but the company currently has the highest polysilicon costs in the industry, according to Piper Jaffray analyst Jesse Pichel.
• Gross margin was 25.8% in the second quarter of 2008, up from 24.6% in the first quarter of 2008 and 22.7% in the second quarter of 2007. (I always like to review this figure especially for this industry - Yingli is now in Trina Solar range as leadership in gross margins - not that it has helped either stock)
• Foreign currency exchange loss was RMB 68.2 million (US$9.9 million) in the second quarter of 2008, compared to a foreign currency exchange gain of RMB 66.3 million in the first quarter of 2008.

This last point on currency helped goose earnings for almost every stock in the group last quarter except Trina Solar (TSL) - so now those gains from last Q reversed and held back earnings from surprising higher to the upside. Of course almost no one mentioned it last quarter (the positive effect) and just drove the stocks up on something that had nothing to do with operations. This is about a $20M swing for YGE or .15 - considering their EPS was .23 this quarter you can see the huge change currency is having on these solar stocks results.

[May 15: Yingli Green Energy Reports Good Quarter]

Long Energy Conversion Devices, Trina Solar in fund and personal account