Monday, July 30, 2007

Studying Solar: Yingli Green Energy

Last night, I did something I hadn't done in weeks, maybe months. I visited a dozen or so blogs that I'd bookmarked back in February, March and April.

Some folks go fishing on Sundays. Hopefully, I'll make a habit of visiting some of the most compelling stock bloggers around. I can't recall which of them suggested YGE, but looking at this solar company's numbers has me pessimistic.

Yingli Green Energy is yet another Chinese solar power producer that is somewhere between the land of speculation and the forest of riches. China is, of course, pushing hard in alternative energy. Air pollution is a major problem, shortening lives and endangering basic health in many cities. The problem is growing, extending to rural areas that are becoming more industrialized.

At a PPS of $17.07, Yingli is trading 58% higher than its opening-day close of $10.80 on June 8. The stock traded at a high of $20.40 on July 12 before pulling back for the next seven sessions to $15.01 on July 20. Five sessions later, the stock seems to have consolidated, even through the selloff in the Dow Jones and Nasdaq.

YGE has a market cap of $1.1 billion on revenues of $246 million. The stock trades at 266 times earnings. Not a typo. The forward P/E is 2.8. Again, not a typo.

PEG is 1.30, pretty robust. Profit margin is 10% and operating margin is 20%. While quarterly revenue growth is 113%, quarterly earnings growth is negative (-66%).

The Co has less than $14 million in cash with debt of $187 million. Not impressive.

There are 64 million outstanding ADSs with a float of only 26.6 million. I'm almost 100% sure that the difference is because of government holding in the Co, as is the case with many Chinese stocks.

Only one brokerage house, CIBC, has any coverage. CIBC rates YGE "Sector Perform." Some big names were involved with bringing the Co public. Goldman Sachs was global coordinator, UBS AG led underwriting, along with Piper Jaffray and CIBC. (Piper Jaffray is owned by UBS.)

I'll continue to watch this Co. Why? I haven't paid much attention to solar stocks, with the exception of Hoku Scientific, which hasn't been a solar-oriented Co for very long.

Is there any logical way to explain a 60% spurt for a Co. that is basically losing money and has little significant revenue? Not really. The only explanation is that Yingli is in a hot sector in a fast-growing mastodon known as China.

Extra point: YGE does have a new contract to provide modules to Control y Montages Industriales CYMI S.A. of Spain. Coincidentally, Spain is also where First Solar does business.

Pupule Paul has no position in YGE and FSLR, but is a bit long HOKU.

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