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Earning Preview

ReneSola Earnings Preview: What to Look For

May 12, 2013

ReneSola (SOL) will release its first quarter financial results on May 16, 2013. This is the first Chinese ADR in solar sector to report its earnings for the first quarter of 2013. Two major US solar companies SunPower Corp (SPWR) and First Solar Inc (FSLR) reported their earnings earlier. JA Solar Holdings (JASO) and Canadian Solar Inc (CSIQ), two other Chinese ADR, will release their earnings on May 20 and May 28 respectively.

For the fourth quarter of 2012, the company reported net revenue of $306.5 million, a gross profit of $10.30 million (gross margin 3.30%) and a net loss attributable to shareholders of $49.80 million (or -$0.58 per share). Revenue increased over 40% versus the third quarter of 2012. Management estimated that Q1 2013 revenue will be in $260 - $270 million range.

The company's total shipments increased 70.00% last year and are expected to grow another 25.00% - 31.80% in 2013. Most importantly, the shipment for its higher margin solar module product is seen in even bigger growth: up 153.93% in 2012 and will be up an additional 96.40% - 124.46% in 2013:

Here's what to look for on the earnings call:

Total Shipments

During last Quarter conference calls, the company guided that

“The total solar wafer and module shipments to be in the range of 660 megawatts to 680 megawatts for the first quarter 2013 with solar module shipments expected to be in the range of 280 megawatts to 300 megawatts.”

We will be very happy if the company can ship a total of 680 mw of its solar components with module shipment of 300 mw and wafer shipment of 380 mw.

Wafer Gross Margin

The company reported gross margin of +1.8% for its wafer product last quarter: the wafer ASP of $0.24 per watt and wafer cost of $0.2357 per watt.

Here is what the company guided about the wafer ASP and processing cost for the first quarter in the last quarter conference call:

“We expect to lower wafer processing cost of our Virtus A++ manufacturing facility to $0.11 per watt by the end of first quarter.
With ASPs now rising slightly, we expect to improve our margin for our wafer business to become more profitable once polysilicon price stabilize.”

The key number we are looking for is its wafer gross margin for the first quarter. We hope to see a slight improvement. If the company can cut wafer processing cost from $0.12 per watt to $0.115 per watt and maintain wafer ASP, its gross margin will be increased to ($0.24 - $0.2357 + $0.005)/$0.24 = +3.8%

Module Gross Margin

The company's module ASP dropped to $0.63 per watt and its module processing cost decreased to $0.60 per watt in the fourth quarter 2012, a gross margin of approximately 4.76%.

The following is what the company projected in its last conference calls about its module ASP and processing cost for the first quarter of 2013:

“In the first quarter of 2013, we expect our total solar module production cost to decrease to approximately $0.50 per watt - $0.55 per watt. (For the module ASP), Q1 will probably be about the same as Q4, maybe a little bit lower.”

If the company can cut the module processing cost to $0.55 per watt and maintain its module ASP in the first quarter of 2013, its gross margin will have a huger improvement: from $0.03 pernwatt to $0.08 per watt (or 12.69%).

Gross Profit and Net Profit

If the company can ship 300 mw module and 380 mw wafer in the first quarter of 2013 as they guided in its fourth quater conference calls, the gross profit should be $38.44 million. That is,

Revenue = $280.2 million, 300 mw x $0.63/w (from module sales) + 380 mw x $0.24/w (from wafer sales)

Gross Profit = 300 mw x $0.08 (module) + 380 mw x 3.80% (wafer) = $24 million + $14.44 million.

The company's operating expenses and interest payment for the first quarter of 2013 should be about the same as they had in the fourth quarter of 2012: $34 million and $13.20 million respectively, the net profit before income tax and other one time items will be negative 8.76 million or -$0.10 per share.

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