CSUN

China Sunergy Co., Ltd. (CSUN)

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China Sunergy Co., Ltd. (CSUN)

Q3 2009 Earnings Call

November 18, 2009 7:00 am ET

Executives

Peter Schmidt - Financial Dynamics

Allen Wang - Chief Executive Officer

Randy Lau - Director, Investor Relations

Richard Gu - Vice President, Sales and Marketing

Analysts

Lu Yeung - Bank of America/Merrill Lynch

Rob Stone - Cowen & Company

Dylan Yu - Pacific Epoch

Paul Clegg - Jefferies

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2009 China Sunergy earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Peter Schmidt with Financial Dynamics. Please proceed, sir.

Peter Schmidt

Thank you. Good morning and good evening, everyone and thank you for joining us today. Before we continue, please note that the discussion today will include forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainties and as such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC.

China Sunergy does not undertake any obligation to update any forward-looking statements expect as required under applicable law.

As a remainder, this conference is being recorded.

With that, I'd like to introduce Allen Wang, the CEO of China Sunergy. Allen.

Allen Wang

Thank you, Pete and welcome, everyone to our 2009 third quarter conference call. Joining me today is our CTO, Dr. Zhao; VP of Sales and Marketing, Mr. Richard Gu; and the Director of Investor Relations, [Randy Bell]. Unfortunately, our CFO, Mr. Guo, has an [expected] business commitment so will not be able to join us today.

I am pleased to open the call by noting that during the third quarter of 2009, China Sunergy shipped 54.4 megawatts of solar product, at the upper end of our guidance range, [and why] we are reporting a gross margin of 10.2%. The 31.1% sequential shipment growth resulted in revenue of $80.1 million and with gross margin slightly improved to 10.2%. This result has shown the steady progress we are making to strengthening both our top line and bottom line operational and financial results. This growth was driven by our successes over the past months to generate strong demand from both new customers and existing relationships, as a result of an improved market environment along wtih our constant dedication towards greater market penetration, we continue to demonstrate the advantages of our solar products in satisfying client requirements and help them develop the products their customers demand.

We are continuing to supply our industry leading solar cells to module makers and other downstream clients. As well, we continue to supply customers with modules produced using our solar cell under OEM arrangement. We entered into a series of sales contracts with NU Energy, a leading Australian photovoltaic firm, for a total of 10 megawatts of OEM monocrystalline solar modules with full delivery scheduled to be completed by early 2010.

In addition, we have entered into a framework agreemeent with Opsun Technologies, a Canadian photovoltaic firm to deliver up to 100 megawatts of China Sunergy's existing of solar cells and modules for a period of six years.

To ensure we are able to maintain this demand, China Sunergy is consistently improving teh scope and technological leadership of our products. This allows us to better meet our client needs, generate strong brand reputation, and in some cases produce a price premium for our products, despite continued price erosion across the sector in general.

As evidence of this progress, during the quarter we sent several solar cells to the Fraunhofer Institute for Solar Energy Systems in Germany for third party verification. We are pleased that the Fraunhofer test results showed our monocrystalline M-type cells with a conversion efficiency of 19.13%. In addition, utilizing the new technology, we have developed a monocrystalline high efficiency P-type solar cell with target conversion efficiency of 19%. In the third quarter, the tests conducted by the Fraunhofer Institute for Solar Energy Systems in Germany has shown a conversion efficiency of 19.04%. The test results highlight the progress we have made in our leadership in the solar cell technology.

We are also glad to see that the output fo our facility has been consistently improving during the year, with a higher throughput, higher yields, and a high efficiency in this quarter than earlier in 2009, resulting in an accrued conversion cost in the third quarter. We expect that this trend will continue to the fourth quarter and the next year.

Although we have largely been able to benefit from a rapid changing solar enviornment, we have also had to face some challenging aspects. As we have discussed through early press releases, a long-term supply contract is signed with REC Wafer AS in 2009 was announced to be terminated by REC Wafer AS in the third quarter. China Sunergy initiated legal proceedings against REC Wafer AS in regard to the related contract and the related guarantees, and have recieved an injunction from a local Norwegian court against REC Wafer AS. Additionally, REC has been given until November 18th, today, to respond to a legal writ we filed regarding the viability of their claim position as party to a contract signed with REC SiTech. As the legal proceedings develop, we continue to believe that our case is valid and we will provide updates when appropriate.

Now, turning to our company itself, after conducting an extensive process of interviews, several thousand highly qualified candidates, we are pleased to welcome Mr. Siegfried Hsu as our new Chief Financial Officer. Siegfried has extensive financing, investment, and technological experience and brings a high level of direct relevant knowledge to China Sunergy through his previous management of key financial and strategic projects. As a member to the executive management team, Siegfried will leverage his vast experience to lead our finance division to continue to maintain high quality financial management and communications. Siegfried will work wtih our investor relations department to maintain an active and transparent dialog with our investors to serve the interests of all of our valued shareholders.

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