CSUN

China Sunergy Co., Ltd. (CSUN)

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China Sunergy Co., Ltd. (CSUN)

Q3 2011 Earnings Call

November 17, 2011, 8:00 am ET

Executives

Elaine Li – Investor Relations

Stephen Zhifang Cai – Chief Executive Officer

Yongfei Chen – Acting Chief Financial Officer

Robert A. Rice – Chief Sales, Marketing and Strategy Officer

John Wong – Financial Controller

Analysts

Kelly Dougherty – Macquarie Research Equities

Daniel Ries – Collins Stewart LLC

Sanjay Shrestha – Lazard Capital Markets

James Medvedev – Cowen and Company

Nick Xue – Goldman Sachs

Presentation

Operator

Welcome to China Sunergy’s Third Quarter 2011 Earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Ms. Elaine Li, Senior Investor Relations Manager, you may begin your conference.

Elaine Li

Thank you, operator and welcome to China Sunergy’s third quarter 2011 earnings conference call. This is Elaine Li speaking, China Sunergy’s Senior Investor Relations Manager. With us today are China Sunergy’s CEO, Mr. Stephen Cai; Co-founder and CTO, Dr. Jianhua Zhao. Our New Chief Strategy Officer Mr. Bob Rice; Acting CFO, Mr. Yongfei Chen; and Financial Controller, Mr. John Wong.

Today before the market opens, the company issued a press release announcing our third quarter financial results, and our guidance update for the fourth quarter and full year 2011. This press release is also available on the investor section of the company website at www.chinasunenergy.com. In addition, we have posted a presentation for this call on our website.

Today, we’ll be closely following and referring to that presentation in our prepared remarks. Stephen will first present an overview of our third quarter results and discuss the growth strategy. And our CFO, Mr. Chen will explain our financial result in more detail and offer an updated guidance for 2011. Then, you will here from our CSO, Bob Rice afterwards, our Senior Management team will all be here available to take questions.

Before I turn the call over to Stephen may I remind all the listeners that management prepared remarks 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 here 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, except as required under applicable law. As a reminder, this conference is being recorded.

Now, I’d like to turn the call over to our CEO, Mr. Stephen Cai. Stephen?

Stephen Zhifang Cai

Thank you, Elaine. And let me thank everyone for taking the time to join us today. I will begin by introducing Bob Rice, our newly appointed Chief Strategy Officer.

In an industry this complex, we’re glad to be adding strength to our management team. Bob joined as our new CSO on September 15, an American who speak Mandarin and has lead and done business in China for many years. Bob is overseeing international expansion and the sales and marketing, and is actively recruiting additions to our sales team. I will invite Bob to speak in few minutes.

Now, I will begin by discussing the solar industry at large, because macro industry issues have affected our ability to give meaningful guidance to the investors. I will briefly comment on four macro things in the industry related to: 1) Prices, 2) Demand, 3) Supply, and 4) Competitions.

First, prices; ASPs has 40 more than 35% this year and a 23% this quarter, more faster than anyone expected. As for demand, let me say that worldwide demand is real [vertical], materializing only when financing is available and the government subsidies are clear. Moreover, most our customers want to delay purchases and prices to fall as much as possible before they talk today and they can land up financing.

As for supply, there is not only overcapacity in the solar market industry, but it also has a lot of access in the inventory. We foresee an even more serious inventory sales through situation in the fourth quarter. However, not all companies production line are alike and that not all inventory is comparable.

This brings me to my final point, competition. Fierce competition is driving prices low and that it is also leading to some consolidation and the companies without good production and a strong financing options are more vulnerable. Today we will discuss our results in the context of this powerful industry forces and state why we believe China Sunergy can whether the storm.

Please refer to the slide 5. In third quarter of this year, we shipped a total of 116.2 megawatts, our strongest quarter this year, but are falling short of our original guidance of 140 megawatt. Some of the demand we forecast from Germany did not come through until September and October. At the same time, some European countries such as Italy are still experiencing financing troubles. The sale we predicted in U.S. and the China markets are taking longer to achieve.

Total revenues for the quarter were $145.8 million, a 1.3% sequential increase. We experienced a gross margin of negative 13.7% for the quarter and a net margin of negative 21.5%, although we originally guided to gross margins of 4% to 5%. Industry-wide pressure on ASPs and a high level of inventory at quarter end led to higher than expected inventory provisions. We incurred a loss in the quarter of $31.3 million and a net loss per ADS of $0.77.

Read the rest of this transcript for free on seekingalpha.com