CSUN

China Sunergy Co., Ltd. (CSUN)

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China Sunergy Company Ltd. (CSUN)

Q4 2012 Earnings Call

April 12, 2013 8:00 AM ET

Executives

Elaine Li – IR

Stephen Cai – CEO

Yongfei Chen – CFO

Analysts

Rob Stone – Cowen & Company

Paul Strigler – Esplande

Philip Lee – Mangrove Partners

Chris Rathke – Arcane Capital

Presentation

Operator

Welcome to China Sunergy’s Fourth Quarter and Full Year 2012 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 CSUN’s Fourth Quarter and Full Year 2012 Earnings Conference Call. This is Elaine Li speaking, CSUN’s Senior Investor Relations Manager. We have posted a presentation for this call on our website, and during today’s discussion, we’ll be closely following and referring to.

With us today are CSUN’s CEO, Mr. Stephen Cai; and CFO, Mr. Yongfei Chen. Their photograph can be seen on slide three of the presentation.

Today, before the market opened, the company issued a press release announcing our fourth quarter and full year 2012 financial results and our guidance for the first quarter and the full year of 2013. This press release is also available on the Investors section of our website at www.chinasunergy.com.

To start, Stephen will present an overview of our fourth quarter results, a quick review of the solar industry in 2012, and the important developments at CSUN during the past year. Then our CFO, Mr. Chen, will explain our financial results in more detail. Following that, Stephen will return to provide a technology update on behalf of our CTO, Dr. Jianhua Zhao, who’s traveling on business today, and then close with guidance for 2013. Afterwards, they will all be available to take your questions.

Before I turn the call over to Stephen, may I remind our listeners that management’s 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. CSUN 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 CEO, Mr. Stephen Cai. Stephen?

Stephen Cai

Thank you all for joining in today’s conference call. As you may recall from our conversation on the third quarter conference call at the end of this November.

In our view, 2012 was the toughest year in the solar industry. Although overall demand grew to roughly 28 megawatt – gigawatts in 2012, the industry persistently struggled with the oversupply, with a global total of 50 gigawatts to 60 gigawatts which was double that of the total demand. As a result, even though many of the weakest manufacturing had exited or dramatically downsized, the competition in the industry remains fiercely unpriced driven for the ASP declines.

As summarized on slide five, our ASP for the fourth quarter of 2012 was lowered to $0.64 per watt, a sequential decrease of nearly 10% from the $0.71 in the previous quarter. Overall, we shipped the total of the 78 megawatts, and that generated a revenue of $54 million in the fourth quarter.

The ASP downward trend directly caused a growth loss during the quarter. And even though we successfully met or beat our conversion cost over reduction target, our closing or cost faring were not enough to fully offset this lower ASP. Consequently, our gross margin was negative 3.7% in the fourth quarter.

In 2012, though Europe contribute to lead in terms of demand, Asia have quickly gained to become the second largest market in the world, with a strong demand growth coming from China and Japan. As you can see on the slide six, during the fourth quarter of 2012, Europe with the overall revenue contribution of 77%, remained the largest of destination for our product. Meanwhile, we have built a more balanced end market, with the revenue contribution from Germany, Italy and the France of 29%, 12% and then 11%, respectively.

China and the Japan also become important markets with revenue contribution of 10% and 8%, respectively. As illustrated on the slide, in 2013, we plan to further penetrate into emerging markets in order to diversify our customer base and mitigate concentration risk. Driven by strong growth in China, Japan and other emerging market, we estimate that our European revenue concentration will decrease from 71% of the total revenue in 2012 to roughly 60% in 2013.

Looking back, the fourth quarter clearly demonstrated the tough overall year in 2012. And with this kind of a backdrop, it will be a nature to want to raise both hands up in the air and just give up. However, when we objectively evaluated CSUN in terms of the priorities that we set a year ago, we believe that we have made great strides with our strategy and the conversion cost roadmap, which should improve our position when the market eventually turns around.

Let’s together take a close look back on the year. At the beginning of 2012, as the slide – the list on slide seven, we communicated with you that our four major priorities for the year were, first, expand our QSAR efficiency; second, invest in downstream projects; third, improve operating cost; fourth, enhance our global sales force.

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