CSUN

China Sunergy Co., Ltd. (CSUN)

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Start Time: 08:08

End Time: 08:54

China Sunergy Co., Ltd. (CSUN)

Q1 2014 Earnings Conference Call

May 28, 2014 08:00 AM ET

Executives

Stephen Cai - CEO

Yongfei Chen - CFO

Elaine Li - Senior IR Manager

Analysts

James Medvedeff - Cowen & Company

Xu Min - ROTH Capital Partners

Pranab Sarmah - AM Capital Ltd.

Presentation

Operator

Welcome to China Sunergy’s First Quarter 2014 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 first quarter 2014 earnings conference call. This is Elaine Li speaking, CSUN’s Senior Investor Relations Manager. We have posted a presentation on our Web site and during today’s discussion we will be closely following and referring to that. With us today are China Sunergy’s CEO, Mr. Stephen Cai; CFO, Mr. Yongfei Chen.

Today, before the market opened, the Company issued a press release announcing our first quarter 2014 financial results and our guidance for the second quarter. This press release is also available on the Investor Section of our Web site at www.csun-solar.com.

To start, Stephen will present an overview of our first quarter results and a quick review of important developments at CSUN and the solar industry update. Then, CFO, Mr. Chen will explain our financial results in more detail. Following that, Stephen will close with a quick technology update and our guidance. Afterwards, they will all be available to take your questions.

Before I turn the call over to Stephen, I’d like to remind our listeners that the management’s prepared remarks include forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Act of 1995. Forward-looking statements involve inherent risks 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 CEO, Mr. Stephen Cai. Stephen?

Stephen Cai

Thank you. Thank you all for joining today’s conference call. We are pleased that in the first quarter we executed and made good progress on our four key initiatives for 2014 and laid a foundation for the future development.

Firstly, we’ve been actively seeking to upgrade the quality of our OEM customers and this has resulted in our ability to secure initial orders from a notable South Korea customer in May. We are also making headway into the OEM markets in Japan and anticipate the securing order there in the second half of this year. Thus far, we’re on plan to extend -- expand our oversea OEM volume to full extend and we anticipate earning high gross margins and generating better cash flows from OEM arrangements.

Secondly, we make notable progress to further integrate our global supply chain for wafer. In May we established a sourcing agreement with an oversea polysilicon supplier and with a wafer processor. This arrangement enable us to purchase wafer without incurring anti-dumping tax thereby lowering our total wafer costs, while obviously enabling us to better control wafer quality.

Based on our initial estimates, the resulting cost of the wafer secure us through these arrangement will set us about $0.02 to $0.03 per watt or came to 15% lower than the current cost, as you may recall wafer cost on average has historically accounted for about 40% in our total cost of the module and the lower average wafer cost of 2% to 3% per watt can translate into the potential improvement of about 300 to 400 basis points to our gross margin.

Moreover, we were also be able to deliver this lower cost wafer directed to our Turkey plant to produce cell and we estimate this could lead to a saving of $0.03 to $0.04 per watt or 15% to 20% lower than the current cost.

Thirdly, we enhance our manufacturing processes by upgrading to automated soldering machines at our manufacturing base in Nanjing. Based on our assessment, the upgrades in line were improved processing rate by roughly 50% and lower manufacturing labor cost by over 30%. At the same time, the upgrade line will also significantly improve quality and consistency, which in fact is one of the key winning criteria for OEM business from South Korea and the Japanese (technical difficulty). We aim to complete the four upgrades in Nanjing by end of June and anticipate this will meaningfully contribute to our profitability in the second half of 2014.

Fourthly, we gain additional oversea financing channels with an additional loan of $3 million from the local banks in Turkey. As you can see we make good progress on each of our key initiatives. With that said, let me now provide you with a more detailed review of our first quarter results.

As summarized on Slide 4, in the first quarter of 2014 we shipped a total of 140.2 megawatt, representing growth of 36.8% year-over-year, embedded in the total shipments was nearly (technical difficulty) to OEM including 16.5 megawatts in module and a 33.3 megawatt in cell.

Blended ASP for modules in the first quarter increased by 7% -- $0.07 sequentially to $0.66 per watt. This significant sequential rise of nearly 12% in ASP for module was primarily driven by more sales to higher priced regions, especially in Japan and France, and lower sales to China. Overall, we achieved the gross margin of 3.7% and delivered total revenue of $62.7 million.

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