NEW ENERGY: Yingli’s Shock Profit, Ming Yang Exit Nears

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Bottom line: YIngli’s surprise profit announcement could be the result of a government rescue that will result in a sale of the company, while Ming Yang’s quick privatization reflects its profitability and strong longer-term prospects.

Ming Yang shareholders approve buyout

In a huge surprise to new energy stock watchers, nearly insolvent solar panel maker YIngli (NYSE: YGE) has suddenly announced its first quarterly profit since 2011, abruptly reversing years of massive losses. There’s no explanation for this sudden profit announcement, which comes in some preliminary results released ahead of an official conference call set for next week. Meantime, the more solvent wind power equipment specialist Ming Yang (NYSE: MY) is moving closer to New York exit door, with its announcement that shareholders have approved its plan to privatize as part of a broader wave of such de-listings by US-traded Chinese companies.

YIngli shares leaped 25 percent in the latest trading session in New York after its surprise announcement. But that said, they’re still below their levels from late April, when the stock plunged after Yingli said there was “substantial doubt as to its ability to continue as a going concern.” (company announcement) At that time, the company also said it expected to report a net loss of about 5.8 billion yuan ($890 million) for 2015, more than quadruple the loss from the previous year.

Against that backdrop, this latest announcement that Yingli expects to post a profit in the first quarter of this year looks quite remarkable, even though it wasn’t more specific on the size of that profit. (company announcement) Yingli also announced that its first quarter shipments came in at 500-510 megawatts of solar panels, or at the high end of its earlier guidance of 480-510 megawatts.

The company benefited from rising prices throughout the industry, which helped to lift its first quarter gross margins to the 18.5-20.5 percent range, up significantly from the fourth quarter. Yingli provided no other explanation for the surprisingly upbeat results, but said all will be revealed in an investor call on June 14. I’m sure that plenty of people will be on that call to hear exactly what happened to lead to this sudden change of fortune.

Yingli’s earlier doubts about its ability to stay in business were the result of a huge debt load and shrinking sales, which caused the company to default twice on recent bond repayments. The company is still trying to renegotiate new terms with those bondholders, though there hasn’t been any recent evidence that a new deal is near. (previous post)

Capital Injection?

Yingli has been working for a while with the local government in its hometown of Baoding in northeaster Hebei province to avoid insolvency, so my best guess is that it has received a massive capital injection as part of a rescue plan. That injection might allow it to return to profitability to make it more attractive for a potential buyer, so perhaps the company will announce such an acquisition or other major restructuring on June 14.

But if such a deal occurs, I doubt that holders of its current stock will be included in the overhaul, meaning the shares could quickly become worthless. Perhaps bondholders might get some money out of such a deal, though even that would be only a fraction of what they’re owed.

From Yingli, we’ll close out this post with a more positive story in Ming Yang, a relatively healthy and profitable maker of wind power equipment that first announced a management-led privatization offer last November. (previous post) That bid was followed by a final offer in February, and now MIng Yang has just announced its shareholders have approved the deal. (company announcement)

There’s not much more to say about this particular deal, except that it has moved more quickly than many of the other 40-odd privatization bids to be announced since the start of last year. That shows that Ming Yang is a relatively attractive company for private equity investors due to its profitability and good prospects. Many other companies to announce privatization plans don’t look nearly as promising, and I do expect that half or more of previously announced plans will ultimately collapse or quietly disappear.

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