China Sunergy Co., Ltd. (CSUN)

Q1 2011 Earnings Conference Call

May 23, 2011 8:00 AM EST


Elaine Li – Senior IR Manager

Stephen Cai – CEO

John Wong – Financial Controller

Jianhua Zhao – Cofounder and CTO


Rob Stone – Cowen & Company

Kelly Dougherty – Macquarie

Dan Ries – Collins Stewart

Gordon Johnson – Axiom Capital Management

John Segrich – Gabelli & Company

Sri Nadesan – Lazard Asset Management



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Good day, ladies and gentlemen, and welcome to the Q1 2011 China Sunergy Company Limited Earnings Conference call.

My name is Steve, and I will be your operator for today.

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At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of today’s call. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Elaine Li, Senior Investor Relations Manager.

Elaine Li

Thank you, operator and welcome to China Sunergy’s first 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; Cofounder and Chief Technology Officer, Dr. Jianhua Zhao; Acting CFO, Mr. Yongfei Chen; and Financial Controller Mr. John Wong.

Our first quarter 2011 earnings results were released earlier today and now available on company’s website as well as on newswire services. Our website also contains Q1 2011 earnings PowerPoint presentation to which you may refer to during or after this call. Before I turn the call over to Stephen, may I remind our 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 risks 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 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.

With that, I’d like to turn the call over to Mr. Stephen Cai, China Sunergy’s CEO. Stephen?

Stephen Cai

Thank you, Elaine. And let me thank everyone for taking the time to join today. I am pleased to have been leading the company for over one year now and I think we have come a long way. In tough market conditions and uncertainties, especially the delay in policy changes in Italy, China Sunergy is pleased to say that it exceeded guidance on gross margins and the module ASP in the first quarter. During which time we shipped a total of 98 megawatt meeting our shipment guidance.

We achieved a gross margin of 10.7% despite some misprediction that margin was slipping to the single-digit. And our module ASP was $1.74 per watt, better than industry average. Before we go into the details of our financial performance, we want to talk to you today about our strategy. I feel it is important to bring investors up-to-date on our long-term business strategy following quite a significant transition in 2010. Late last year when we acquired two module manufacturers, we changed from the predominantly cell to a predominantly module business. We made this change for two main reasons.

One, we wanted to capture more of this value chain and become more vertically integrated. Vertical integration offers stability, scale and the cost saving advantages. Two, we feel it was time to invest in our brand name and sell our own branded module products rather than being a component part of the others. We wanted the China Sunergy name to stand for cutting-edge technology and end-to-end solutions. By producing both cells and modules, we can now sell directly to end-users and participate fully in international markets. In short-term, this shift has posed a few temporary challenges. For example, we haven't been able to fully meet our module biggest demand for solar cells in-house.

And instead had to buy cells from other companies, which cut into our margins. However, our goal is to be sales sufficient with cells, and we are planning for the day probably next year, when our cell capacity will meet our module capacity. In our transition, we’ve also had to induce some of the structural changes to our balance sheet such as increased accounts receivables which we highlighted last quarter. Going forward, we actually have a lot of the confidence in our business model.

Short-term challenges do not deter us from our long-term goal of setting high efficiency, cost effective solar products, just because we cross sell our module business, does not mean that we are not focusing on cells. In fact designing high efficient cells is our clear expertise and our clear priority. Later on I will ask our CTO, Dr. Zhao to elaborate our average 18.35% batch efficiency we recently achieved in our high efficiency pilot cell line. A rate well above industry average.

In summary, we’re investing in our own technology and in-house capacity expansion, both of which will help us control costs. We are confident that we will return to high margins in the third quarter, and we know that it is our shareholders number one priority. If high margins are the goal, we are of course aware that there are different ways to achieve that goals and that you may ask why do – why we do not have immediate plan to aid internal wafer capability. Although, we want to roll this out, we will need to evaluate the short-term benefit against the cost and the long-term implications.

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