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JA Solar Holdings Co., Ltd. (ADR) (JASO), Yingli Green Energy Hold. Co. Ltd. (ADR) (YGE): Not All Roses For Chinese Solar Stocks

The march of earnings continued from the solar industry last week, but unlike when Canadian Solar and Trina Solar reported it wasn’t all roses. JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO), Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE), and LDK Solar Co., Ltd (ADR) (NYSE:LDK) showed some of the challenges facing solar companies and didn’t improve nearly as quickly as competitors, even taking steps back in some cases. The industry’s winners and losers are starting to emerge, although the Chinese government can always change that.

JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO)

More solar earnings
JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) reported one of the most disappointing earnings reports so far this quarter. Revenue dropped 5.5% from the first quarter to $258.1 million, gross margin was just 8.1%, and net loss was $22.6 million, or $0.12 per share. Management also didn’t increase guidance from 1.7 GW to 1.9 GW, something Trina Solar did, raising speculation that others would follow. JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) doesn’t have a balance sheet as dept laden as LDK Solar Co., Ltd (ADR) (NYSE:LDK) or Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) but it also isn’t separating itself from an operational standpoint either.

LDK Solar’s report was even more discouraging. The company had just $114.7 million in sales and reported a $95.1 million loss in the quarter. That means $2.5 billion in debt will continue to grow long-term and some sort of bankruptcy or restructuring is necessary. There’s no way investors should touch this stock given the weakness in results.

Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) also reported earnings on Friday. Module shipments increased 23.6% sequentially and revenue was up 27% sequentially to $550.4 million during the quarter. Gross margin increased to 11.8% overall and 12.5% in the module business. Still, Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) lost $52.3 million, or $0.33 per share, during the quarter as operating and interest costs ate up the company’s potential profit.

Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) faces the same challenge as LDK Solar, who are both drowning in debt. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE)’s $2.8 billion in debt and last quarter’s operating expenses would require a gross margin in excess of 20%, something that doesn’t seem to be on the horizon.

Foolish bottom line for Chinese solar
Not every solar manufacturer in China will survive long-term, there are just too many companies competing for the solar pie right now. Balance sheets are becoming more important than ever and so is quality in the solar industry. Companies like Trina Solar and Canadian Solar, who have better balance sheets, are outperforming companies like LDK and Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) simply because of the cost of debt. Slowly, the difference is starting to show up on income statements and that will transfer its way to stock prices as well.

The article Not All Roses For Chinese Solar Stocks originally appeared on and is written by Travis Hoium.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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