The Outlook For Yingli Is 'Grim'

Axiom Capital's Gordon Johnson initiated coverage of Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE: YGE) with a Sell rating and a price target of $0.08, saying that there was "material stock risk," since China could once again miss its solar installation target.

Johnson said that China may fall short of its solar installation target due to curtailment, lack of funding and weakening demand for roof-top installations. Yingli was faced with rising balance sheet leverage and an EBITDA that was unlikely to be enough to cover its interest expense in 2Q15.

The Axiom Capital report explained that Yingli had a total debt-to-cap ratio of 94 percent, which was "lofty." Despite this, the company had plans of taking on an additional debt of about $1bn in 2015, on its "already burdened" balance sheet, with the objective of building projects that would unlikely generate real cash flows for at least 6-12 months.

"YGE is effectively selling modules to itself with the intent to later sell these projects into the open market. With the majority of Chinese module companies assuming a similar strategy to YGE, and an elevated level of project risk inherent in China versus other solar markets (evidenced by U.S. YieldCos generally staying out of the Chinese market), we expect to see a proliferation of projects for sale versus module inventory," Johnson commented.