A-Power’s Q2 Misses Expectations

A-Power Energy Generation Systems Ltd. (APWR - Snapshot Report) posted second-quarter results before the opening bell today. The company’s net income grew slightly to $6.3 million from $6.2 million in the year-ago quarter. Excluding certain items, earnings per share came in at 11 cents per share, missing the Zacks Consensus Estimate by nearly 48%, or 10 cents.

A-Power is the largest provider of distributed generation systems (DG) focused on renewable energy in China, with project sizes ranging from 25MW to 400MW. The company also makes wind turbines and has a total annual production capacity of 1,125MW. The company stated that quarterly revenues contracted 12.5% year over year to $57.5 million. The decline was primarily attributable to design delays in certain DG projects related to biomass-based micro-grid electricity generation systems.

Gross margin came in at 13.4%, a growth of 130 basis points (bps) over the same period last year. The improvement was driven by enhanced cost savings as the company undertook larger, 30MW-plus projects. Selling, general and administrative expenses increased 220 bps year over year as a percentage of revenue to 5.2%, mainly due to higher professional consulting fees, salaries and stock-based compensation. Accordingly, operating margin dipped 90 bps year over year to 8.2%, while operating income fell 21.5% to $4.7 million.

The company ended the quarter with cash and equivalents of $128.7 million, compared to $91.2 million in the year-ago quarter. The improved liquidity position was driven by healthy customer deposits, which surged to $31.7 million from a negative $2.4 million last year as the company entered into several large-scale, 30MW-plus contracts. Moreover, the company also raised $40 million in June from the issuance of Senior Convertible Notes.

Meanwhile, A-Power intends to significantly enhance its footprint in the rapidly growing Chinese renewable energy sector supported by favorable government policies. The company entered into a joint venture (JV) with GE Drivetrain Technologies, a unit of General Electric Co. (GE - Analyst Report), earlier this year for producing wind turbine gearboxes, which is expected to commence trial production in August 2010.

Earlier this month, the company also acquired Japan-based thin-film photovoltaic (PV) battery developer Evatech Co. Ltd for $50 million in an all-cash deal. In the same month, the company announced 2 JVs with Jiangsu Miracle Logistics System Engineering Co. Ltd. to manufacture key wind turbine components.

Looking ahead, the company continues to anticipate full-year revenue of $320 million and net income of $32 million, which amounts to approximately 91 cents per share based on 35.3 million shares. The Zacks Consensus Estimate, derived from 3 covering analysts, is currently pegged at 94 cents per share, which has moved down by 5 cents over the past week. The most accurate estimate is  bearish at 85 cents per share.

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