Sunpower Group - UOB Kay Hian 2020-05-20: 1Q20 Soft Results Due To COVID-19 Outbreak; Expect A Strong Recovery In 2Q20


Sunpower Group - 1Q20 Soft Results Due To COVID-19 Outbreak; Expect A Strong Recovery In 2Q20

  • Sunpower Group posted lacklustre results for 1Q20, on the back of temporary closure of its plants due to the COVID-19 outbreak. 1Q20 PATMI came in at Rmb51.1m, forming 13.7% of our full-year forecasts. The 15.6% y-o-y drop in PATMI was largely caused by a drop in revenue from both the GI and M&S segment.
  • Looking forward, resumption of full production and ramp-up of existing GI projects will continue to drive Sunpower Group's earnings growth from 2Q20 onwards.
  • Maintain BUY with SOTP-based target price of S$0.88.

Sunpower Group 1Q20 Results

1Q20 results below our expectations, dragged by temporary impact of COVID-19 outbreak.

  • Sunpower Group (SGX:5GD) posted lower 1Q20 revenue and PATMI of Rmb672.7m (- 17.1% y-o-y) and Rmb51.1m (-15.6% y-o-y) respectively. Both formed 17% and 13.7% of our full-year forecasts.
  • The underwhelming results came on the back of fewer operating hours caused by the ongoing Covid-19 pandemic. In spite of the outbreak, Sunpower Group’s margins still improved with gross and net profit margins improving 1.9ppt and 0.1ppt respectively.

GI segment underperformance expected.

  • The GI segment underperformed as mandatory closures of some plants reduced operating hours, causing both segmental revenue and EBITDA to fall around 9.5% y-o-y. However, all GI plants have fully reopened in early-March and are expected to contribute strongly again from 2Q20 onwards. Also, Sunpower Group is on target to make equity investments of Rmb2.5b in GI assets by 2021.

Record-high orderbook amid COVID-19 outbreak

  • Manufacturing and Services (M&S) segment’s order book increased to Rmb2.8b (Rmb2.5b) as of 1Q20. This is largely due to Sunpower Group having a highly diversified base of high-end customers across the globe, of which 70% are repeat customers, as well as strong market leadership and reputation. In addition, we understand that Sunpower Group is gaining market share from smaller competitors.

China’s recovery to provide favourable tailwinds.

  • In a recent meeting, the CCP Central Committee Politburo emphasised the need for active expansion of domestic demand as the way to support economic recovery along with greater investment in infrastructure, including industrial park infrastructure that was listed by the Ministry of Finance as one of the segments for additional investment on 20 Apr 20.
  • Also, the China Purchasing Managers Index (PMI) has rebounded off February’s low of 35.7% to 50.8% in Apr 20, above the reading of 50.1% a year ago. We reckon that SPWG is in a favourable position to benefit from the resumption of economic activity in China and will rebound from 2Q20 onwards.

Expect a rebound from 2Q20 onwards due to strong contributions from GI plants and continued ramp-up of existing projects.

  • Management has earmarked the GI segment as the key driver for the group. We expect the:
    1. full-year contributions from newly-acquired GI plants,
    2. anticipated additional contributions from Shantou Phase 1 and Xintai Zhengda’s new plant,
    3. continuous connection of new customers following mandatory closures of small dirty boilers and/or mandatory relocation into industrial parks, and
    4. a record-high M&S orderbook of Rmb2.8b to help drive earnings for the remainder of 2020 and beyond.

Maintain BUY

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-05-20
SGX Stock Analyst Report BUY MAINTAIN BUY 0.880 SAME 0.880