Sunpower Group - UOB Kay Hian 2020-08-14: 1H20 Excellent Results; Expect Stronger 2H20 As China’s Economy Recovers


Sunpower Group - 1H20 Excellent Results; Expect Stronger 2H20 As China’s Economy Recovers

  • Sunpower Group posted robust results for 1H20, on the back of China’s economic reopening and recovery. 1H20 PATMI came in at Rmb173.6m, forming 46.6% of our full-year forecasts. The 56.3% h-o-h surge in PATMI was largely caused by the full work resumption of GI plants.
  • Looking forward, resumption of full GI production and further ramp-up of existing GI projects will continue to drive earnings growth from 2H20 onwards.
  • Maintain BUY on Sunpower Group with a 5% higher SOTP-based target price of S$0.92.

Sunpower Group's 1H20 Results

1H20 results above our expectations, driven by China’s recovery.

  • Sunpower Group (SGX:5GD) posted higher 1H20 revenue and PATMI of Rmb1,756.9m (+19.5% h-o-h) and Rmb173.6m (+56.3% h-o-h) respectively, forming 44.4% and 46.6% of our full-year forecasts. This is significant as 1H is historically a seasonally weaker half, usually contributing 30-40% of our full-year forecasts.
  • The outperformance is largely contributed to the recovery in China’s economy as well as the full work resumption of Sunpower Group’s plants in 2Q20.

GI segment remains resilient.

  • The Green investments (GI) segment recovered as all GI plants have resumed normal operations in 2Q20, backed by the reopening of China’s economy. This caused both GI segmental 1H20 revenue and EBITDA to increase by 3.6% h-o-h and 6.9% h-o-h respectively. The GI results are impressive considering some GI plants were closed during the COVID-19 outbreak in China.
  • Looking forward, Sunpower Group is on target to make equity investments of ~ Rmb2.5b in GI assets by 2021.

Record-high (M&S) orderbook maintained.

  • The manufacturing and services (M&S) segment maintained its record-high orderbook at Rmb2.8b as of end-1H20. 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 its strong market leadership and reputation. In addition, we understand that Sunpower Group is gaining market share from smaller competitors.

Sunpower Group - Stock Impact

China’s economic recovery has provided favourable tailwinds.

  • According to the National Bureau of Statistics, China’s 2Q20 GDP grew by 3.2% y-o-y as its economy started reopening. Furthermore, forecasts from IMF and Oxford Economics reckon that China will experience a 1-2.5% y-o-y increase in full-year GDP for 2020, one of a few countries to have a positive forecast.
  • With the COVID-19 pandemic relatively under control in China, we believe that SPWG is in a favourable position to benefit from the resumption of economic activity in China and will post stronger results from 2H20 onwards.

Expect strong results to continue from 2H20 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.

Sunpower Group - Earnings Revision/Risks

  • We have increased our EPS forecasts slightly by 1-2% for 2020-22 as we reckon that the recovery of China’s economy as well as the full resumption of GI production will help deliver the strong growth expected in our EPS forecasts.
  • Sunpower Group's 2020-22 revenue is forecasted at Rmb4,010.2m, Rmb4,246.4m and Rmb4,497.8m respectively. 2022-22 PATMI is forecasted at Rmb379.9m, Rmb461.6m and Rmb559.3m respectively.
  • Risks include:
    1. higher leverage from expansion,
    2. project execution risk, and
    3. forex.

Sunpower Group - Valuation/Recommendation

Sunpower Group - Share price catalysts

  • Faster-than-expected ramp-up of GI projects.
  • Higher-than-expected project wins for M&S segment.
  • More EPS-accretive acquisitions.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-08-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.92 UP 0.880