Sunpower Group - DBS Research 2021-03-01: Focusing On Green Investments


Sunpower Group - Focusing On Green Investments

  • Sunpower Group's FY20 revenue and adjusted PATMI grew 12.6% and 7% y-o-y, slightly below expectations.
  • M&S order book increased by RMB100m to RMB2.9bn.
  • Xintai Zhengda and Shantou Phase 1 & 2 expected to contribute meaningfully in FY21F.
  • Maintain BUY on Sunpower Group with slightly lower target price of S$0.92 (ex-dividend target price: S$0.68).

Growth achieved despite COVID-19 impact

  • Sunpower Group (SGX:5GD)'s FY20 revenue and adjusted PATMI increased to RMB4,058.8m (+12.6% y-o-y) and RMB377.0m (+7.0% y-o-y) respectively as both the Manufacturing & Services (M&S) and Green Investments (GI) businesses recovered from the pandemic. However, FY20 adjusted PATMI was below expectations possibly due to higher raw material costs that dragged GI segment’s margins.
  • M&S segment profit grew to RMB321.8m (+21.3% y-o-y) helped by a record higher order book. Order book rose to RMB2.9bn as at end-Jan 2021 (end-Sep 20: RMB2.8bn).
  • GI segment’s profit increased to RMB341.9m (+4.8% y-o-y) helped by new contributions from Xintai Zhengda and Shantou Phase 1 along with the ramp up of Changshu Suyuan.
  • Sunpower Group's net debt-equity climbed to an estimated 1.74x in FY20 (FY19: 1.44x).
  • Sunpower’s sale of the M&S business is on track and could net investors a special dividend of S$0.2359 per share.

4Q20 Manufacturing & Services (M&S) performance oddly dips despite record order book

  • 4Q20 M&S revenue declined 7.2% y-o-y to RMB906.5m with EBITDA margin posting a puzzling steep decline q-o-q to 6.4% (3Q20: 14.9%).
  • The decline may have been due to timing differences, with Chinese New Year in 2021 more than 2 weeks later compared to 2020. The M&S segment may have outperformed in 4Q19 to complete orders before Chinese New Year.
  • In FY21F, the M&S segment is likely to grow further with the order book at a record high of RMB2.9bn as of end- Jan 2021. Continued construction of Tongshan Phase 1 and Xinjiang Phase 1 will also help buoy the segment.
  • Our numbers reflect a dip in M&S sales and segment profit as we have assumed a completion of the M&S sale by end-1H21.
  • We are projecting for the M&S business to be sold by end-1H21, with a special dividend of 23.6 cents/share paid out.

New Green Investments (GI) plants set to contribute in FY21F

  • China’s 4Q20 industrial utilisation capacity has now risen above pre-COVID levels (4Q20: 78.0%, 4Q19: 77.5%), potentially signalling greater demand for steam.
  • Shantou Phase 1 and Xintai Zhengda are expected to ramp up in 2021, which together with the completion of the 130t/h Tongshan Phase 1 will contribute to higher FY21 GI revenue
  • Xinyuan Plant could also see higher contributions in FY21 driven by supply of clean heating to new 2 sq km concession area in Jimo International Trade Park
  • Similarly, Changrun Project is expected to start supplying Sanli under an announced 25-year exclusive steam supply contract.

Steady recovery in retail sales positive for GI

  • We believe that 40-50% of Sunpower Group's GI revenue may be linked to demand for steam used by China’s printing & dyeing industry
  • Retail sales garments continued to grow in October (+12.2% y-o-y), November (+4.6% y-o-y) and December 2020 (+3.8% y-o-y), indicating positive momentum for the textiles sector and in turn printing & dyeing industry.

Maintain BUY with slightly lower target price of S$0.92.

Woon Bing Yong DBS Group Research | Lee Keng LING DBS Research | https://www.dbsvickers.com/ 2021-03-01
SGX Stock Analyst Report BUY MAINTAIN BUY 0.92 DOWN 0.940