Sunpower Group - DBS Research 2021-05-18: Awaiting New Catalysts


Sunpower Group - Awaiting New Catalysts

  • Downgrade Sunpower Group to HOLD on share price gains and limited upside based on target price of S$0.92.
  • M&S disposal approved by shareholders; special dividend of ~23.6 cents per share to be paid.
  • GI revenue continues growth momentum, rising 61.2% y-o-y to RMB417.6m.
  • Rising thermal coal price may dent GI EBITDA margins in the near term.

Sunpower’s 1Q21 revenue grew 31.2% y-o-y to RMB882.8m, led by Green Investment (GI) revenue growth.

  • Sunpower Group (SGX:5GD)'s GI revenue rose 61.2% y-o-y to RMB417.6m as Shantou Project Phase 1 began contribution. Nine GI projects were in commercial operation in the quarter vs eight in operation and one in trial production in 1Q20. GI revenue was also helped by an expansion in the customer base for operational projects. As a result, GI EBITDA grew 46.0% y-o-y to RMB115.2m.

Manufacturing & Services (M&S) revenue grew 12.5% y-o-y to RMB465.2m.

  • Details on the reasons behind the growth of the segment were scarce, but we note that the M&S order book had reached a record high of RMB2.9bn in 4Q20. Still, the sale of Sunpower Group's M&S segment has been approved by shareholders and ~96.5% of the sale consideration has been escrowed.

Strong top-line growth partially due to low-base effect.

  • We note that Sunpower Group had generated revenue of RMB811.6m in 1Q19 and that 1Q21 growth when compared to 1Q19 would only be 8.8%. That said, the GI segment still grew a respectable 45.7% when comparing these two quarters.
  • On the other hand, M&S segment revenue declined by 11.4% y-o-y compared to 1Q19 which is puzzling especially given the record order book achieved in FY20.

Cost pressures behind lower margins in 1Q21.

  • Sunpower Group's 1Q21 adjusted PATMI grew 16.8% y-o-y but fell 1.3% when compared to 1Q19. Notably, GI EBITDA margin was considerably lower at 27.6% compared to the ~30% in both 1Q20 and 1Q19. Management has clarified that one-off costs were incurred in 1Q21 as a result of the tapering down of operations at the old Xintai Zhengda plant.
  • We believe the lower margins might have also been partially attributed to higher thermal coal prices, a key source of energy used in the production of steam in the GI plants. As such, GI margins could potentially be challenged in 1H21 especially if thermal coal prices continue their ascent.

Downgrade to HOLD but maintain target price of S$0.92 (ex-special dividend target price of S$0.68).

Woon Bing Yong DBS Group Research | Lee Keng LING DBS Research | https://www.dbsvickers.com/ 2021-05-18
SGX Stock Analyst Report HOLD DOWNGRADE BUY 0.920 SAME 0.920