Sunpower Group - UOB Kay Hian 2021-09-09: 1H21 Strong Results, Fully Focused On Going Green

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SUNPOWER GROUP LTD. (SGX:5GD)

Sunpower Group - 1H21 Strong Results, Fully Focused On Going Green

• Sunpower Group posted strong revenue and earnings for 1H21, led by robust growth in its principal Green Investments (GI) business. 1H21 GI PATMI came in strongly at RMB$91.8m (+37% y-o-y). The 37.0% y-o-y growth in GI PATMI was driven by the continued ramp-up of existing projects and strong contributions from new plants.
• Following the divestment of its Manufacturing and Services (M&S) business, Sunpower Group paid out two special dividends amounting to S$0.24 per share in Jun 21 and Jul 21. We maintain BUY rating on Sunpower Group with a lower SOTP-based target price due to the removal of the special dividend.

SUNPOWER GROUP'S 1H21 RESULTS

Full steam ahead for the Green Investments (GI) segment.

• Sunpower Group (SGX:5GD) completed the divestment of its Manufacturing and Services (M&S) business and recorded a gain of RMB934m in 2Q21. From this divestment, Sunpower Group paid out two special dividends of S$0.1406 per share and S$0.1006 per share in Jun 21 and Jul 21 respectively.
• Sunpower Group’s outperforming GI segment would be the company’s sole principal business moving forward, providing Sunpower Group with strong, recurring and high-quality cash flows. Armed with a stronger balance sheet, Sunpower Group is in a good position to source for more GI project investments from its robust pipeline of projects under evaluation.

Excellent 1H21 GI results, driven by ramp-up of plants.

• Sunpower Group’s GI segment posted robust part of Xintai Zhengda's new plant would continue to support robust revenue growth for Sunpower Group.

Riding on China’s economic recovery and policies.

• China’s economy has rebounded from the impact of COVID-19, posting an impressive 12.7% disposal of the M&S segment, the GI segment has become the principal driver for Sunpower Group. We expect the:
  1. strong contributions from Shantou Phase 1 and Xintai Zhengda’s new plant,
  2. the continuous connection of new customers following mandatory closures of small dirty boilers and/or mandatory relocation into industrial parks, and
  3. the continuous cultivation of earnings quality and asset returns of existing projects to continue Sunpower Group’s strong momentum going into 2H21.

SUNPOWER GROUP - EARNINGS REVISION & RISK

• We revise our earnings forecasts for Sunpower Group to adjust for the disposal of the M&S business. We forecast total annual revenues for 2021-23 at RMB2,547.5m, RMB3,218.2m and RMB3,541.2m respectively. 2021-23 PATMI forecasts are RMB218.0m, RMB325.5m and RMB385.5m respectively.
• Risks include:
  1. higher leverage from expansion,
  2. project execution risk,
  3. forex, and
  4. raw material costs.

SUNPOWER GROUP - VALUATION & RECOMMENDATION

• Maintain BUY rating on Sunpower Group with a lower SOTP-based sale of Sunpower Group’s M&S business and higher valuation for some of the existing plants.
• See
  • Sunpower Group's Share Price,
  • Sunpower Group's Target Price,
  • Sunpower Group's Analyst Reports,
  • Sunpower Group's Dividend History,
  • Sunpower Group's Announcements,
  • Sunpower Group's Latest News.
• Share price catalysts:
  • Faster-than-expected ramp-up of GI projects.
  • Better-than-expected utilisation at existing plants.
  • More EPS-accretive acquisitions.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-09-09

SGX Stock Analyst Report BUY MAINTAIN BUY 1.03 DOWN 1.220