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Analysts keep 'buy' on Sunpower after the divestment of its M&S segment

Felicia Tan
Felicia Tan9/9/2021 05:15 PM GMT+08  • 3 min read
Analysts keep 'buy' on Sunpower after the divestment of its M&S segment
KGI has kept its TP of $1.22, while UOB Kay Hian has lowered its TP to $1.03.
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Analysts from KGI Research and UOB Kay Hian have kept their “outperform” and “buy” recommendations on Sunpower after the group completed the divestment of its manufacturing & services (M&S) segment on April 30.

Following the divestment, Sunpower have paid out two tranches of special dividends amounting to 14.06 cents and 10.06 cents per share paid out in June and July respectively.

On this, KGI analyst Chen Guangzhi has kept his target price at $1.22.

As the group moves into being a purer play on clean energy moving forward, Chen sees its new capacity from its Tongshan P1, Shantou P2, Xintai Zhengda and Shanxi Xinjiang plants contributing to the group in 2022.

The plants are expected to complete construction in 2021 or early 2022.

See also: DBS ups Sunpower's TP to 70 cents on better-than-expected topline growth

That said, Sunpower may face a risk in concentration on only one aspect of its business following the disposal of the M&S segment.

“The growth of the green investments (GI) segment is mainly from the development of new plants. Rising interest rates and financing costs driven by inflation expectation could lower project rate of returns,” he writes in a Sept 2 report.

UOB Kay Hian analyst John Cheong has, on the other hand, lowered his target price to $1.03 from $1.22 previously.

The lower target price is largely due to the removal of the special dividend from the sale of Sunpower’s M&S business, as well as higher valuation for some of the existing plants, writes Cheong in a Sept 9 report.

For the FY2021 to 2023, Cheong has estimated total annual revenues of RMB2.55 billion ($530.3 million), RMB3.22 billion and RMB3.54 billion respectively.

His PATMI forecasts for the FY2021 to 2021 are RMB218 million, RMB325.5 million and RMB385.5 million respectively.

The way he sees it, it is “full steam ahead” for Sunpower’s GI segment.

“Sunpower’s outperforming GI segment would be the company’s sole principal business moving forward, providing Sunpower with strong, recurring and high-quality cash flows,” he writes.

“Armed with a stronger balance sheet, Sunpower is in a good position to source for more GI project investments from its robust pipeline of projects under evaluation,” he adds.

Sunpower’s 1HFY2021 results for its GI segment were “excellent” with revenue of RMB906.6 million and PATMI of RMB91.8 million.

For more stories about where the money flows, click here for our Capital section

The 77.3% y-o-y growth in revenue was due to stronger steam sales volume, which grew 73.2% y-o-y on the back of the ramp-up of new plants.

“Looking forward, the GI segment’s rapid ramp-up of projects and strong contributions from new projects such as Shantou Phase 2 and the remaining part of Xintai Zhengda’s new plant would continue to support robust revenue growth for Sunpower,” says Cheong.

To this end, Cheong expects the group to see a “strong close” in FY2021 from strong contributions from its GI plants and continued ramp-up of existing projects.

Shares in Sunpower closed flat at 65.5 cents on Sept 9, or an FY2021 P/B of 1.0 times and a dividend yield of 0.5%, according to KGI’s estimates.

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