DBS Group Research analysts Woon Bing Yong and Ling Lee Keng have kept “hold” on Sunpower Group with a higher target price of 70 cents from 68 cents previously.
The increase in target price estimate was made to reflect the better-than-expected topline growth for its green investments (GI) segment, write Woon and Ling in an Aug 16 report.
“Sunpower is currently trading near its price-to-book (P/B) mean of 1.39 times, which seems fair against 10.3% return on equity (ROE) for FY2022,” they add.
While the analysts expect topline growth to continue into the 2HFY2021, margin and performance for its GI segment may be weighed down by increasing thermal coal prices, as management may partially share the higher costs with its customers.
See also: DBS downgrades Sunpower Group to ‘hold’ on share price gains and limited upside
The rising number of Covid-19 cases in China may also impact steam sales volumes, especially if lockdowns are implemented, note Woon and Ling.
On this, the analysts have forecast GI revenue and steam sales volume for the FY2021 to grow 54.6% y-o-y to RMB2.0 billion ($418.4 million) and 8.65 million tonnes respectively.
To them, a key catalyst in the re-rating of Sunpower’s share price is its new dividend policy.
“Sunpower is on the cusp of attaining its RMB2.5 billion equity investment target in GI plants. Post-achievement of the target, we hope to see the group reward its investors with a new dividend policy, supported by the high-quality recurring cash flows of the GI business,” they write.
According to Woon and Ling, they are more conservative in their estimates on the counter amongst the rest of the brokerages given the group’s high debt levels.
“That said, we do not foresee any immediate liquidity issues, as Sunpower still has committed facilities to draw down on,” they say.
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As at 3.30pm, shares in Sunpower are trading 4 cents higher or 6.78% up at 63 cents, or an FY2021 P/B of 1.3 times, according to DBS’s estimates.