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Sunpower divests manufacturing and services to build back better following record RMB377 million FY20 earnings

Ng Qi Siang
Ng Qi Siang 2/26/2021 04:56 PM GMT+08  • 4 min read
Sunpower divests manufacturing and services to build back better following record RMB377 million FY20 earnings
RMB1.93 billion has already been invested and committed in project equity to build up Sunpower’s GI portfolio.
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“Build back better” appears to have well and truly begun at Chinese green energy firm Sunpower, which announced a record RMB377 million ($77.4 million) earnings (or PATMI) in the FY2020 ending December. This marks a 7% y-o-y increase from the RMB352.2 million recorded in FY2019 and exceeds its convertible bond performance target of RMB370 million.

Including the financial effects of convertible bonds and warrants, Sunpower, however, saw a 140.2% y-o-y plunge to a RMB55.6 million loss for the FY2020.

In the announcement of its FY2020 whole-year results on Feb 26, Sunpower reported that group revenue rose 12.6% y-o-y to RMB4.05 billion, while gross profit increased 10.5% y-o-y to RMB981.5 million for the period.

The higher revenue was attributable to an 11.2% y-o-y growth in the group’s Manufacturing & Services (M&S) segment, and 15.6% y-o-y higher revenue from the green investments (GI) business.

Group EBITDA rose 13.0% y-o-y to RMB 798.2 million. Underlying operating cashflow grew 17.4% y-o-y to RMB535.9 million.

Profit before tax (PBT) plunged 65.3% y-o-y to RMB83.4 million due to the decrease in other operating income from lower government grants, the increase in administrative expenses due to the increase in salaries amid the expansion of the business, the increase in finance costs due to the increase in amortisation interest of convertible bonds, as well as the increase in fair value loss on convertible bonds.

A first and final dividend of 0.3 cent per share has been recommended.

“We faced a challenging year in 2020 but our excellent management of operations allowed us to maintain healthy and reliable business growth and closed out the year with record results, exceeding the 2020 performance target of convertible bonds,” says Guo Hongxin, Executive Chairman of Sunpower.

The firm cites the long-term growth potential from the organic expansion of consumers and industrial parks served by GI projects as key drivers of growth. Favourable government environmental policies have also driven demand for green investment (GI) projects. Sunpower’s early-mover advantage and a strong market position have also been a key driver for earnings.

From this position of strength, Sunpower intends to procure new GI projects with exclusive long-term concessions. It also intends to embark on new phases of expansion on its existing projects while also strengthening their earning quality.

SEE: Analysts positive on Sunpower Group's M&S divestment

“The sizeable GI portfolio already forms the bulk of Sunpower’s intrinsic value and has allowed the Group to grow into a company driven by long-term, recurring, high-quality income and cash flow in less than 3 years,” Guo tells the media.

To focus on this endeavour, the group announced on 31 December 2020 its intention to dispose of its manufacturing and services business for RMB 2.29 billion. The board intends to distribute a portion of the net proceeds of this divestment to shareholders in the form of a special dividend. The remainder of the proceeds will be reinvested to develop its GI business.

RMB1.93 billion has already been invested and committed in project equity to build up Sunpower’s GI portfolio. The group now has a total of 11 such projects, nine of which are operational. The remainder, including the Xintai Zhengda Project, phase 2 of the Shantou Project, the Tongshan Xuzhou Project and the Shanxi Xinjiang Project are currently under construction, with the former three expected to be completed in 2021.

Strong Chinese economic growth and vast domestic market are seen to be favourable to Sunpower’s fortunes in 2021. The firm notes with optimism that China’s recent Central Economic Work Conference - which is responsible for drawing up China’s Fourteenth Five Year Plan - has emphasised building the domestic market and fighting pollution and carbon emissions, trends which benefit the green energy firm.

As of 4.30pm, Sunpower is trading 3.01% down at $0.80. P/E ratio is 8.95 while dividend yield stands at 0.31%.

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