Excerpts from UOB KH report
Analyst: John Cheong
SPWG posted strong revenue and earnings for 1H21, led by robust growth in its principal GI business.
The 37.0% yoy 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 M&S business, SPWG paid out two special dividends amounting to S$0.24/share in Jun 21 and Jul 21.
We maintain BUY with a lower SOTP-based target price of S$1.03.
SPWG’s outperforming GI segment would be the company’s sole principal business moving forward, providing SPWG with strong, recurring and high-quality cash flows. Armed with a stronger balance sheet, SPWG is in a good position to source for more GI project investments from its robust pipeline of projects under evaluation.
• Full steam ahead for the Green Investments (GI) segment. Sunpower Group (SPWG) completed the divestment of its Manufacturing and Services (M&S) business and recorded a gain of Rmb934m in 2Q21.
From this divestment, SPWG paid out two special dividends of S$0.1406/share and S$0.1006/share in Jun 21 and Jul 21 respectively.
• Excellent 1H21 GI results, driven by ramp-up of plants. SPWG’s GI segment posted robust revenue and PATMI growth of Rmb906.6m (+77.3% yoy) and Rmb91.8m (+37.0% yoy) respectively.
The strong growth in revenue was contributed by stronger steam sales volume which grew 73.2% yoy on the back of the ramp-up of new plants such as Shantou Phase 1 and the first part of Xintai Zhengda’s new plant, backed by a resilient industrial customer base.
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 SPWG.
• Riding on China’s economic recovery and policies. China’s economy has rebounded from the impact of COVID-19, posting an impressive 12.7% yoy GDP growth in 1H21. China’s government had also recently issued the 14th Five-Year plan that promotes the development of industrial parks and centralised steam facilities.
Management sees many business opportunities in the anti-smog sector in China, due to regulatory mandated closure of high-emission polluting boilers and the structural shift to low emission centralised steam and electricity facilities. We reckon SPWG is in a favourable position to benefit from these macro-economic tailwinds.
• Expect a strong close to 2021 from strong contributions of GI plants and continued ramp-up of existing projects. With the disposal of the M&S segment, the GI segment has become the principal driver for the group.
|a) strong contributions from Shantou Phase 1 and Xintai Zhengda’s new plant,
b) the continuous connection of new customers following mandatory closures of small dirty boilers and/or mandatory relocation into industrial parks, and
c) the continuous cultivation of earnings quality and asset returns of existing projects to continue SPWG’s strong momentum going into 2H21.
• We revise our EPS forecasts 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: a) higher leverage from expansion, b) project execution risk, c) forex, and d) raw material costs..
|VALUATION / RECOMMENDATION:
• Maintain BUY with a lower SOTP target price of S$1.03 (previously S$1.22).
The lower target price is largely due to the removal of the special dividend (S$0.24/share) from the sale of SWPG’s M&S business and higher valuation for some of the existing plants.
SHARE PRICE CATALYST
• Faster-than-expected ramp-up of GI projects.
• Better-than-expected utilisation at existing plants.
• More EPS-accretive acquisitions.
Full report here.