September 9, 2021

1H21: Strong Results, Fully Focused On Going Green

SPWG posted strong revenue and earnings for 1H21, led by robust growth in its principal GI business. 1H21 GI PATMI came in strongly at Rmb$91.8m (+37% yoy). 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.

RESULTS

• 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. 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.

• 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.

STOCK IMPACT

• 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. We expect the: 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.

EARNINGS REVISION/RISK

• 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. 

BUY by UOB Kay Hian Research. Share price closed at $0.655.