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Sunpower Group - Explosive Growth On China’s Environmental Sunrise

Shared By Stock Fanatic on Wednesday, June 6, 2018 | 6.6.18

As China’s Xi has vowed to wage a war on pollution, Sunpower is on the cusp of explosive growth. Gearing up for this sunrise industry, this aggressive approach is an opportunity for Sunpower to gain the first-mover advantage in order to maximise returns. With Rmb3.4b of projects and Rmb2.0b in its orderbook, top investment funds have validated this company with its technological advantage and proven track record. Initiate coverage with BUY and SOTP-based target price of S$0.77.

WHAT’S NEW
We initiate coverage on Sunpower Group (please refer to “Money Talk: “Explosive Growth On China’s Environmental Sunrise” dated 6 Jun 18 for the full report).

INVESTMENT HIGHLIGHTS
Huge demand of Rmb500b to replace smog-producing boilers as China’s Xi vows war on pollution; air pollution top priority. Since its 2013 “airpocalypse”, China has listed environmental protection as a main concern. Under President Xi (who has placed air pollution as a top priority), the government has set up a powerful new cabinet-level environment ministry, identified small inefficient coal boilers as the culprit of highly polluting smog, and set strict regulations to replace these boilers and promote clean energy heating. This has heralded an era of “central boilers” with a huge Rmb500b market.

Technological advantage leads to profitable high IRR GI projects. Sunpower is set to ride on this boiler replacement wave as it captures Green Investment (GI) projects with its core advantages of proprietary technology arsenal (its patented heat exchangers are one of the best in the world) and engineering experience. Sunpower is able to deliver steam at a lower price, giving it a competitive pricing edge, translating into both higher project capture rate (due to the bidding system) and attractive double-digit IRRs.

Technical Analysis
Daily Chart
On the verge of explosive growth; >Rmb3.4b of committed projects (28 more in deal pipeline), Rmb2.0b in record orderbook; 1Q18 core profit up 52.4% yoy. Sunpower is on the verge of explosive growth with four projects already operational (a smaller fifth project is only 49%-owned) and contributing to a 52.4% yoy increase in 1Q18 core profit. Five more projects are underway, three more to be constructed (totalling >Rmb3.4b) as well as 28 projects in the deal pipeline. With the oil price recovery, its other manufacturing & services segment also has a record-high Rmb2.0b orderbook.

Source : UOB Kay Hian Research
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Posted on Wednesday, June 6, 2018 | 6.6.18
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