Solar Power Lights Up New Offering From China
investors.com
INVESTOR'S BUSINESS DAILY
Posted 12/12/2005
Suntech Power Holdings
Wuxi, China
(86) 510-534-5000
suntech-power.com
Lead underwriters:
CS First Boston and Morgan Stanley
Offering price: $13-$15
Expected date: week of Dec. 12
Ticker: STP
THE BUZZ
If you think solar power is some Utopian idea from the 1970s, apparently Wall Street doesn't agree with you.
When SunPower (SPWR) debuted on Nov. 17, it shot up more than 50% in its first hours of trading. It has topped that high in recent days.
And that was for a company that took in a measly $11 million in sales last year. Suntech Power is much younger than SunPower, but it's already one of the world's top 10 producers of photovoltaic (PV) cells.
"When you compare the two, this (company) is much further along in terms of profitability and capacity," said Sam Snyder of Renaissance Capital. "In this industry, everything they make, people are buying."
Also unlike SunPower, Suntech is based in China. Whether that's good is tough to call at this point.
Chinese firms have been Wall Street darlings for much of the year, but lately sentiment seems to have turned against them. The recent action in Chinese tech companies — especially chipmakers — has not been encouraging.
Snyder says Chinese firms do represent a risk, since they're not operating under the same rules as U.S. firms. Still, he suggests the troubles plaguing chipmakers were specific to that industry.
THE COMPANY
Suntech was formed in 2001 and turned out its first PV cell the next year. Earlier this year it adopted a holding-company structure, incorporating in the British Virgin Islands and later the Cayman Islands, to help raise equity capital abroad.
Most of its products end up outside of China, with more than half of revenue coming from Germany.
Suntech competes by offering the lowest possible cost per watt. It now offers PV cells in 0.9 MW, 6.4 MW, 29.5 MW and 41.3 MW varieties. Cells go for $2.97 per watt, while modules cost $3.42 per watt.
Suntech also sells systems-integration products.
RISKS/CHALLENGES
Like other Chinese makers of high-tech gear, Suntech depends on being cutting-edge and cheap. It must keep improving the quality and efficiency of its products, yet not jack up costs too much.
The company also buys large amounts of raw materials, whose prices can fluctuate. Keeping a supply of silicon is especially hard in this industry, Snyder says.
Some of its competitors are real heavyweights, including BP, (BP) Royal Dutch Shell (RDSA) and Sharp.
Suntech sells to a market that depends on government subsidies. Since it mostly sells to the West, Suntech's business depends heavily on politics outside its home country.
The firm's short-term borrowings amount to $46.4 million.
THE RESULTS
Suntech's sales have grown rapidly since its founding, but they've really taken off this year. Revenue during the first nine months of the year totaled $137 million, up from $85 million for all of 2004. Most of that growth came from PV modules.
This year's operating income has more than tripled to $30 million. Earnings per diluted share came to 18 cents, up from 10 cents in the year-ago period.
USE OF PROCEEDS
For its 26.4 million shares, Suntech expects to see $258 million in net proceeds. The firm says $100 million will go toward buying raw materials, $40 million to expand manufacturing lines, and $20 million to research and development.
The rest is undetermined. Suntech says it might use some funds to make buyouts.
THE MANAGEMENT
Zhengrong Shi
Chairman and chief executive
Before founding Suntech, he served from 1995 to 2001 as research director and executive director at Pacific Solar, an Australian PV firm. Former solar energy researcher. Ph.D. in electrical engineering from the University of New South Wales.
Amy Yi Zhang
Chief financial officer
Joined in August. Spent the previous year as chief financial officer of Deloitte Consulting China. Before that worked seven years as an executive at Atos Origin China. MBA from a joint program of Webster University and Shanghai University.
Graham Artes
Chief operating officer
Joined in September. Former technical plant manager at Kuttler Automation Systems, 2001-04. |
