Suntech Power: Now a Takeover Target

The United Nations Climate Change Conference is being held in Poland this week. Representatives from the top four Photovoltaic (PV) makers gathered in Poznan to propose the rapid implementation and expansion of policies designed to support the growth of the solar industry and the global adoption of solar technology as a major contributor to greenhouse gas (GHG) reduction in support of global climate goals.

As the top two solar companies, Suntech Power (STP) and First Solar (FSLR) dominate the European and U.S. markets respectively. According to Suntech CEO Dr. Zhengrong Shi, the company is dedicated to reducing the cost of solar electricity to grid parity through increasing economies of scale, improving efficient utilization of raw materials such as silicon, and developing more advanced technology and new applications. While no solar company has achieved grid parity, Suntech is leading the way. The company is also developing a new thin film technology with 50% efficiency.

Despite all of these positive developments, STP's stock price has been down as much as 90% from its 52-week high because of hedge fund redemptions in the last few months. Investors have started to realize its true value recently but it is still very much undervalued.

Recently, many solar companies have rolled out expansion plans for the coming years. For example, Sharp (SHCAY.PK) plans to invest $2.6B in Italy in a joint venture to tap growing demand of solar panels. Suntech power is also entering the U.S. solar market through acquiring EI Solutions, and will triple US sales by 2009. What makes STP extremely attractive is that China has set ambitious, long-term national goals that have helped to create a backdrop for a growing renewable energy industry such as a national renewable energy standard of 15% by 2020 and a commitment to invest US$180 billion in renewable energy by 2020.

With STP at such a low price, two companies might like to become bidders for Suntech. The first one is Sharp. Sharp has an ambitious plan to quickly reach the European and Chinese solar markets - acquiring Suntech provides a shortcut for the company to do this.

The second company that has been named in rumors is First Solar. FSLR mainly sells panels in the U.S. and Europe and a takeover of STP will give the company direct entry into the Asian market. A call to First Solar has not been returned. It is believed that Suntech will not consider any bid below $30 per share as the industry becomes very solar friendly going into 2009.

Disclosure: None

Comments

[oneal:]

Could anybody clarify the statement above about "The company is also developing a new thin film technology with 50% efficiency." Does that imply a) 50% conversion of sunlight or b) increasing from 10% sunlight conversion to 15% sunlight conversion would be a 50% increase. It's my understanding that SPWRA has the highest sunlight conversion ratio coming out in 2010 of 22%. It seems like if we could convert 50% of sunlight to energy it would mark the abrupt end of fossil fuels (assuming battery technology followed). Any thoughts?

2008 Dec 09 09:55 AM

[Rocknbob:]

to oneal:
I agree . I doubt very much if 50% energy conversion to electricity was meant. 50% up from 22% is still quite laudable, if true. (~33%?)

2008 Dec 09 10:13 AM

[Rocknbob:]

I see no mention of the licensing agreement with Open Energy Corp . OEGY and Suntech. This would add BIPV to Suntechs manufacturing portfolio.

2008 Dec 09 10:17 AM

[vitamin_j:]

That 50% thing appeared on the STP chat board last week and may have come from an article in China with potentially questionable translation. Anyone who wants to appear credible on solar can't just throw out such a figure without better citation or explanation. It's like saying, "Yes, and their plans for cheap cold fusion should also help them grow revenue." Huh?

Of course, this author doesn't seem very credible. Anyone who says

"As the top two solar companies, Suntech Power (STP) and First Solar (FSLR) dominate the European and U.S. markets respectively."

not only hasn't done their homework, they haven't even cracked the book. First Solar has sold almost exclusively in Europe, almost exclusively in Germany, and is just now moving into the US. Suntech is a similar story, though they also have some Asian sales. I'll take my information from someone who actually follows the companies, listens to cc's, thank you.

Finally, I would question whether anyone could just acquire Suntech without some intervention from the Chinese government. My sense is that they wouldn't just let their flagship solar company be sold off to the Japanese or the Americans without raising some barriers - similar to when the Chinese wanted to buy that oil company of ours.

2008 Dec 09 10:20 AM

[HaavBline:]

Excellent comments from vitamin_j, especially the last paragraph. STP has grown into an industry leader in a major new industry. No way they will allow it to be sold.

If you want to encourage sentiments about STP, better to make the most out of this sentence:
"What makes STP extremely attractive is that China has set ambitious, long-term national goals that have helped to create a backdrop for a growing renewable energy industry such as a national renewable energy standard of 15% by 2020 and a commitment to invest US$180 billion in renewable energy by 2020."

2008 Dec 09 12:21 PM

[sirfisup:]

The notion that STP is for sale is ridiculous. STP's Dr. Shi has very ambitious plans to be the largest solar cell company in the world and has been tight lipped about its thin film plant which will be operational by end of 2008. The thin film plant is projected to produce 50 MW. I know that Dr. Shi and Dr. Wenhem have extensive non-crystilline expertise as evidenced by their success of selling Pacific Solar which has patented CSOG technologies. I suspect that Drs. Shi and Wenhem are both working on 2nd or 3rd generation thin film. Funny that STP has been very tight lipped about what there R & D team are cooking up in the labs. It is also important to note and not to be overlooked is STP's collaboritive effort with UNIV of NSW regarding research of thin film technologies and although they are not the only company that shares its resources they are the biggest contributor of grant money than any other solar company with ties to the UNIV. The economic market contraction within solar is creating the perfect storm for solar innovation and R & D investment and I am hopeful that we will learn of some greater thin film conversion efficiencies in 2009 for I truly believe that STP has something major up their sleeve. Solar is now more attractive than ever with all of the tax incentives and feed in tarriffs that are in place and we should see more incentives as Obama makes alternatives a key part of his stimulus package. You would have to be absolutely nuts to sell your company when you are on the verge of 40% annual growth. Certainly 2009 will not be a banner year and many solar companies will struggle to survive however with continued conversion efficiencies, innovation and lower raw material costs it appears that those who do survive beyond 2009 will experience the greatest growth beyond their wildest imagination.

2008 Dec 09 03:47 PM

[Tom B:]

Shi sounds too smart to willingly sell out.

2008 Dec 10 09:03 AM

[SHASHIDHARA.BV:]

Can the Author elaborate on the 50% efficiency ?

2008 Dec 10 09:20 AM

[Road Runner:]

I agree with the rest of the comments - the author is not too well informed on solar. How can anyone familiar with solar put out a comment that Suntech is working on 50% efficient thin-film wihout giving further information. That would be a revolutionary breakthrough turning the whole solar game up-side-down. I wouldn't put out info like that without a complete analysis of where it came from. I believe that author inadvertantly put out bad information on this.

2008 Dec 10 09:23 AM

[ONuallainxx:]

A major reason for the fall in STP's price is the realization that it is carrying a heavy debt load and that about 500million of that load is in the form of convertible bonds bearing next to no interest that can be redeemed in Feb 2010. The stock price would have to show signs of getting back to the $48 range before anyone would be tempted to hold those convertibles past the Feb 2010 "put option" date. The company has also tapped something like $600m of a $1.1b line of credit.

Bottom line: in this financial environment the debt to equity ratio on its balance sheet is a serious drag on STP's stock price compared to its peers.

The Chinese government may protect STP from going bust as a long-term energy play but in the short term China's electric companies are having a hard time selling their existing capacity - making it that much less critical to develop alternative - and still expensive - electricity source alternatives.

Q-Cells of Germany, one of the two largest makers of solar panels in the world (after Sharp) yesterday reversed its rosy guidance of just 3 weeks ago and has joined the chorus of solar companies announcing maintenance shut-downs of existing capacity over the short-term.

Reemphasizing that excess capacity, Dr. Shi was recently quoted as saying that 2009 will see a glut of panels on the market.

That being the case, there seems little likelihood STP will be able to earn its way out of the financing crunch that is less than 14 months away.

As noted by others, the author of this article clearly has not done his or her homework.

2008 Dec 10 01:03 PM

[sirfisup:]

The convertable notes are seen as a drag on the PPS however STP has stated that they are investigating all options as to how to deal with the convertable note issues. During their earnings CC STP said that they have very strong backing of Chinese banks and have sufficient lines of credit that they can draw from. I agree that the debt ratio is not favorable and that it will be a concern heading into 2009. The silver lining here is that STP recognizes that they need to come up with a solution as to how they will deal with the debt when its called in and have said that they are working on the solution to deal with this issue. It is of course Dr. Shi's best interest to calm the analysts views and provide a viable solution that will be met with positive sentiment from the investors and investment community. I suspect that STP will provide some answers as to how they will deal with this problem and it could be that they will either have a common stock offering that would IMHO not be in the best interest of the comapny as the markets are full of sellers and very few buyers however we could see some venture capital come to the aid of STP or we could see a loan from the Chinese govt of which could be derived from the $586 billion stimulus plan. The company has already stated that they are working on renegotiating their silicon contracts and plan to shelve expansion in 2009 which will save the company close to $100 million dollars. Hopefully within a few months STP will have an answer to to this concern and if the remedy is rec'd positively we could see some major upgrades and we could see a major uptrend as alternatives should see a resurgence to 2007 growth levels in 2010. The trick of course is to see how STP weathers the storm in 2008.

2008 Dec 11 09:38 AM