Company's announcement in 2013
Having been a long-term supplier of ingots and solar wafers to Sharp Corporation, China-based Solargiga Energy Holdings has signed a new deal to produce 370MW of PV modules in 2013, making Solargiga, Sharps largest PV product supplier. Solargiga said that it had originally been a supplier of solar ingots to Sharp for nearly a decade, which expanded to include solar wafers and solar cells. However, the newly signed module supply agreement was actually more than double Solargiga's actual module production capacity. To meet Sharp's module supply needs, Solargiga would adapt a commissioning process to allow the Group's production capacity and quality to meet the expected demands. Earlier in May 2013, it had announced it is already virtually sold out for the year with annual monocrystalline silicon solar ingot production capacity of approximately 1.2GW; annual monocrystalline silicon solar wafer production capacity of approximately 900MW, while the annual capacity of solar cells and modules stood at approximately 300MW and 150MW, respectively
1) Solargiga share price is suppressed by its 2012 financial results
Solargiga had exceptionally poor performance in 2012. The EPS was -0.55 while share price is just about 0.4. It recorded a loss attributable to the equity shareholders of RMB1,276.554 million, in which 705,415 (55.3%) million come from impairment on prepayment, goodwill, intangible assets, property, plant and equipment. The turnover was RMB 996.836 million, and Cost of sales represented 129.2% of total turnover. The increase in ratio was mainly due to the further inventory provision made during 2012.
The above accounting treatment including aggressive impairment and inventory provision were largely driven by bad global solar industry. It is believed that Solargiga would not need to do similar impairment and provisions in 2013.
2) Solargiga's Cashflow and Equity fund raising activities.
Solargiga had raised HKD 427 million since Nov 2012. The total fall short of current asset to current liability was 385 million by the end of 2012. Solargiga should have sufficient cash to continue its business. Serial cash raising activities had suppressed the share price in historical low level.
· May 16, 2013 - Solargiga raised HKD 80 million by subscription of new shares at 0.36 per share.
· Jan 15, 2013 - Solargiga raise HKD 254 million by offering shares 498,260,094 on the basis one Offer Share for every five existing share at price 0.51.
· Nov 4, 2012 - Solargiga raise HKD 93 million by offering 249,130,047 on the basis one Offer Shares for every nine existing share at price 0.375.
3) Solargiga and Japan
Solargiga said that monocrystalline wafer production capacity were fully booked for 2013 due to the strong demand in Japan and China. Solargiga has exceptionally strong customer base in Japan when compare to its key competitor Comtec (712.HK). According to IHS report, Japan's solar installations jumped by "a stunning 270% (in gigawatts) in the first quarter of 2013." By the end of 2013, there will be enough new solar panels equal to the capacity of seven nuclear reactors. Such massive growth will allow Japan to surpass Germany and become the world's largest photovoltaics (PV) market in terms of revenue this year. Japan is forecast to install $20 billion worth of PV systems in 2013, up 82% from $11 billion in 2012. The phenomenal growth that started the year is expected to continue throughout 2013 as demand for solar energy is forecast to double, making Japan the world's largest market for PV installations on a revenue basis for the first time in a decade. Japan's share of global PV system revenue will rise to 24 percent in 2013, up from 14 percent in 2012 and just 9 percent in 2011. Solargiga should be strongly benefitted by Japan's Mega Solar wave, and it is being asserted by a few company's announcement.
Earning Surprise is expected for Solargiga for 2013, and the news should be announced in late July or earlier August 2013. The share price is now 0.42, and I expect the share price would be increase sharply in June and July 2013.
As stated in 2012 financial statement, Solargiga was required to accelerate a repayment of long term debt because of the breach of maintenance covenants. This is one of the risk Solargiga were suffered from cash shortage in 2012. There might be some pressure for Solargiga to further raise fund through further raising of bet or equity.
Poor Corporate Governance
Solargiga had records of poor corporate governance. This can be seen in its recent actions (3 time in 6 months) to raise fund, which seriously dilute interest of existing share holders.
By using comparable P/S, I anticipate that the price of solargiga should be $1.6 (vs $0.41)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.