Analyst Research Report Snapshot


KGI Alert: GCL Poly (03800.HK/3800 HK, OP): On track for turnaround




KGI Greater China


15 Nov 2013





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What’s new GCL Poly held an investor conference at which it discussed 3Q13 results and guided a positive business and earnings outlook for 2014, fuelled by strong global PV market demand and continuous cost reduction efforts. Implications Production and shipments trended up in 3Q13. In 3Q13, GCL Poly produced 13,550 metric tons (mt) of polysilicon and 2.55GW of solar wafer, up 1.7% and 14.6% QoQ. Also, wafer shipments grew 5.4% QoQ to 2.5GW in 3Q13 as a result of solid market demand. While polysilicon and solar wafer price stayed flat QoQ, management indicated further cost reduction has been achieved and total wafer cost has dropped from US$0.2/w in 1H13 to US$0.18/w in 3Q13, implying continued earnings improvement in 3Q13. Strong demand supports moderate ASP increase in 4Q13. GCL Poly guides a moderate price increase entering 4Q13, citing strong market demand and high efficiency product offerings. Management said both polysilicon and wafer production are running at full capacity and still cannot fulfill market demand. Our source shows that GCL recently reduced supply to Taiwan due to robust demand in China and is contemplating another 1-2% ASP increase before year end. We forecast 4Q13 shipments to sustain QoQ and earnings to continue improve. Strong market demand and cost reduction support turnaround in 2014. GCL Poly is positive on 2014 earnings outlook, expecting strong market demand and cost reduction efforts to support a turnaround in 2014. Management said its technology reengineering project on FBR production method and the construction of its captive power generation is on track to be completed in 1Q14. This will bring current production cost down one more level as electricity cost could be lowered substantially. Furthermore, company will continue technology and process enhancement for polysilicon production, ingot growing, and wafer production, aiming to achieve higher conversion efficiency, lower production cost, and expand capacity without major capex. We reiterate our view that GCL Poly is best positioned in the global upstream solar industry to benefit from strong global PV market growth of 15-20% in 2014, especially the boom in China. Furthermore, we believe GCL Poly’s unrivalled cost competitiveness will exert huge pressure on solar wafer peers worldwide. Valuation & action We think GCL Poly is on track to return to profitability. We forecast 2014 EPS of HK$0.03. GCL shares are up 26.4% over the past three months and are currently trading at 2.54x 2014F BVPS of HK$1.01, in the middle of the five-year PB range of 1.2x-4.2x. We maintain Outperform rating on the counter and a 12-month target price of HK$2.72. Risks Price rebound suppresses demand.

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