Analyst Research Report Snapshot

Title:

KGI Alert: GCL Poly (03800.HK/3800 HK, OP): Improving business momentum in 2H14

Price:

$35.00

Provider:

KGI Greater China

Date:

22 May 2014

Pages:

4

Type:

AcrobatPDF

Companies referenced:

3800.HK

Available for Immediate Download
Summary:

What’s new GCL Poly held an telephone investor conference during which it discussed 1Q14 operating results as well as strategic deployment and business outlook in 2014-15. Implications Production and prices trended up in 1Q14. In 1Q14, GCL Poly produced 16,022 metric tons (mt) of polysilicon, up 7.5% QoQ and 85.2% YoY, and 2.88GW of solar wafer, up 9.4% and 134% QoQ. While polysilicon shipments increased 4.8% QoQ and 8.7% YoY to 4,024mt, wafer shipments declined 6.2% QoQ, but grew 86% YoY to 2.75GW in 1Q14. As a result of healthy demand, the company saw its polysilicon price recover 17% QoQ and 30% YoY to US$21.7/kg. Solar wafer price grew 10% QoQ and YoY to US$0.23/w. Polysilicon and solar wafer capacity reached 65,000mt and 12GW, respectively, by end-1Q14. Cost reduction efforts on track: aiming for grid connection of captive power plant in June/July and FBR-based capacity ramp up in 2H14. GCL Poly revealed continued cost reduction in 1Q14, as polysilicon production cost is now below US$16/kg and wafer process cost is below US$0.17/w. Management stated that it has completed the construction of its captive power plant, which is currently undergoing national quality examination by the State Grid, with grid connection planned for June-July. Regarding FBR-based polysilicon capacity, management revealed that construction has been progressing well, with the aim of ramping up the first reactor in 3Q14 and reaching a capacity of 12,000mt by end-2014 and 25,000mt in 2015. The company claims its all-in production cost for FBR-based polysilicon is much lower than rivals at less than US$10/kg, thanks to more advanced technology. Positive view on China demand in 2H14. Management stated that China’s photovoltaic (PV) market was slower than expected in 1H14. The launch of ground-mount PV projects has been pushed back to after May. Furthermore, distributed PV installation has been far behind the government’s target due to administrative complexity and the lack of clarity in execution details. Anticipating that the Chinese government will raise the cap for ground-mount systems from 6GW to 8GW to ensure total installation not far below the 2014 target of 14GW, GCL Poly estimates that China’s PV demand will surge from 3.3GW in 1H14 to 10.2GW in 2H14. We share the same view that China’s demand will be back-end loaded in 2H14, providing solar supply chain price strength. Expanding solar project and solar farm development GCL Poly has completed its acquisition of Same Time Holdings (451 HK), which will later undergo a name change to GCL New Energy. The new company will focus on solar plant and project development, partially through acquisition. Management guides the IRR threshold is 13% for project targets via acquisition and 15% for self-developed projects, with the aim of reaching 1GW of grid-connected PV projects by end-2014. To further develop solar project business, GCL Poly has signed a credit facility agreement with the Suzhou Branch of China Development Bank for an amount not exceeding Rmb5.0bn. Earnings recovery outlook on track; forecast 2014 EPS of HK$0.19, up from LPS of HK$0.04 in 2013 We reiterate our view that GCL Poly, with its unrivalled scale and production cost, is well positioned to benefit from the solid growth of global market demand and strong demand pick up in China in 2H14. Furthermore, we remain positive on its earnings recovery outlook in 2014 and 2015. While solar wafer prices have softened in 2Q14, we forecast risi...

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