Analyst Research Report Snapshot


Comtec Solar Systems (712 HK, HK$1.17, NR): Capacity in Malaysia comes on stream




KGI Greater China


10 Jun 2014





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Event We visited Comtec for an update on the n-type monocrystalline market. The company’s production base in Malaysia began its pilot run for the first batch of 300MW. In light of rising n-type monocrystalline demand, management guides further capex spending for capacity expansion over the next two years. Impact For 2013, Comtec registered sales of Rmb938mn, gross margin of 8% and a net loss of Rmb133mn. For 1Q14, realized sales were Rmb235mn, gross margin was 10.4% and net income was Rmb7.1mn. The firm completed conversion of its silicon wafer production lines into n-type capacity at end-2013. Recently Mission Solar (US) was added to its client list, which includes Panasonic (JP) and Sunpower (US). Comtec is one of two major suppliers of n-type monocrystalline wafer in China, with the other being Zhonghuan (002129 CH). Considering that Sunpower plans to expand capacity in the Philippines and Malaysia over the next two years, Comtec management guides capacity targets of 1GW for 2015 and 1.3GW for 2016, versus 700MW currently. We expect ex-silicon cost to drop from US$0.14/w to US$0.12/w once the company’s Malaysia unit begins to contribute. Management also guides ex-silicon cost to fall 10% and conversion efficiency to rise 0.5ppt annually. Valuation & Action Comtec has turned its business around after registering a loss in 1Q14. We expect cost reductions and additional capacity to help operations improve further. Monocrystalline silicon, especially n-type monocrystalline silicon, is a niche market with high prices and high-conversion efficiency that are welcomed by US and Japanese clients. Distributed PV projects are currently flourishing in China, especially in Eastern China, where radiant light is insufficient but new technologies are being adopted at a rapid rate. We believe the firm will benefit from industry expansion which will inevitably drive costs and prices down. Bloomberg forecasts 2014 EPS of Rmb0.04. Monday’s closing price corresponded to 2014F PE of 23x and 2014F PB of 0.85x. Risks Polycrystalline silicon price surge; n-type monocrystalline silicon wafer price plunge.

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