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    q-cells q-cells Document Transcript

    • MORGAN STANLEY RESEARCH EUROPE Morgan Stanley & Co. International Andrew Humphrey plc+ Andrew.Humphrey@morganstanley.com +44 (0)20 7425 2630 Luciano Diana Luciano.Diana@morganstanley.com +44 (0)20 7425 4438 April 15, 2008 Stock Rating Q-Cells AG Overweight-V Industry View Cost Leader in a No Rating Commoditising Industry Key Ratios and Statistics Reuters: QCEG.DE Bloomberg: QCE-GR Clean Energy / Germany Initiating at Overweight-V, 33% upside: we believe Price target €85.00 Q-Cells is one of few businesses that could benefit from Shr price, close (Apr 14, 2008) €63.98 consolidation in the solar sector over the next 2-3 years. 52-Week Range €102.85-44.59 Our financial estimates and fair value of €85 reflect our Mkt cap, curr (mn) €7,288 view for rapid price and margin erosion. Despite our Net debt (12/08e) (mn) €284 cautious industry view, we see Q-Cells as undervalued EV (12/08e) (mn) €7,601 with several near-term catalysts to outperform. Fiscal Year ending 12/07 12/08e 12/09e 12/10e Recent announcement suggests ambitious ModelWare EPS (€) 1.36 2.13 2.82 3.97 Consensus EPS (€)§ 1.35 1.93 3.27 4.68 growth… The increase of production guidance to Op rev (€mn) 877 1,257 1,877 2,642 1.5GW in 2010 suggests rapid expansion into what we EBITDA (€mn) 215 287 398 541 expect to be an oversupplied market. We remain EBIT (€mn) 197 246 323 411 positive on the shares, however, as we believe 1) ASP ModelWare net inc (€mn) 148 243 321 452 erosion and margin compression are already in the price P/E 72.0 30.0 22.7 16.1 and 2) Q-Cells is developing technology to remain one EV/EBITDA 51.3 26.5 19.6 15.3 of the lowest cost manufacturers in the industry. EV/EBIT 56.0 30.9 24.1 20.2 P/BV 6.1 3.5 3.1 2.6 … and the current platform is best in class. Cost RNOA (%) 43.6 11.3 10.4 10.9 leadership will be a major advantage in a consolidating Capex/sales (%) 37.1 32.6 28.1 29.0 industry. Our channel checks suggest Q-Cells has a FCFfY (€mn) (50) (412) (101) (342) Net debt/EBITDA NM 1.0 1.2 1.8 competitive edge here: 1) metallurgical silicon has the Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare potential to lower wafer costs by ~30%, and 2) thin-film framework (please see explanation later in this note). § = Consensus data is provided by FactSet Estimates. businesses are part of a strategy for long-term cost e = Morgan Stanley Research estimates reduction. Vertical integration is also a positive, adding to technical expertise and creating production synergies. Core business looks undervalued. We value the core business at €42 per share, the thin-film business at €19 per share, EverQ at €4.4 per share and the 17% stake in REC at €15 per share. Group multiples are affected by the early-stage thin-film business. If we stripped that out, the core business would trade on a 2009e EV/EBITDA Morgan Stanley does and seeks to do business with ratio of 20.2x, a ~30% discount to REC. companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may A potentially attractive entry point. A recent sharp have a conflict of interest that could affect the de-rating, visible near-term earnings growth, and likely objectivity of Morgan Stanley Research. Investors positive regulatory developments should provide an should consider Morgan Stanley Research as only a single factor in making their investment decision. attractive entry point. The key investment risk in our view is more acute oversupply in 2009 than we currently For analyst certification and other important disclosures, refer to the Disclosure Section, expect, though this does not appear imminent. located at the end of this report. += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Risk-Reward Snapshot: Q-Cells (QCE.GR, €64, Overweight-V, PT €85) Shares likely driven by manufacturing ramp up Why Overweight-V? €140 • In general, we prefer wind stocks to solar stocks because of the better 120 €116 (+81%) visibility on supply and demand. 100 However, Q-Cells stands out as one €85 (+33%) of the highest quality names in solar, 80 €63.98 and as an attractive investment 60 opportunity at these levels. 40 €43 (-33%) • Our €85 base case makes very 20 prudent assumptions on margins or 0 return on capital. • A recent sharp de-rating and visible near-term growth should allow the shares to climb to our fair value. Apr 06 Aug 06 Dec 06 Apr 07 Aug 07 Dec 07 Apr 08 Aug 08 Dec 08 Apr 09 Price Target Historical Stock Performance Current Stock Price Key value drivers • Scalability of core business and Price Target €85 Set at our base case DCF fair value execution of Malaysian expansion. Bull Premium returns and volume outperformance. Core business value €54 per Case share or 16x 2009e EV/EBITDA. Core business 1.6GW production in 2010e, thin • Cost reductions through vertical €116 film business 600MW. 19% LT RNOA. integration, metallurgical silicon, productivity gains in core production. Base Growth in line with guidance; sector leader with good returns. Core business Case value €42 per share or 13x 2009 EV/EBITDA. Core business 1.4GW production in • Growth in new technologies — €85 2010e, thin-film business 400MW. 16% LT RNOA. thin-films, low-concentration PV, string-ribbon wafering. Bear Lower volumes and returns. Core business value of €24 per share or 8x 2009e Case EBITDA. Core business 1.4GW production in 2010e. Equity stakes and thin film Key investment risks €43 business valued at investment to 2010e. 12% LT RNOA. • Further margin compression due to cyclical oversupply. Thin-film business can represent a large swing in valuation • Adverse regulatory developments. 140 • Slow / unsuccessful ramp-up of €13 120 thin-film business. Fair value (€ per share) €12 100 Price Target: €85 €18 €6 • Problems with relatively untested 80 €10 metallurgical silicon or in-house 60 €14 €116 wafering. 40 €85 Catalysts 20 €43 0 • Further announcements on Bear Investments REC at Core Base REC at Bull Thin Film Core Bull metallurgical silicon. Case (12% at capex Bear Case business Case (16% Case upside business Case (19% LT RNOA) cost falters LT RNOA) upside LT RNOA) • Increasing credit for thin-film ventures. Source: FactSet (historical price date), Morgan Stanley Research estimates • New solar legislation due to be announced soon in Germany, Spain and the US. 2
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Initiate with Overweight-V We arrive at a fair value of €85 per share for Q-Cells based volumes, in return for €200-300 million of expansion on a sum of the-parts. We view Q-Cells as a low-cost, financing. high-quality player, with comparatively low risk on execution and visible short-term earnings growth. Our base case Leading position in new, low-cost technologies. assumes rapid capacity growth but with a substantial margin Agreements for metallurgical silicon with Elkem and decline and yields 33% potential upside. There is also Timminco — two of the most credible suppliers — should optionality to our €116 bull case, which we view as feasible if give access to large volumes of low-cost feedstock from execution comes in at the higher end of expectations. 2009. Q-Cells has achieved better results with this new feedstock than any other player in the industry, according While wind remains our preferred sector within the renewable to feedback from a recent industry conference. Production energy industry, we expand our coverage universe in the solar costs for upgraded metallurgical are US$15-17/kg, industry because of its indisputable long-term potential. We according to management, compared with US$25-30/kg see challenging times ahead for the solar industry, and expect and higher for Siemens-based processes. Q-Cells is also oversupply in 2009 and 2010 to result in intense competition investing in a broad platform of thin-film technologies with and consolidation. However, our industry models also indicate the aim of further reducing production costs. major cost-reduction potential, and we look for companies with the lowest cost structure and strongest technology platform. Product quality, flexibility and consistency. High quality and consistency of production is key to minimising Q-Cells is the largest manufacturer of solar PV cells globally, cost per watt, as the electrical output of solar cells is with around 15% market share. It sources raw material (solar heavily dependent on the quality of material and wafers) from REC and other large wafer manufacturers and it processing. Q-Cells is the leader on both fronts — as a has a global customer base of more than 60 module large player it has access to high-quality wafers, and manufacturers. Q-Cells is also developing a portfolio of production expertise is of the first order. Achieving a thin-film businesses, an early stage but promising set of consistent and optimised manufacturing process is key to technologies to reduce manufacturing costs. The first of these the production economics of solar, and contracts are should enter commercial production during 2009. Q-Cells is structured to share the benefit of efficiency gains. also partly integrating upstream into wafer production and has a 17.2% stake in REC. Exhibit 1 Steeper discount to fair value than other leaders Well positioned to benefit from industry consolidation. 80% 60% Q-Cells is one of the lowest-cost manufacturers of solar cells 33% 40% 25% globally, and we estimate processing costs already 22% lower 20% 11% than the industry average. We believe cost leadership will be 0% -12% key over the coming two to three years, as we expect prices -20% -30% -40% through the value chain to fall 30-40%, in response to rapid -60% supply growth and intense competition. This could bring cell Q-Cells REC Iberdrola Gamesa Vestas Renovables ASPs from €2.09/Wp today to €1.44/Wp in 2010, we estimate. % Difference Between Current Price and: Bear Case Base Case Bull Case Price Target We believe supply growth will be much faster than can be Source: Morgan Stanley Research estimates sustained by existing subsidised markets. The three main arguments for Q-Cells superior cost structure are: Exhibit 2 Q-Cells is the largest solar cell manufacturer Silicon Wafers Cells Modules Negotiating power with suppliers. As the world’s largest manufacturer of solar cells (~15% market share), Q-Cells is in a strong position to negotiate attractive terms with solar wafer suppliers. The recent transaction with LDK gives Q-Cells wafers at a ~15% discount to market prices on our estimates, with options to grow these Source: Renewable Energy Corporation, Morgan Stanley Research 3
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Exhibit 3 Industry view Capacity will have to grow strongly to meet our production estimates The solar industry is heading for a turbulent period. Subsidised markets are unlikely to be large enough to MW 2007 2008e 2009e 2010e absorb expected supply over the next two to three years, Nominal capacity 645 949 1,449 2,287 Production capacity 516 759 1,159 1,829 and we believe 30-40% price reductions in components Capacity additions in year 170 243 400 670 will be necessary to stimulate new markets. Low barriers Production 389 579 960 1,418 to entry of cell processing and existing overcapacity may Utilisation (%) 75 76 83 77 well lead to faster falls in cell ASPs than in other e = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research components. Strategy to remain ahead of the industry. Q-Cells’ last Thankfully, current solar production economics have update increased production guidance in the core business by substantial scope for cost reductions. We estimate 50% to 1.5GW in 2010. This requires an acceleration of growth current fully loaded silicon-to-system production costs of from recent levels, though we believe it is feasible given the €2.7/Wp for the average producer, implying through value infrastructure currently in place and the company’s good track chain margins of 40-60%, depending on market. At these record. Recent additions to infrastructure in Thalheim could system costs, solar power would cost around €0.20/kWh in house an additional 200MW beyond announcements to date, Southern Europe. Cost reductions planned over coming and equipment has already been ordered for the first phase of years should allow this to fall substantially, even for Malaysian expansion. The cell process is highly automated, average producers. Excessive margins throughout the Q-Cells has considerable experience in ramping up new value chain should also be competed away. capacity, and our estimates already factor in €65 million of ramp-up costs in 2008 (including thin-film) and €60 million in Industry leaders are already bracing themselves. 2009. Recent statements by sector leaders suggest preparations are underway for a period of oversupply. Steep price Best-in-class cell manufacturer. We believe Q-Cells retains reductions are crucial if solar power is to compete with advantages over competitors despite the commoditisation of cell other sources. Q-Cells is no longer entering into manufacturing. Conversion efficiencies of up to 16.6% for multi fixed-price agreements for raw material supply, crystalline are higher than industry average, and as a large suggesting conditions in raw material markets will ease player with good supply agreements, Q-Cells typically has significantly over the coming years. access to high-quality raw materials. Q-Cells has consistently beaten production and financial estimates in the past. While Q-Cells is aiming to lead industry consolidation. new targets will undoubtedly increase stretch in the organisation, Heavy investment in R&D and new capacity, coupled with we believe infrastructure already in place has the potential to cost-reduction initiatives in metallurgical silicon, in-house accommodate much greater expansion. wafering and thin-film, all suggest Q-Cells is positioning Exhibit 4 itself to reduce costs and prices aggressively. We view the Key metrics 2006-10e company as well hedged from a technology standpoint, 2006 2007 2008e 2009e 2010e though diversification into related technologies increases Core business risk in the business to some extent. Production capacity (EoP) 336 516 759 1,159 1,829 MW sold 253 389 579 960 1,418 We prefer integrated models or highly specialised ASP (€/W) 2.13 2.15 2.05 1.74 1.44 ones. We single out REC (REC.OL, Q-Cells, SunPower (SPWR.O) and FirstSolar (FSLR.O) as four of the best Thin film business business models in the solar industry today. While we Production capacity (EoP) NM 83 155 370 625 Net MW sold NM NM 28 120 400 value REC and Q-Cells’ value chain integration, our US ASP (€/W) NM NM 1.76 1.58 1.42 analyst Dave Edwards likes SunPower’s focus on high efficiency and First Solar’s cost leadership in thin-film. Blended wafer cost (€/W) 1.05 1.08 1.01 0.86 0.73 Other material cost (€/W) 0.26 0.27 0.27 0.26 0.25 Other production cost (€/W) NM 0.25 0.27 0.26 0.25 e = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research 4
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Exhibit 5 impressive growth. Of the portfolio, Calyxo and Sontor Key financials 2007 - 10e (previously Brilliant 234.) appear closest to commercial fruition, €m 2007 2008e 2009e 2010e and we expect the majority of 2010 thin-film production to come Revenue 859 1,257 1,877 2,642 from these two. Exhibit 7 gives key characteristics of new o/w core business 836 1,213 1,724 2,142 technology ventures, along with equity stakes held. o/w thin film 0 44 153 500 o/w other 23 25 50 100 Exhibit 6 EBIT 197 246 323 411 Metallurgical silicon plays a growing part % sales 22.9 19.6 17.2 15.6 2008e 2009e 2010e o/w core business 188 269 317 338 Core production (MWp) 579 960 1,418 % sales 24.9 24.7 21.5 20.0 Total material sufficiency (%) 108 138 107 o/w thin film -8 -23 6 73 % in wafers & crystalline 96 77 63 % sales NA NA 3.8 14.7 % in metallurgical silicon 4 23 37 Net income 148 242 320 451 % sales 17.3 19.2 17.0 17.1 Total risk-weighted volumes 626 1,326 1,524 EPS 1.36 2.13 2.82 3.97 o/w wafers 558 738 894 Note: EPS calculation includes 30.6 million preference shares issued to Good Energies as part o/w polysilicon 23 45 2 of the capital increase in December 2006. Good Energies has the option to convert the o/w metallurgical 46 543 628 preference shares into ordinary shares, and we therefore include them in diluted share capital. e = Morgan Stanley Research estimates % of total 7 41 41 Source: Company data, Morgan Stanley Research Source: Morgan Stanley Research estimates Note: Metallurgical silicon volumes assume contracted volumes 410 tonnes from Timminco in 2008, 3,000 tonnes from Timminco and 1,400 tonnes from Elkem in 2009 (we estimate). Competition will lead to ASP falls. We believe one of the 2010 estimates assume contracted volume of 2,400 tonnes from Elkem in 2010, plus 30% of 7,600 tonnes under option with Timminco and Elkem. Elkem numbers are our estimates. major consequences of supply growth in 2009 and 2010 will be rapid erosion of prices, as industry players look to develop new, Exhibit 7 unsubsidised markets. Silicon-to-system margins of ~50% Q-Cells new technology shareholdings summary suggest there is plenty of fat to be removed from the value chain. We view Q-Cells as lean, competitive, and active in Crystalline Thin-Film driving cost reductions throughout the solar value chain. Silicon However, if silicon supply from new entrants develops more quickly, the risk of oversupply and extreme competition µc-Si Cd-Te CSG CIGS Flexible becomes more acute. Reported delays encountered by new Low String 8-9% 7-10% 6-7% 10-12% 6-7% intensity ribbon entrants and cancellation of some investment plans make us efficiency efficiency efficiency efficiency efficiency fairly sanguine on this front. Sontor Calyxo CSG Solibro Flexcell Solaria EverQ New feedstock will be a key competitive advantage. 100% 93% 21.7% 67.5% 55.6% 31.4% 33% consol. consol. equity equity consol. equity equity Upgraded metallurgical or ‘solar grade’ silicon has moved from being a promising prospect to a central part of the company’s Source: Company data plans, and could provide a major cost advantage. We expect Exhibit 8 Q-Cells to have attractive terms on its contracts with Timminco Policy-driven demand will be insufficient to absorb and Elkem. Based on a price assumption of US$30/kg for supply over coming years … MG-Si, we believe Q-Cells could have a ~30% cost advantage 16,000 compared with sourcing wafers externally in 2009, even 14,000 making relatively conservative assumptions on processing cost. Potential market (MW) 12,000 There are some uncertainties around the material, though 10,000 Q-Cells has very good references in terms of its processing 8,000 expertise. We expect metallurgical silicon to represent 37% of 6,000 raw materials by 2010 (see Exhibit 5). 4,000 Portfolio approach in thin-film is wise, but production 2,000 targets look ambitious. We view thin-film technologies as a 0 promising low-cost alternative to crystalline PV, though one 2006 2007 2008e 2009e 2010e that remains at an early stage in terms of production. We Based on supply estimates Policy-driven Demand estimate 400MW of thin-film production in 2010 — at the lower Source: Company data, Morgan Stanley Research, e=Morgan Stanley research estimates end of management’s targets — though would still rate this as 5
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Exhibit 9 Our fair value of €85 implies 33% upside to the current … but solar is close to competing with retail power share price. We have been cautious on solar compared with prices in some markets wind, and recognise that further volatility may lie ahead. If our 70 thesis on supply is correct, market expectations will have to 60 adjust over the next few quarters, which could have an impact on sentiment. However, we view Q-Cells as a high-quality play, 50 and see the near-term risk of misexecution as limited. We 40 apply a haircut to production estimates for 2010 in thin-film and €c/kWh 30 the core business, and our DCF assumptions of 3% terminal growth and 16% RNOA are by no means heroic. 20 Retail power price 10 Key catalysts could lead to improvement over coming Wholesale power price 0 months. We expect EBIT to decline 23% quarter on quarter 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 during 1Q, as 4Q07 was very strong due to inventories carried Solar power price GERMANY SPAIN UNITED STATES (CALIFORNIA) over from previous quarters. This should be expected as Source: Morgan Stanley Research estimates management has guided explicitly for lower production in 1Q. We expect 21% EBIT growth in Q2 over Q1. Regulatory We are conservative on margin expectations. We assume developments will provide key catalysts over coming months. EBIT margins fall from 23% in 2007 to 20% in 2008 (in line with In Germany and Spain we expect confirmation of new solar guidance), 17% in 2009 and 16% in 2010. This is derived in support schemes over the summer. In the US, the current part from our understanding that Q-Cells has locked in a proposal from Senators Ensign and Cantwell for an 8-year portion of wafer costs for 2009 and 2010, while cell contracts renewal of the solar Investment Tax Credit (ITC) may meet with are renegotiated every six months. We also believe further resistance, though we expect a new law by the summer. oversupply will be more acute among cell manufacturers than among wafer producers. Our current estimates suggest Exhibit 11 10GWp of available cell capacity in 2010 compared with 8GWp Q1 results for Asian manufacturers of available wafer capacity, though both figures may rise. Company Date Exhibit 10 Canadian Solar May 12th JA Solar May 15th Key margins drivers Trina Solar May 19th Higher deliveries of metallurgical silicon and faster expansion of Suntech Power May 29th in-house wafering. Source: Morgan Stanley Research Faster reductions in wafer market prices. Toll manufacturing agreements, such as the LDK one. Company Description Faster ASPs decline than we expect, depending on intensity of Q-Cells is the largest global manufacturer of solar PV cells, competition between manufacturers and price elasticity of based in Germany. Cells are sold to manufacturers of solar unsubsidised markets. panels, with ~60% going to manufacturers based outside Potential diseconomies of scale in Malaysian operation. Germany. The company is also developing a business in Slower ramp-up of thin-film operations. (We currently expect thin-film PV technology, an alternative to the benchmark thin-film margins to surpass those in the core business from 3Q09) crystalline PV technology. Q-Cells has also achieved partial Source: Morgan Stanley Research vertical integration into upstream parts of the value chain by adding wafer capacity, and by building a 17.2% stake in leading Our out-of-consensus solar industry view means we are polysilicon producer and wafer manufacturer REC. below consensus estimates. We believe the sell-side has Clean Energy/Germany yet to factor the effects of oversupply into estimates for 2009 and 2010. However, we believe: 1) margin pressure and Industry View: No Rating downgrades to consensus are already factored into share prices; and 2) Q-Cells has more firepower than most to mitigate GICS Sector: Energy the effects of margin pressure. Our EPS estimates are 13% Strategists' Recommended Weight: 10.5% below consensus for 2009 and 11% below consensus in 2010, MSCI Europe Weight: 10.5% mainly due to margin expectations. 6
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Valuation Our price target is €85 per share based on SOTP. We value note that Calyxo and Brilliant are the furthest advanced in the core business at €42 per share based on DCF, which terms of investment and technology. Our production equates to a 2009 EV/EBITDA multiple of 13, or P/E ratio of 20. estimates would be at the lower end of management’s At our price target Q-Cells would trade on a 2009 EV/EBITDA target of 400-600MW attributable production, though multiple of 24, adjusted for the REC stake. We believe a SOTP would still make Q-Cells a major player in global thin-film valuation based on long-term DCF is the most appropriate production. We estimate global available thin-film capacity method for determining fair value. Near-term earnings of 2.8GW in 2010, of which 400MW would represent 14% multiples are high, though in our view do not reflect a fair value market share. We assume EBITDA margins rise to for the thin-film businesses, which make a limited contribution 30-35% over the next four to five years, which would to earnings in 2009. equate to EBIT margins of 20-25%. Exhibit 12 RNOA of 16% by 2015 — reasonable returns for an SOTP valuation industry leader. We view Q-Cells’ specialist and Core €per relatively capital-light business model as more exposed to value share competition than a fully integrated player, though believe EV - core business (€mn) 4,820 42.3 as an industry leader, it should be able to maintain relatively EV - thin film (€m) 2,219 19.5 good returns. We compare our estimated RNOA at REC, EverQ 499 4.4 which reaches 20% long term — we believe REC should Net debt (Dec-07) 396 3.5 Equity (€mn) 7,934 make a higher return on capital, due to the high barriers to REC stake (17.1%) 1,748 15.3 entry and capital intensity of silicon production. Equity value (€m) 9,681 Shares outstanding (mn) 114 Core crystalline business Equity per share (€) 85 Notes: Core business includes all of the crystalline cell production facilities located in Thalheim, We value the core Q-Cells business at €4.8 billion or €42 per and future expansion in Malaysia. Consolidated thin-film ventures are Calyxo (93%), Sontor (100%) and Flexcell (51%). New technology ventures contributing at equity level are Solibro share. We assume that margins in the core crystalline (66%), CSG Solar (22%), and Solaria (33%). Stakes in REC (17.2%) and EverQ (33.3%) also business fall from 22.5% at the EBIT level in 2007 to 14.6% in contribute to the financials at equity level, though we value these separately. We value REC at the market price of NOK160. 2010, driven in the main by falling ASPs and relatively firmer Source: Morgan Stanley Research estimates wafer prices. We expect cell manufacturing to be one of the Our €85 price target reflects the following scenario: most competitive parts of the value chain over coming years, due to acute overcapacity, a relatively commoditised product Core business 1.4GW production by 2010. We are and fragmented Asian competition. We believe Q-Cells will be slightly below guidance of 1.5GW, we assume Line VI protected from the worst effects of competition by lower comes online as expected during 2008 and Line VII follows production costs, driven by high productivity and cell during 2009. We assume a further expansion of Line VI up conversion efficiencies, and increasingly by metallurgical to total capacity of 300MW (capacity originally planned silicon. We are more aggressive than consensus on assumed before the announcement of Malaysian expansion). ASP declines, but view these as essential in stimulating 33% cell price deflation 2007-10e. We model 4.5% cell sustainable long-term growth in the industry. price deflation in 2008, 15% in 2009 and 17% in 2010. This is a key part of our out-of-consensus view. We base Thin-film business these estimates on a scenario of rapid supply growth in Thin-film has potential to add significant value. We value 2009, leading to intense price competition among cell the thin-film business using a DCF with explicit assumptions manufacturers. We assume an average cell ASP of out to 2025, and arrive at a value of €2.2 billion in total for both €1.74/Wp during 2009 and €1.44/Wp during 2010, consolidated and equity stakes (excluding REC and EverQ), or compared with €2.09/Wp during 1Q08. a value of €19 per share. If thin-film develops strongly, then cost advantages over crystalline product could lead to premium 400MW net thin-film production by 2010. We value the returns being earned over the medium term. However, the portfolio of Q-Cells thin-film technologies using a long-term heavy initial investment makes us more cautious and we DCF. We do not have visibility at this stage on which of the assume long-term RNOA of 13% — lower than in the core portfolio of businesses will be most successful, though crystalline business. On our estimates approximately 42% of 7
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG capex between 2007 and 2010 will be spent on the thin-film business for around 20% of the incremental capacity being What are the correct comparables? built. Margins should be higher after the start-up phase of European solar leaders (REC, SolarWorld) — we view these production, though visibility is limited at this stage. players as the most appropriate comparators for Q-Cells, due to the high visibility on capacity growth, raw material supply, Relative valuation and good production track record. However, higher level of Our fair value of €42 per share for the core business implies a pricing power among upstream players to date, different 2009 EV/EBITDA multiple of 13. At current levels, we believe degree of vertical integration, margins, capital intensity and the core business trades at a ~20% discount to an average of return on capital are differences to take into account. REC and Solarworld on an EV/EBITDA basis. We do not view this as appropriate for another leading stock in the European Cell manufacturers (E-Ton, JA Solar, Motech) — greatest solar sector. On our estimates, Q-Cells trades on a 2009 similarity in terms of business model, though Asian players are EV/EBITDA multiple of 19 and a P/E ratio of 24 adjusted for the typically newer companies, with less visibility on raw material REC stake. However, 2009 earnings significantly understate supply and ambitious growth targets, which may distort the value that we believe is attributable to the thin-film stakes, near-term earnings multiples. Definitely the best set to as profitability will be limited by expansion costs and high compare pricing trends for Q-Cells. up-front investment costs in the early stages. Semiconductor stocks — comparisons with how Exhibit 13 semiconductor stocks have behaved captures some of the P/E ratios closely correlated between the leaders cyclicality we expect over coming years. The industry bears 60 some comparison due to high technology content and an Asian 50 bias among the main competitors. 40 30 In our €116 per share bull case, we assume even more rapid 20 expansion of production in the near term, with total production 10 of 1.6GW in 2010. We also assume higher returns with long-term RNOA at 19%. We include the REC stake at our bull 0 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr case valuation of NOK 225. We also make more bullish 06 06 06 06 06 06 07 07 07 07 07 07 08 08 assumptions for the thin-film business, with total production of Q-Cells AG Renewable Energy Corp. ASA 600MW in 2010. Source: FactSet, Morgan Stanley Research In our €43 per share bear case, we model lower returns in the Our DCF valuation assumes WACC of 8.1% and a terminal core business (12% RNOA long term), and a scenario where growth rate of 3.0%. Q-Cells disposes of thin-film investments at investment cost. We include a value for the REC stake at NOK 90 per share, in Exhibit 14 line with our bear case valuation. The following Exhibits DCF sensitivity analysis contain a more precise breakdown for the individual business WACC segments in our bear and bull case. (%) 7.1 7.6 8.1 8.6 9.6 10.6 2.0 94 86 79 73 64 57 Long-term growth 2.5 99 90 82 76 66 58 3.0 105 94 85 78 67 59 3.5 113 99 89 81 69 60 (%) 4.0 123 106 94 85 71 62 Source: Morgan Stanley Research estimates 8
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Exhibit 15 Core business DCF Core business €m 2008e 2009e 2010e 2011e 2012e 2013e 2014e 2015e TV EBIT 269 317 338 352 400 445 482 501 NOPLAT 206 243 258 269 306 341 369 383 D&A 30 53 90 132 159 188 220 266 Working Capital (233) 54 (102) (28) (52) (50) (64) (48) CAPEX (129) (213) (454) (224) (245) (255) (423) (409) FCF (127) 137 (208) 150 168 224 102 192 10,715 PV FCF (127) 127 (178) 119 123 152 64 112 2,659 Discount factors 1.0 0.9 0.9 0.8 0.7 0.7 0.6 0.6 0.2 EV (€m) 4,820 Net debt (€m) Market cap (€m) 4,820 Fair value / share (€) 42.3 Source: Morgan Stanley Research estimates Exhibit 16 Thin-film business DCF (consolidated stakes plus equity stakes) Thin film business (aggregate) €m 2008e 2009e 2010e 2011e 2012e 2013e 2014e 2015e TV EBIT (23) 8 114 140 206 263 311 355 NOPLAT (17) 6 87 107 158 201 238 272 D&A 14 34 52 67 80 91 103 117 Working Capital (14) 0 (33) (17) (25) (27) (34) (33) CAPEX (310) (305) (336) (116) (120) (118) (179) (160) FCF (328) (265) (230) 41 92 146 128 196 7,668 PV FCF (328) (245) (197) 32 68 99 81 114 1,903 Discount factors 1.0 0.9 0.9 0.8 0.7 0.7 0.6 0.6 0.2 EV (€m) 2,771 Net debt (€m) - Fair value / share (€) 19.5 Source: Morgan Stanley Research estimates Exhibit 17 Scenario analysis - SOTP Base case Bull case Bear case Core €per Core €per Core €per value share value share value share EV - core business (€mn) 4,820 42.3 6,164 54.1 2,764 24.3 EV - thin film (€m) 2,219 19.5 3,725 32.7 648 5.7 EverQ 499 4.4 499 4.4 138 1.2 Net debt (Dec-07) 396 3.5 396 3.5 396 3.5 Equity (€mn) 7,934 10,784 3,946 REC stake (17.1%) 1,748 15.3 2,458 21.6 983 8.6 Equity value (€m) 9,681 13,241 4,929 Shares outstanding (mn) 114 114 114 Equity per share (€) 85 116 43 Source: Morgan Stanley Research estimates 9
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Exhibit 18 Solar sector valuation comparators Price Mkt cap P/E EV/EBITDA (x) (LC) (€mn) 08e 09e 10e 08e 09e 10e Silicon manufacturers DC Chemical 327,500 6,713 23.9 18.8 16.0 13.2 9.6 8.1 Tokuyama** 801 1,413 10.3 10.4 NA 5.1 4.2 NA Wacker Chemie 139 6,898 15.3 13.7 10.3 7.5 7.0 5.5 Integrated Players Ersol** 61.3 657 15.5 12.5 10.4 8.2 6.8 5.4 REC 158 9,608 44.0 21.6 13.4 23.4 12.4 7.5 Solarworld** 32.6 3,646 24.0 18.1 13.4 12.0 9.6 7.6 Yingli Green Energy 20.1 1,279 31.6 22.5 16.9 19.3 12.1 8.7 Median 27.8 19.9 13.4 15.6 10.9 7.5 Wafer Manufacturers MEMC** 72.6 10,567 16.8 13.7 12.8 12.4 9.9 9.5 LDK Solar 31.5 2,103 18.7 8.8 6.2 15.4 7.1 4.9 PV Crystalox** 1.3 441 14.4 9.6 8.5 7.0 4.6 3.9 Renesola 321 406 14.6 10.1 9.0 10.0 6.8 5.8 Median 15.7 9.8 8.7 11.2 7.0 5.3 Cell Manufacturers E-Ton Solar 312 295 16.0 12.7 11.3 4.9 3.9 3.3 Evergreen Solar Inc 10.4 664 NM High 20.3 High 23.0 9.3 First Solar Inc. 274 13,614 High 45.9 35.7 61.3 27.4 20.2 JA Solar 23.3 2,282 27.2 17.3 15.9 25.4 15.5 10.7 Motech 203 694 14.1 9.3 7.7 7.8 5.1 3.8 Q-Cells 65.0 5,149 33.7 19.9 13.9 17.0 11.3 8.0 Suntech Power 44.8 4,266 22.8 16.3 13.4 18.0 12.2 9.3 Median 22.8 16.8 13.9 17.5 12.2 9.3 Q-Cells 30.0 22.7 16.1 26.5 19.6 15.3 Module Manufacturers /Installers Aleo Solar** 12.5 163 11.3 9.1 9.7 7.5 6.1 5.5 Centrosolar** 6.5 87 8.3 6.4 4.2 6.3 5.4 4.2 Conergy** 12.9 425 NM 41.8 11.0 NM 10.6 5.5 Phoenix Solar** 38.0 231 15.6 14.0 11.4 9.8 8.5 6.7 Solaria Energia y Medioambiente 11.5 895 10.9 7.4 8.2 6.2 3.7 3.7 Solon** 47.3 562 16.3 11.5 9.9 10.7 8.1 7.1 SunPower Corp 88 4,396 61.8 29.7 20.6 35.5 17.9 12.6 Trina Solar 44.0 608 18.6 14.4 11.6 14.3 10.3 8.4 Average 20.4 16.8 10.8 12.9 8.8 6.7 Median 15.6 12.7 10.4 9.8 8.3 6.1 Equipment manufacturers Centrotherm** 48.5 776 23.5 15.6 15.5 12.9 7.6 NA Manz Automation** 150 537 31.7 21.2 19.5 19.2 12.7 12.0 Meyer Burger** 294 519 19.2 15.3 14.5 12.4 9.3 7.4 PVA Tepla** 7.4 161 15.4 12.6 10.3 9.5 7.0 5.6 Roth & Rau** 121 307 16.9 12.3 10.2 14.2 8.8 6.2 Median 19.2 15.3 14.5 12.9 8.8 6.8 Source: Morgan Stanley Research estimates, ** denotes IBES consensus estimates NA = Not applicable; NM = Not meaningful; 10
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Financial Estimates: 2009 and 2010 Cost Reduction Is Key We model a sales CAGR of 44% between 2007 and 2010, However, we believe it will be more difficult for Q-Cells to driven by production growth at ~67% CAGR and a total price exceed the market’s production expectations in the future. decline of 33% in the core business over that period. Our EBITDA margin assumption declines from 25.8% to 20.5% in Exhibit 21 2010. EBIT margins will fall more quickly, in our view, due to Core business and thin-film production estimates higher capex and depreciation of the thin-film business. We 2,000 forecast EBIT margins of 20.0% in 2008, in line with 1,800 Net production (MWp) management guidance, 17% in 2009 and 16% in 2010. 1,600 1,400 1,200 Exhibit 19 1,000 Key financials 2007-10e 800 600 €m 2007 2008e 2009e 2010e 400 Revenue 859 1,257 1,877 2,642 200 o/w core business 836 1,213 1,724 2,142 0 o/w thin film 0 44 153 500 2003 2004 2005 2006 2007 2008e 2009e 2010e o/w other 23 25 50 100 Core business Thin Film e = Morgan Stanley Research estimates EBIT 197 246 323 411 Source: Company data, Morgan Stanley Research % sales 22.9 19.6 17.2 15.6 o/w core business 188 269 317 338 Wafer capacity lowers costs. Our estimates for in-house % sales 24.9 24.7 21.5 20.0 o/w thin film -8 -23 6 73 wafer production are 52MW in 2008, 254MW in 2009 and % sales NA NA 3.8 14.7 444MW in 2010. The aim of integration is to improve efficiency through a better control over material quality, which should Net income 148 242 320 451 reduce costs. Q-Cells has more than enough raw material to % sales 17.3 19.2 17.0 17.1 meet these numbers, and may even surprise on the upside. e = Morgan Stanley Research estimates; NA = Not applicable Source: Company data, Morgan Stanley Research Recent successes with wafering partners give us confidence in Q-Cells’ ability to move into this area. Using metallurgical Exhibit 20 silicon (MG-Si) for the process also has the potential to lower Key operating metrics costs significantly. Upgraded MG-Si should cost US$15-17/kg 2006 2007 2008e 2009e 2010e to make, according to management, compared with costs for Core business an experienced polysilicon production of US$25-30/kg. We Production capacity (EoP) 336 516 759 1,159 1,829 note recent comments from MEMC suggesting that costs for MW sold 253 389 579 960 1,418 ASP (€/Wp) 2.13 2.15 2.05 1.74 1.44 metallurgical may not be as competitive as is thought, and we Thin-film business continue to monitor newsflow. Production capacity (EoP) NM 83 155 370 625 Net MW sold NM NM 28 120 400 Exhibit 22 ASP (€/Wp) NM NM 1.76 1.58 1.42 Metallurgical silicon plays a growing part 2008 2009 2010 Blended wafer cost (€/Wp 1.05 1.08 1.01 0.86 0.73 Core production (MWp) 579 960 1,418 Other material cost (€/Wp) 0.26 0.27 0.27 0.26 0.25 Total material sufficiency (%) 108 138 107 Other production cost (€/Wp) NM 0.25 0.27 0.26 0.25 e = Morgan Stanley Research estimates; NM = Not meaningful % in wafers & crystalline 96 77 63 Source: Company data, Morgan Stanley Research % in metallurgical silicon 4 23 37 Revised production target to 1.5GW by 2010. Q-Cells Total risk-weighted volumes 626 1,326 1,524 upgraded its production guidance for the core business, as a o/w wafers 558 738 894 strong indication for aggressive capacity growth in 2009 and o/w polysilicon 23 45 2 2010. We estimate capacity additions of 240MW in 2008, o/w metallurgical 46 543 628 % of total 7 41 41 400MW in 2009 and 670MW 2010 to reach this goal. Some of Material sufficiency is calculated as the ratio between weighted volumes and production. We the infrastructure for this expansion is in place, and we note assume 410 tonnes from Timminco in 2008, 3,000 tonnes in 2009, as per recent contract. We assume no deliveries from Elkem in 2008, 1,400 tonnes in 2009 that management has issued conservative guidance in the past. Source: Morgan Stanley Research estimates 11
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Commodity-style cell price deflation to start in earnest in peers with regard to processing metallurgical silicon. 2009/10. Q-Cells has not earned a premium on cell prices for Management states ~0.1% degradation of conversion efficiency high efficiency compared with other players. We incorporate using unblended metallurgical silicon. Timminco management management guidance of a small ASP decline during 2008 states the degradation is <0.5%, and explicitly indicates that (4.5% on our estimates). Spain and Germany are set to show Q-Cells has been the most successful at blending and strong demand in 2008 ahead of regulatory changes, and processing metallurgical silicon of all 27 trial customers. indications from the market are that cell prices have been rising recently. However, we expect 15% price decrease in 2009 and Exhibit 24 17% in 2010. New regulatory regimes in Spain and Germany Cell prices will be weak compared to wafers will be less attractive than current subsidies, and we expect 2.50 prices will have to adjust to stimulate demand. In addition, we 2.30 2.10 expect prices to be driven lower by intense competition among 1.90 downstream manufacturers. Silicon available to the solar 1.70 €/W industry will exceed policy-driven demand in key markets in 1.50 1.30 Spread narrows 2009, according to our estimates. 1.10 next 2-3 years 0.90 Cell ASPs may be weaker relative to wafer costs. 0.70 0.50 Management states Q-Cells has locked in wafer prices for 1Q07 3Q07 1Q08e 3Q08e 1Q09e 3Q09e 1Q10e 3Q10e 2008, with a degree of flexibility in 2009 and 2010, and almost Core cell ASP (LHS) Wafer cost (RHS) total flexibility from 2011. Pricing on cell sales contracts e = Morgan Stanley Research estimates conversely is negotiated on a six-monthly basis. In our external Source: Company data, Morgan Stanley Research wafer cost assumptions we assume 100% costs locked in for Despite a very low cost base, we expect EBITDA margins to 2008, 66% for 2009 and 33% for 2010. We assume small decline. The main sensitivity comes from the compression of annual price reductions on fixed wafer contracts for 2008-10. wafer prices relative to cell prices between 2008 and 2010, as We do not expect this portion of locked-in costs to put Q-Cells ramp-up costs for new lines are already factored in our at a significant disadvantage to competitors without locked-in estimates. We expect Q-Cells’ external wafer costs to decline prices, as wider market conditions also suggest wafer prices 2% in 2008, 8% in 2009 and 15% in 2010 — at a slower rate may remain firm relative to cell prices — overcapacity is much than cell prices fall. higher and barriers to entry lower in cell manufacturing, meaning demand for wafers will remain stronger on a relative basis over coming years. We also believe Q-Cells has secured LDK wafering contract very attractive economics on part of its wafer supply through LDK (see quote box below). Q-Cells announced a supply agreement with LDK on December 10, 2007, for total volumes of more than 6GWp Q-Cells is a cost leader, nonetheless margins will decline. from 2009 to 2018. Silicon will be partly upgraded Our channel checks at the recent solar conference in Munich metallurgical silicon from Elkem and Timminco, partly LDK’s suggested that Q-Cells was significantly more advanced than own polysilicon production. Deliveries will start with 1,000 Exhibit 23 tonnes (125MW, on our estimates) in 2009, rising to 5,000 In-house wafer production will drive lower costs tonnes (700MW, on our estimates) by 2013. 1.30 1.20 Part of the deal included a prepayment of 10% of the silicon value to assist LDK with financing the expansion. We factor a Wafer price (€/Wp) 1.10 total wafer cost of €0.8/Wp on the deal into our estimates for 1.00 Q-Cells raw material cost. Our recent visit to Q-Cells 0.90 own wafer production facilities in Thalheim confirmed initial supply from 0.80 production LDK is of good and consistent quality. As the largest cell 0.70 manufacturer in the industry, we would expect Q-Cells to 0.60 2007 2008e 2009e 2010e remain a priority customer for wafer manufacturers, and to receive higher quality materials. Q-Cells REC selling price Market prices e = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research estimates 12
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Thin-film business Exhibit 25 Capex split between core and new business We see broadly better prospects for the consolidated 900 businesses. Decision on further expansion beyond the 25MW 800 pilot plants have already been taken for Calyxo and Sontor, 700 and these two technologies (Cadmium Telluride and 600 272 Micromorph Silicon) are also gaining broadest traction with 500 €m 400 231 leaders in the thin-film space. The consolidated stakes 300 210 contribute a higher proportion of our total net production 494 200 150 estimate — 319MW of our total 400MW in 2010. Our estimate 100 199 297 0 98 is at the lower end of management guidance of 400-600MW by 0 62 2010, as we do not currently view Q-Cells as a leader in this 2006 2007 2008e 2009e 2010e space and the expansion targets set are ambitious compared to Core business New technology our overall thin-film production estimates. e = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research We model broadly similar economics between thin-film businesses. Thin-film technology will continue to trade at a Capital intensity of thin-film business should improve discount to crystalline silicon on a per Watt basis — lower over time. Capital costs in the thin-film business are higher efficiencies mean that Balance of System (BoS) costs are than in the crystalline business. Capital costs for Cadmium higher for thin-film. We assume ASPs of €1.76/Wp in 2008, Telluride are €1-1.5/Wp of capacity, compared to €2-2.5 for falling ~10% a year for 2009 and 2010. Management estimates Silicon Micromorph. We estimate through value chain capex ~35% steady state EBITDA margins and 20% EBIT margins for for crystalline silicon production of c. €0.95/W, which includes these businesses. We are more cautious in the early stages of casting and wafering (€0.45/Wp), cell manufacturing (€0.4/Wp) production and ramp-up, assuming total losses of €23 million in and module manufacturing (€0.1/Wp). We would expect 2008 for the consolidated businesses, 4% EBIT margin in 2009 capital costs for both technologies to fall in the future, but and 15% in 2010. expect thin-film costs to fall further. Exhibit 26 Q-Cells key quarterly metrics 1Q07 2Q07 3Q07 4Q07 1Q08e 2Q08e 3Q08e 4Q08e 1Q09e 2Q09e 3Q09e 4Q09e Production Core business 78 82 97 133 115 133 159 172 204 230 250 276 New technologies (gross) 0 0 0 0 2 5 7 11 12 17 26 43 Group financials Total revenue (€m) 163 187 227 282 249 291 342 375 422 454 480 520 Total EBITDA (€m) 41 50 57 74 60 71 75 81 94 92 105 106 EBTIDA margin (%) 25.2 26.9 24.9 26.3 24.1 24.3 22.1 21.7 22.3 20.3 21.9 20.4 Core business Revenue (€m) 162 181 220 272 245 282 329 356 402 427 439 455 EBITDA (€m) 40 46 52 75 60 70 77 82 88 86 91 85 EBITDA margin (%) 24.9 25.4 23.4 27.5 24.4 24.9 23.4 23.0 22.0 20.1 20.6 18.7 Other consolidated Revenue (€m) 1 6 7 10 4 9 12 19 20 28 41 65 EBITDA (€m) 1 4 5 -1 0 1 -2 -1 5 6 15 21 Key drivers Core cell ASP (€/W) 2.08 2.21 2.27 2.05 2.09 2.09 2.02 2.02 1.92 1.81 1.70 1.60 Wafer cost (€/W) 1.11 1.14 1.19 0.96 1.03 1.03 0.99 0.99 0.94 0.90 0.84 0.80 Processing cost (€/W) 0.28 0.28 0.30 0.24 0.27 0.27 0.26 0.26 0.26 0.26 0.26 0.26 Notes: New technologies includes consolidated thin-film businesses, project division and silicon trade. 1Q08e revenue decline due to lower cell production, as per company guidance. The jump in revenues during 4Q07 can be explained by 10MW of cell production carried over from 2Q and 3Q. Lower margins in 2Q08e, 3Q08e and 4Q08e due to cell contract structure and thin-film ramp (most of Q-Cells contracts are renegotiated every six months). 1Q08 ASP estimate affected by 13% depreciation in average US$ FX between 3Q07 and 1Q08. We assume ratios of contract currencies is broadly reflected in wafer purchasing agreements, and therefore a limited effect of currency movements on margins. Source: Company data, Morgan Stanley Research estimates e = Morgan Stanley Research estimates 13
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Exhibit 27 Exhibit 28 Thin-film — consolidated stakes Thin-film — stakes reported at equity 2007 2008e 2009e 2010e 2007 2008e 2009e 2010e Consolidated stakes Equity stakes Year-end capacity (MWp) 55 75 220 450 Year-end capacity (MWp) 28 80 150 175 YoY (%) NA 36 193 105 YoY (%) 0 88 17 o/w Calyxo 25 25 85 200 o/w Solibro (CIGS) 30 100 100 o/w Sontor 25 25 85 200 o/w CSG Solar 25 25 25 50 o/w Flexcell 5 25 50 50 o/w Solaria (low-concentration PV) 3 25 25 25 Production (MWp) 25 98 353 Production (MWp) 16 74 162 Production net (MWp) 22 85 319 Production net (MWp) 6 35 81 Utilisation (%) 34 45 78 Utilisation (%) 20 50 93 o/w Calyxo 9 36 142 o/w Solibro 5 37 95 o/w Sontor 10 38 153 o/w CSG Solar 8 21 44 o/w Flexcell 3 11 24 o/w Solaria 4 16 23 e = Morgan Stanley Research estimates e = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research Source: Company data, Morgan Stanley Research 14
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Commoditising Industry Requires Cost Leadership 2009 represents the potential pinch point. We expect a Key points large number of cell manufacturers remain locked into The solar industry is heading for a turbulent period. fixed-price contracts during 2009, though this will be the year Subsidised markets are unlikely to be large enough to we expect supply to run significantly ahead of policy-driven absorb expected supply, and we forecast 30-40% price demand. Thin-film technology will also be mid ramp-up in 2009 reductions in downstream components to stimulate and make a limited contribution. If oversupply proves more sufficient demand to absorb excess supply. In particular, acute than we expect, it is possible that fierce price competition low barriers to entry of cell processing already resulted in could lead to a more rapid reduction in margins than in our overcapacity and may well lead to faster falls in cell ASPs estimates. The extent of oversupply depends partly on the than in other components. success of Chinese new entrants to polysilicon production, and partly on metallurgical volumes. Q-Cells only expects the latter Thankfully, current solar production economics to contribute in volume during 2H09 (we only expect a small have substantial scope for cost reductions. We number of players to succeed for the latter, such as Elkem, estimate fully loaded silicon-to-system production costs Timminco, JFE Steel, Dow Corning). We will watch Asian cell of €2.7/Wp in 2008. At this level, we estimate solar manufacturers closely to assess the scope of new Chinese power costs around €0.20/kWh in Southern Europe. silicon supply coming onstream during 2008. Cost reductions planned over coming years should allow Exhibit 29 this to fall substantially, even for average producers. We Silicon supply ahead of subsidised demand in 2009e also note that pure silicon in fact represents around 25% 250% of the cost of wafer production, leaving substantial room % of total policy driven demand for improvement elsewhere. 200% Q-Cells is aiming to lead industry consolidation. 150% Heavy investment in R&D and new capacity, and 100% cost-reduction initiatives in metallurgical silicon, in-house wafering and thin-film suggest Q-Cells is positioning itself 50% to lead industry consolidation. The range of strategies pursued to reduce costs (expansion, new low-cost 0% 2006 2007 2008e 2009e 2010e feedstock and production techniques), will all contribute Silicon sufficiency Available cell capacity to Q-Cells’ positioning as a cost leader. e = Morgan Stanley Research estimates Source: Company data, Morgan Stanley Research On our estimates, worldwide available cell capacity will be Exhibit 30 10GW in 2010 … We add the caveat that in such a Global subsidised markets to reach 6GW by 2010 fragmented industry we have probably not captured every new 2006 2007 2008e 2009e 2010e entrant cell manufacturer. Based on 10GW, Q-Cells’ market Australia 8 9 10 11 12 share would remain broadly unchanged from the 15.6% we China 34 60 108 170 221 estimate the company reached in 2007 (based on an installed France 10 40 120 200 300 Germany 900 1,080 1,296 1,490 1,788 market number of 2.5GW). We note that during periods of Greece 25 30 51 100 150 rapid market growth, leaders tend to lose market share, though India 10 20 80 250 350 we suspect that the ultimate market in 2010 may be larger, Italy 30 50 100 220 300 rather than Q-Cells production being smaller. Japan 393 432 475 532 596 South Korea 10 30 100 200 400 Portugal 3 15 30 40 50 … and this will require rapid price reductions. If our global Spain 61 298 496 388 343 available cell capacity estimate of 10GW by 2010 were fully US 139 260 500 800 1,200 utilised, it would imply additional supply of 4GW over and Others 170 170 204 245 294 above our estimate of 6GW of policy-driven demand. Total 1,793 2,493 3,570 4,646 6,004 e = Morgan Stanley Research estimates Developing additional demand on this scale will require major Source: Industry sources, Morgan Stanley Research estimates penetration of new markets, most likely driven by price erosion. 15
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Industry leaders provide key data for price reductions. cost of ~€0.20/kWh. We expect this range of power cost would Q-Cells’ management has recently suggested prices will need begin to stimulate unsubsidised demand in some retail to fall 30-40% to begin stimulating demand in unsubsidised markets. markets. Both Q-Cells and REC have indicated that system levels could decline much more rapidly than component prices. Exhibit 33 System prices would need to fall below €2.5/Wp to stimulate Industry fully loaded production cost estimates significant unsubsidised demand, in our view, which would 3.0 2.7 imply a ~45% fall in Germany and a ~60% fall in Spanish 2.5 system prices. There is much fat to be trimmed at the level of Fully loaded cost (€/Wp) 0.8 systems installation, though we also expect competition on 2.0 2.0 component prices to be fairly intense, as manufacturers are 0.8 1.5 also competing in more efficient markets, as a rule. 1.2 2.7 1.0 0.5 0.7 Exhibit 31 0.5 0.4 Solar remains expensive compared to conventional 0.4 forms of power generation 0.0 Silicon Wafer Cell Module System Total cost 70 60 Source: Morgan Stanley Research estimates. Total values above bars 50 Exhibit 34 40 We model gradual ASP falls to fully loaded cost €c/kWh 30 2.50 20 2.00 Retail power price 10 Wholesale power price 1.50 €/W 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1.00 Solar power price GERMANY SPAIN UNITED STATES (CALIFORNIA) Source: Morgan Stanley Research 0.50 Notes: Assumes a flat system cost of €5/Wp declining by 10% in 2008, 20% in 2009 and 2010, then 10% pa out to 2015. We base our analysis on insolation estimates of 1,000kWh/kWp in Germany, 1,600 in Spain and 1,800 in California. Some US states have insolation levels as 0.00 high as 2,100kWh/kWp, though markets such as Hawaii and Arizona are still at an early stage 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Morgan Stanley Research estimates Q-Cells ASP Industry fully loaded costs Source: Morgan Stanley Research estimates (post 2007) Exhibit 32 System prices and implied power costs What is cell manufacturing? ILLUSTRATIVE 2007 2008 2009 2010 2011 2012 System price (€/Wp) 5.00 4.50 3.60 2.88 2.59 2.33 Cell manufacturing takes a mono- or multicrystalline wafer, YoY (%) 1 -10 -20 -20 -10 -10 typically ~160x160mm and 160-200µm thick, and processes it Power costs (€c/kWh) into a conductor of light-generated electricity. Steps of the Germany 65.0 58.5 46.8 37.4 33.7 30.3 process are 1) doping with boron and phosphorus to create Spain 40.6 36.6 29.3 23.4 21.1 19.0 positively and negatively charged sides, 2) chemical US (California) 36.1 32.5 26.0 20.8 18.7 16.8 Source: Morgan Stanley Research estimates processing and “texturising” to clean the wafer and maximise the amount of light that can be absorbed and 3) printing with Fully loaded production costs are close to unsubsidised conducting strips and “busbars” in order to gather current levels. On our estimates, Q-Cells and others should already created by light hitting the cell, and conduct it to the appropriate be close to producing at fully loaded costs close to levels that part of the cell. could stimulate unsubsidised demand. We base the estimates for fully loaded production costs in Exhibit 32 on an analysis of current production costs of the main industry players, and an 8% cost of capital. These costs would equate to an electricity 16
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Issue in Focus: Solar Grade Metallurgical Silicon While successful use of metallurgical would give Q-Cells a Key points significant economic advantage, risks are limited in the event of a volume shortfall. We do not expect the market for raw Purified metallurgical silicon is a new, cheaper materials to be constrained in 2009, and internal ingot and alternative to virgin polysilicon. It is currently being wafer capacity should mean Q-Cells has flexibility to make up produced at consistent quality by a handful of any shortfall. It is important to note that some players have companies. experienced delays, though recent signs from most players have been increasingly positive on supply potential, and Q-Cells is a pioneer in the use of this material. Q-Cells anticipates substantial metallurgical volumes in the Potential cost savings are up to 40% on silicon market from 2H09. production costs compared to polysilicon. Q-Cells has entered into contracts with Elkem and Timminco for As an example of delays, Elkem has experienced delays in commercial volumes running out several years. construction of its facility in Kristiansand, Norway. We understand problems relate solely to construction rather than Our 2009 production estimate contains 37% of the base technology. We now assume zero volumes supplied metallurgical silicon. This is a double-edged sword — under the Elkem contract in 2008 (Elkem expects production to Q-Cells should have a major economic advantage over begin in “late 2008”), and around half of the volumes originally competitors if metallurgical succeeds, though there is an contracted in 2009 (1,400 tonnes compared with 2,800 tonnes element of risk attached. previously). We assume no additional contracts on upgraded metallurgical for the time being. Q-Cells is the only industry player we know to have processed 100% metallurgical silicon into solar cells for minimal What is upgraded metallurgical silicon? degradation in efficiency (company states <0.1%). Production costs are US$15-17/kg for MG-Si, according to management, Upgraded metallurgical or ‘solar-grade’ silicon is a purified form compared with US$25-30/kg for a good polysilicon producer. of the base metallurgical silicon that is used to produce high Q-Cells is likely to have negotiated favourable pricing purity polysilicon. Upgraded metallurgical can be 99.999% conditions as an early, blue-chip customer for this type of pure (‘5 nines’), compared with ‘7 nines’ for virgin polysilicon. material. While lower purity means some drop-off in conversion efficiency is possible, solar-grade silicon is much cheaper to Our estimates factor in 540MW production from metallurgical produce than virgin polysilicon, as it typically involves chemical silicon in 2009, of which we expect up to 250MW to be used for treatment rather than energy intensive gasification and internal wafer production and up to a further 125MW through deposition. the toll manufacturing arrangement with LDK (assuming 100% blending). Contracted raw material supply seems to suggest The challenge for producers and downstream customers such additional scope for internal cell manufacturing, or additional as Q-Cells has been to minimise both the drop-off in efficiency, toll-manufacturing arrangements. Q-Cells will receive the first and the additional processing costs of using non-standard material from Elkem in 2009, while it is already receiving material. Q-Cells has been highly successful in both areas material from Timminco. We believe Timminco to be fully producing trial volumes, quoting a <0.1% drop-off in conversion capable of supplying contracted volumes. The company is efficiency, and competitive processing costs compared to already delivering to Q-Cells from its commercial production standard material. We expect a small number of specialist plant, the last phase of which started manufacturing in players to produce successfully over coming years (Timminco, February 2008. Feedback from the recent PV conference in Elkem, JFE, Dow Corning). Munich, which we attended, suggested that Timminco was already supplying quality material to several customers, and that Q-Cells was achieving the best results in terms of blending and conversion efficiency. We factor in 30% of potential volumes under the additional option from 2010. 17
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Issue in Focus: A Wise Portfolio Approach to Thin-film Low-cost alternative to crystalline, but not best in class Key points yet. We base our forecasts on average ASPs observed from leading industry players (First Solar, ECD Ovonics), and Q-Cells is developing a number of thin-film assume gradual progression of EBIT margins towards technologies to complement the existing core management target of 20-25% (EBITDA margin 30-35%), after business. Expansion is underway and we believe these a period of initial losses. On this basis, Q-Cells’ thin-film will represent 19% of production in 2010. production costs would compete with crystalline costs by late 2008, though we note thin-film technologies have a higher It is too early to say which of the technologies will coefficient for balance of system costs. This would not succeed. Heavy short-term capex in this area increases however put Q-Cells in a leading position compared with other investment risk in our view. However, thin-film will play a thin-film players, many of whom are already starting to growing role in market development, is a good generate scale economies. Cadmium Telluride manufacturer, technology hedge, and should allow Q-Cells to take First Solar, recently quoted cash production costs of overall market share US$1.40/Wp (€0.93) on its best production lines. On our estimates, Q-Cells would still be above these levels by late Portfolio approach reduces technology risk. Q-Cells 2010. has a presence in all major thin-film technologies. Exhibit 36 Production and supply chain dynamics for these Efficiency is a major driver of costs per Wp businesses are unclear at this stage, and we view a portfolio approach as appropriate for now. 1.80 1.65 1.60 1.40 0.53 We view thin-film as a potentially highly attractive market 1.24 Module cost (€/Wp) 1.20 segment. For Q-Cells, establishing an early presence in 0.40 0.99 1.00 0.35 various technologies (see Exhibit 34) is both a technology 0.80 0.32 0.83 0.26 hedge, and a potential means of increasing market share. 0.60 0.21 0.27 Q-Cells has some participation in all major thin-film 0.40 0.78 0.17 0.58 technologies being developed. We expect total thin-film 0.20 0.47 0.39 production of 400MW or ~20% of Q-Cells’ volumes in 2010. 0.00 6% 8% 10% 12% 400MW in thin-film would make Q-Cells a major player, as we estimate global thin-film available manufacturing capacity of Thin film Other active components Inactive components 2.8GW in 2010, allowing for some fall-out from announced Source: NREL, "Technology Choice and the Cost Reduction Potential of Photovoltaics", plans. This would imply 14-21% market share for Q-Cells on a Trancik and Zweibel, 2006, Morgan Stanley research estimates net basis, assuming targets are met. Exhibit 35 Q-Cells’ new technology shareholdings summary What is thin-film? The term ‘thin-film’ covers a range of PV technologies Crystalline Thin-Film representing an alternative to incumbent crystalline polysilicon Silicon based cells. These have the potential to generate substantial reductions in material costs compared with expensive µc-Si Cd-Te CSG CIGS Flexible polysilicon, though are currently only produced on a relatively Low String 8-9% 7-10% 6-7% 10-12% 6-7% intensity ribbon small scale. efficiency efficiency efficiency efficiency efficiency Sontor Calyxo CSG Solibro Flexcell Solaria EverQ 100% 93% 21.7% 67.5% 55.6% 31.4% 33% consol. consol. equity equity consol. equity equity Source: Company data 18
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG High exposure to the most promising technologies. High upfront investment creates some capex risk. On our Q-Cells’ largest equity stakes are in Sontor (“micromorph”, estimates, the thin-film business would represent ~28% of net “nanocrystalline” or µc-Si) and Calyxo (Cadmium Telluride or PPE for ~18% of production capacity in 2010. Management CdTe). These are the most established in terms of existing estimates capex costs of €1-1.5/Wp for CdTe capacity and capacity — leading equipment providers Applied Materials and €2-2.5/Wp for micromorph, compared with our estimate of Oerlikon provide mainly micromorph technology and US-based €0.9/Wp for wafer-to-module capex for crystalline capacity (the sector leader First Solar is based on Cadmium Telluride. Our appropriate parts of the value chain to compare, in our view). capacity growth estimates for Q-Cells reflect the relative There is a risk that ROCE be diluted if the thin-film business maturity of these technologies (see Exhibit 36). New fails to deliver on expectations. production facilities of ~60MW in each case are planned for completion in 2008, added to existing lines of 25-30MW. We view efficiency, manufacturing scale and module reliability as the four key drivers. Exhibit 37 Q-Cells’ thin-film capacity estimates by technology Efficiency: higher efficiency means greater power output Gross capacity 2007 2008e 2009e 2010e for a given surface area. The ‘cell’ component of thin-film Flexible/CSG 30 50 75 100 technology (i.e. the thin-film itself) constitutes a lower Micromorph 25 25 85 200 component of production cost than is the case with CdTe 25 25 85 200 crystalline technology (46% versus 64% in our analysis). CIGS 0 30 100 100 Total 80 130 345 600 Increasing the conversion efficiency and therefore power e = Morgan Stanley Research estimates density of thin-films is therefore vital to minimise cost per Source: Company data, Morgan Stanley Research Watt of other components. CIGS is a promising high efficiency thin-film, but has barriers to overcome. The appeal of higher efficiency Scale manufacturing: scale is viewed as a major driver of thin-films lies in the relative reduction of balance of system cost reduction in the thin-film industry. One of the leaders costs that can be achieved, while maintaining the competitive in micromorph technology, Applied Materials, suggests production economics of a thin-film technology (see Exhibit 37). production costs can be halved by scaling up to a 1GW fab While CIGS remains a highly promising technology for the solar size. industry, some concerns remain about the long-term performance under all conditions, and manufacturing remains Reliability: many thin-film technologies are still at an early relatively small scale. stage of deployment, and data on performance degradation over time and under certain environmental Exhibit 38 conditions (moisture for CIGS) is not comprehensive. Comparison of efficiency between PV technologies Performance under certain conditions (partial shading, low Technology Thin-Film Crystalline light intensity, high temperature) is widely held to be better a-Si CdTeCIS / CIGS a-Si / m-Si Mono Multi with thin-films than existing technologies. Cell efficiency (%) 6-7 8-10 10-11 8 16-17 14-15 Module efficiency (%) 13-15 12-14 Area per kWp 15m2 11m2 10m2 12m2 ~7m2 ~8m2 Source: Company data, Morgan Stanley Research 19
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Exhibit 39 Q-Cells financials P&L (€mn) 2006 2007 2008e 2009e 2010e Revenues 539 859 1,257 1,877 2,642 Cost of Sales (348) (535) (738) (1,151) (1,593) Personnel expenses (43) (66) (101) (150) (198) Other operating expenses (32) (54) (131) (178) (310) EBITDA 147 222 287 398 541 EBIT Margin (%) 27.3 25.8 22.9 21.2 20.5 Amortisation, depreciation and impairment losses (18) (25) (41) (75) (130) EBIT 129 197 246 323 411 EBIT Margin (%) 24.0 22.9 19.6 17.2 15.6 Interest Expense (Net) 2 (7) 2 (11) (26) PBT 138 210 299 396 548 Income Tax Rate (%) 33.4 28.8 23.5 23.5 23.5 ModelWare Net Income 97 148 242 320 451 ModelWare EPS (€/Share) 1.24 1.36 2.13 2.82 3.97 Balance Sheet (€mn) Non-current Assets 277 1,700 2,125 2,672 3,481 Cash 147 414 186 318 134 Inventories 79 94 293 202 279 Trade Receivables 84 121 176 262 369 Other Current Assets 26 252 255 289 331 Assets 634 2,588 3,042 3,750 4,602 Debt 11 8 208 508 808 Other non-current liabilities 66 143 143 143 143 Trade Payables 44 65 91 142 196 Other Current Payables 44 126 114 152 198 Shareholders Equity 440 1,834 2,073 2,393 2,844 Liabilities + Equity 634 2,588 3,042 3,750 4,602 Cash Flow (€mn) Net Income 96 146 242 320 451 Income tax expense 42 64 58 73 91 Depreciation, amortisation and impairment losses 18 25 41 75 130 Income from Associates (7) (19) (50) (84) (162) Other non-cash income and expenses 7 4 0 0 0 Amortisation of deferred investment grants and subsidies (7) (7) 0 0 0 Change in provisions 2 2 0 0 0 Loss on disposal of non-current assets 0 1 0 0 0 Change in Working Capital: (91) 29 (244) 70 (100) Liquid funds generated by operating activities 61 244 47 454 409 Interest and taxes paid (37) (38) (56) (84) (116) CFO 24 206 (9) 370 293 Capex -tangible assets (61) (248) (409) (528) (766) Intangible Assets (6) (8) (10) (10) (10) Financial Assets and investments in equity 14 (254) 0 0 0 Disposals 15 97 0 0 0 CFI (57) (423) (419) (538) (776) FCF (33) (217) (428) (168) (484) Share Capital 1 5 0 0 0 Issuance of Debt (16) 476 200 300 300 Payments for leases, profit participation rights, and partners (5) (1) 0 0 0 Cash Dividends Paid 0 0 0 0 0 CFF (20) 480 200 300 300 Change in Cash (53) 263 (228) 132 (184) Source: Company data, Morgan Stanley Research estimates e = Morgan Stanley Research estimates 20
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG APPENDIX PHOTON Silicon conference Munich feedback (1 April 2008) We recently attended the PV Conference in Munich. The conference included updates from a number of solar grade silicon providers: Dow Corning – 6-month delay in 1201 product. Commercial production will start late-2008 rather than early-2008 as planned. Company suggests 25% blend ratio initially, rising to 80% ratio by 2010e. Aiming to reach 10,000 tonnes capacity by 2010. No disclosure of impurity levels. Elkem Solar – have encountered some delays relating to construction. Plant is 70% mechanically complete. First commercial shipments are now expected late 2008. Ramp up of 5,000 tonne plant through 2009 JFE Steel – Plant with 400 tonne capacity will come online from April. Use of 100% material should be possible. High purity levels with <0.1ppm of boron and <0.1ppm of phosphorus. Technology uses electron beams. High-grade technology, with cells reaching 14.5-17.0%. Globe Speciality Metals – Producing 360 tonnes pa of solar grade silicon since 2006 with a readily scalable process. Has 12% share of global market for raw metallurgical silicon with 220,000 tonnes of capacity and 175,000 tonnes of production. Low impurity levels of 0.5ppm of boron and 2.25ppm of phosphorus. Some customers have been able to use unblended material. Timminco key facts Corporate structure: Timminco is quoted on the Toronto Stock Exchange (TIM.TS). The Group has one majority shareholder the Applied Metallurgical Group (AMG.A). AMG will provide Timminco with furnaces for production of metallurgical silicon. Technology: "Electromagnetic Stirring" technology developed by ABB. ABB has employed this process for steel solidification / casting and aluminum casting / re-melting. Timminco has a long-term exclusivity agreement with ABB. The process reduces phosphorus concentration from 25ppm to 3ppm, and boron concentration from 10ppm to 0.7ppm. Target levels are 1.5ppm for phosphorus and 0.5ppm for boron. We understand that concentrations below these levels make limited difference to performance of the material. The purification process takes several passes. Capacity and production: 90 tonnes produced to date, with a total target for 2,000 tonnes in 2008. First line for 3,600 tonnes pa reached capacity in January. Target is for >14,400 tonnes of capacity by end of 2Q09e. Commercialisation: 27 customers have taken samples of material to date, and only 3 have been unable to blend. Most customers are blending 30% at present, but the aim is to reach 100% blend rate by 2010. Q-Cells seems to be the only one to have been able to use its material unblended Performance: Efficiency for most customers has varied between 11% and 14%. Q-Cells has been exceptional in being able to use unblended material for a less than 0.5% drop-off in efficiency. 21
    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Morgan Stanley ModelWare is a proprietary analytic framework that helps clients uncover value, adjusting for distortions and ambiguities created by local accounting regulations. For example, ModelWare EPS adjusts for one-time events, capitalizes operating leases (where their use is significant), and converts inventory from LIFO costing to a FIFO basis. ModelWare also emphasizes the separation of operating performance of a company from its financing for a more complete view of how a company generates earnings. Disclosure Section Morgan Stanley & Co. International plc, authorized and regulated by Financial Services Authority, disseminates in the UK research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services and Markets Act 2000, research which has been prepared by any of its affiliates. 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    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Coverage Universe Investment Banking Clients (IBC) % of % of % of Rating Stock Rating Category Count Total Count Total IBC Category Overweight/Buy 1036 43% 328 44% 32% Equal-weight/Hold 1001 42% 327 43% 33% Underweight/Sell 351 15% 99 13% 28% Total 2,388 754 Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliate received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. More volatile (V). We estimate that this stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data, or in the analyst's view, it is likely to become materially more volatile over the next 1-12 months compared with the past three years. Stocks with less than one year of trading history are automatically rated as more volatile (unless otherwise noted). We note that securities that we do not currently consider "more volatile" can still perform in that manner. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index. . 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    • MORGAN STANLEY RESEARCH April 15, 2008 Q-Cells AG Morgan Stanley Research is disseminated in Japan by Morgan Stanley Japan Securities Co., Ltd.; in Hong Kong by Morgan Stanley Asia Limited (which accepts responsibility for its contents); in Singapore by Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia (Singapore) Securities Pte Ltd (Registration number 200008434H), regulated by the Monetary Authority of Singapore, which accepts responsibility for its contents; in Australia by Morgan Stanley Australia Limited A.B.N. 67 003 734 576, holder of Australian financial services licence No. 233742, which accepts responsibility for its contents; in Korea by Morgan Stanley & Co International plc, Seoul Branch; in India by Morgan Stanley India Company Private Limited; in Canada by Morgan Stanley Canada Limited, which has approved of, and has agreed to take responsibility for, the contents of Morgan Stanley Research in Canada; in Germany by Morgan Stanley Bank AG, Frankfurt am Main, regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin); in Spain by Morgan Stanley, S.V., S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities Markets Commission (CNMV) and states that Morgan Stanley Research has been written and distributed in accordance with the rules of conduct applicable to financial research as established under Spanish regulations; in the United States by Morgan Stanley & Co. Incorporated, which accepts responsibility for its contents. Morgan Stanley & Co. International plc, authorized and regulated by Financial Services Authority, disseminates in the UK research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services and Markets Act 2000, research which has been prepared by any of its affiliates. Private U.K. investors should obtain the advice of their Morgan Stanley & Co. International plc representative about the investments concerned. In Australia, Morgan Stanley Research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. RMB Morgan Stanley (Proprietary) Limited is a member of the JSE Limited and regulated by the Financial Services Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is a joint venture owned equally by Morgan Stanley International Holdings Inc. and FirstRand Investment Holdings Limited, which is wholly owned by FirstRand Limited. The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the Dubai Financial Services Authority (the DFSA), and is directed at wholesale customers only, as defined by the DFSA. This research will only be made available to a wholesale customer who we are satisfied meets the regulatory criteria to be a client. The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regulated by the Qatar Financial Centre Regulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for Retail Customers as defined by the QFCRA. As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of investment advisory activity. Investment advisory service is provided in accordance with a contract of engagement on investment advisory concluded between brokerage houses, portfolio management companies, non-deposit banks and clients. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely to this information stated here may not bring about outcomes that fit your expectations. The trademarks and service marks contained in Morgan Stanley Research are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property of MSCI and S&P. Morgan Stanley Research, or any portion hereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley. Morgan Stanley Research is disseminated and available primarily electronically, and, in some cases, in printed form. Additional information on recommended securities/instruments is available on request. 24
    • MORGAN STANLEY RESEARCH The Americas Europe Japan Asia/Pacific 1585 Broadway 20 Bank Street, Canary Wharf 4-20-3 Ebisu, Shibuya-ku Three Exchange Square New York, NY 10036-8293 London E14 4AD Tokyo 150-6008 Central United States United Kingdom Japan Hong Kong Tel: +1 (1) 212 761 4000 Tel: +44 (0) 20 7 425 8000 Tel: +81 (0) 3 5424 5000 Tel: +852 2848 5200 Industry Coverage:Clean Energy Company (Ticker) Rating (as of) Price (04/14/2008) Luciano Diana Q-Cells AG (QCEG.DE) O-V (04/15/2008) €63.98 Biopetrol Industries (B2I.DE) U (02/06/2008) €1.85 Ceres Power (CWR.L) O-V (10/30/2006) 174p Climate Exchange (CLIE.L) E-V (04/09/2008) 1,648p Clipper Wind Power (CWPR.L) ++ 498p CropEnergies AG (CE2G.DE) U (03/01/2007) €3.07 Ecosecurities (ECO.L) E (05/25/2006) 84p Gamesa (GAM.MC) O (07/09/2007) €29.86 Iberdrola Renovables (IBR.MC) E-V (02/07/2008) €4.24 Renewable Energy Corporation U-V (02/18/2008) NKr157.75 (REC.OL) Solaria Energia y Medioambiente E-V (01/09/2008) €11.51 (SLRS.MC) Verbio AG (VBKG.DE) U-V (02/06/2008) €1.04 Vestas Wind Systems (VWS.CO) E-V (07/09/2007) DKr510 Allen D Wells, CFA GTL Resources (GTL.L) O-V (09/03/2007) 49p Stock Ratings are subject to change. Please see latest research for each company. © 2008 Morgan Stanley