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First Solar Inc., July 2009 First Solar Inc., July 2009 Presentation Transcript

  • First Solar Inc., (FSLR) Raja Uppuluri (MScE) McGill University (MBA 2nd year)
  • About me.. • Completed MScE from University of New Brunswick (2005) • Worked as an Lead Project Analyst at MDA Space missions for 4 years (2005-09) • Started MBA-Finance at McGill and expected to graduate in 2009/10 • Doing Intern at Lester Asset Management as Equity analyst covering Energy Sector • Working as Buy-Side Equity analyst at Desautels Capital, McGill owned company 2
  • Agenda Sector Overview Company Overview Financial Analysis Valuation Risks and Concerns Q&A 3
  • Pollution due to power generation • Power generation contribute more than 40% of global carbon dioxide (Co2) • Global energy demand projected to grow by more than 50% between now and 2030. Result, CO2 emissions could increase 55% compare to 2004 levels 4
  • Carbon Footprint is a Fraction of Conventional Sources *Source: FSLR 2009 Investors Relations meeting 5
  • Emphasis on Renewable Energy Various governments set a new goal requiring utilities to obtain their power from renewable sources as follows: • European Union - 20% by 2020 • California - 33% by 2020 - 80% by 2050 • China - 20GW Solar by 2020 • India - 20GW Solar by 2020 More jobs creation: For million dollar investments Solar Industry - 5.65 Wind Energy - 5.70 Coal Industry - 3.96 6
  • Cost comparison Coal 2-6 cents per kWh Nuclear 2-5 cents per kWh Wind 3-6 cents per kWh Natural gas 5.5-9 cents per kWh Biomass 5-10 cents per kWh Geothermal 5-10 cents per kWh Solar 12-35 cents per kWh Source: US Department of Energy, Energy Information Administration, World Nuclear Association, IEA, Oregon.gov, WSJ article - "The New Math of Alternative Energy", 2007. 7
  • Cost of Solar Electricity vs. Grid Electricity 2009E 2010E 2011E 2012E Germany Solar Electricity € 0.38 € 0.33 € 0.31 € 0.29 Grid Electricity € 0.22 € 0.24 € 0.26 € 0.28 Italy Solar Electricity € 0.26 € 0.23 € 0.22 € 0.21 Grid Electricity € 0.26 € 0.28 € 0.30 € 0.32 United States Solar Electricity $0.22 $0.19 $0.18 $0.17 Grid Electricity $0.10 $0.10 $0.11 $0.11 Japan Solar Electricity ¥30.04 ¥24.16 ¥22.10 ¥20.80 Grid Electricity ¥20.68 ¥20.56 ¥20.39 ¥20.29 8
  • Global Solar Module Demand 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 Source: UBS Solar Industry Report June 2009 9
  • Global Solar Module Average Selling Prices $/Watt $4.00 $3.00 $2.00 $1.00 $0.00 2008 2009 2010 2011 2012 Source: UBS Solar Industry Report June 2009 10
  • Solar Sector Overview Significant growth in future Subsidies across the world Least Global Warming Potential Recommendation: Long Term 11
  • Investment Thesis General Industry Specific • Capital structure • Manufacturing • Margins cost • Management • Conversion • Manufacturing efficiency Capacity • Suppliers & Long term contracts • Subsidies 12
  • An Investment Opportunity Strong Attractive Balance Sheet Growth FSLR Long Term Industry Projects Leader 13
  • Company Snapshot Market Cap $12.5 bil Price 145 52-Wk Total Debt $249 mil Range $85.28-$317 Inst. Own 54% P/E 26 No. Shares 85 mil Div Yield 0 14
  • Company Overview Designs and manufactures solar modules Top player in the Solar Industry Operations in Germany, Malaysia, United States etc., Reported revenues of US$1.25 billion in FY2008 (550MW) Outperforming Management 15
  • Manufacturing Method 16
  • Projects & Applications • Leading system integrators, independent power project developers, and utility companies to implement turnkey solar power systems. Free Field Power Plants Commercial FSLR Customers Rooftop Systems Residential Rooftop Systems 17
  • Free Field Power Plants Region: Boulder City, NV Project Size: 10 MW Region: Brandis, Germany Project Size: 40 MW 18
  • Commercial Rooftop Systems Region: Gescher, Germany Project Size: 1.4 MW Region: Fontana, CA Project Size: 2 MW 19
  • Revenue 5% 21% Germany: US $920 mil Other: US $265 US: US $63 74% 20
  • Operations 21
  • Production Capacity: 2008 (23 lines x 49MW/line/year) 22
  • Top player in the industry Long-term Contracts: $6 billion (2009-12) Outperforming Management Lowest Manufacturing cost Conversion Efficiency 23
  • Outperforming Management • Outperforming results • Transparent • Reduced the manufacturing cost and increased the margins significantly • Improved factory run rate 24
  • Low Manufacturing Cost FSLR •$0.93/watt Tier-1 •$2.5-$3.0 Tier-2 •$2.0-$2.5 25
  • Cost ($/Watt) 1.59 1.5 1.4 1.23 0.98 1 0.93 0.65 0.5 2005 2006 2007 2008 2009 1Q 2010 2011 2012 Cost 26
  • MFG cost Reduction Roadmap 27
  • Factory Run Rate 28
  • Module Conversion Efficiencies 29
  • Conversion efficiency FSLR SPWRA STP ENER Conv. Efficiency (%) 10.9 19.3 15-17 6.3 • The record for cadmium telluride cell efficiency is 16.5 percent, which was achieved in a lab by the United States' National Renewable Energy Laboratory 30
  • Financial Analysis 31
  • Financial Performance (1) 3,400 Revenue ($mil) 2,600 2,100 1,246 504 135 2006 2007 2008 2009E 2010E 2011E 300 200 $145 100 0 17-Nov-06 17-Nov-07 17-Nov-08 32
  • Financial Performance (2) 33
  • Financial Performance (3) 3 Act. EPS Exp. EPS 2.5 2 1.5 $ 1 0.5 0 Q4 06 Q3 07 Q2 08 Q1 09 Q4 09 Q3 10 -0.5 34
  • Financial Performance (4) Stock Price EPS 300 2.5 2 200 1.5 Price EPS 1 100 0.5 0 0 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 35
  • Financial Performance (5) $1,600 60% 54.4% 49.0% Gross Margin $1,200 40.2% $1,246 40% 34.5% 35.2% 27.2% 22.4% $800 20% 15.7% RONA Operating Margin 2.1% $400 -5.5% 0.2% $504 0% -10.0% $135 $48 $0 -20% FY05 FY06 FY07 FY08 36
  • Financial Performance (6) First Performance Solar Industry Revenue ($m) 1,246 1,205 Gross Margin (%) 55 24 Operating Margin(%) 35 8 Profit Margin (%) 28 5 ROA 20 3 ROE 26.7 7 37
  • Financial Performance (7) Capital Structure: Cash is “KING” 1,500 1495 Cash ($m) Total Debt ($m) 1,000 827 760 467 406 500 249 340 339 151 200 0 First Solar SunPower Corp Sun Tech Power Yingli Green Energy Conv Dev Energy 400% 332% Debt/Equity Cash/Debt 200% 172% 121% 100% 42% 32% 27% 48% 26% 14.0% 0% First Solar SunPower Sun Tech Yingli Green Energy Conv Corp Power Energy Dev 38
  • 2009 1Q Results •Global down turn effect: •Sales went up significantly: From $418.2 mil (2009 1Q) to $196.2 mil (2008 1Q) •EPS (2009 1Q): • $1.99 compared to analyst estimation $1.51 •Most of their competitors posted losses •Gross margin was an eye-popping 56% compare to analyst estimates 50% •The cost per watt declined from $0.98 to $0.93 •Efficiency edged up from 10.8% to 10.9% 39
  • 2009 1Q Results (ctd..) •Receivables rose from $62 million in 4Q/08 to $185 million; days receivables jumped from 13 to 40 •Low silicon price : pressure on margins •CEO Mike Ahearn will give up his CEO duties to focus on public policy as executive chairman. Inventory Days Acc Receivable Acc Payable days (DSO) Days (DPO) 2008 09 1Q 2008 09 1Q 2008 09 1Q First Solar 55 65 13 40 21 21 Suntech Power 51 84 46 76 26 53 40
  • Will it maintains the current growth..? 41
  • Growth Analysis Revenue COGS FX Loan and Interest payment Income Tax Market Expansion 42
  • Revenue • Long term contracts: USD $6 billion • Every year price reduce 6.5%. FSLR has to reduce its manufacturing cost more 6.5% • 5 main Customers: Each accounted for 11% - 19% of FLSR sales • Opti Solar Production Line • Actively enter into the US market • Possible reduction in its price – Close to 10 % to remain as a industry leader 43
  • COGS • Long term contracts with suppliers • Low manufacturing cost and more subsidies – Labour costs – Other expenses • Low cost of input material: Glass, glue etc., 44
  • Other • FX – $0.01 change in Euro effects 10mil – Bearish on USD (US economy grow) • Loan Payment – Less debt, no immediate payment, high cash • Income Tax – Tax Holiday: more than half of its manufacturing in Malaysia • Market Expansion – US, China, India, etc., 45
  • Correlation between oil, and FSLR stock price. FSLR Oil 300 150 FSLR stock price 200 100 Oil Price 100 50 0 0 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 46
  • Company outlook Key Issues Effects Long term contracts ↑ Revenues Subsidies/Laws ↑ Revenues & ↑ Growth Management ↓ Margins & ↑ Market Size Change in FX ↓ Costs & ↑ Profits 47
  • Investment Thesis General Industry Specific • Capital structure • Manufacturing • Margins cost • Management • Conversion • Manufacturing efficiency Capacity • Suppliers & Long term contracts • Subsidies 48
  • Valuation 49
  • Target Price P/S P/E 2.9x 23x *20% Premium to Industry multiples 50
  • Risk factors Major Minor 95% of revenue from Reduction in subsidies: Europe Germany 6%↓ Input material 5 big customers interruption Conversion Efficiency Lucrative market Oil and Natural gas price Poli-silicon price drop Technology Risk 51
  • Q&A First Solar Solar Sector • Customers • Obama Energy Plan • Opti-Solar • Crystalline silicon Vs. thin-film • Top Holder • World Solar Demand • Hedging • Solar Energy Production • Margins Comparison US Market • Performance • Recent deals • Capex • US Solar Market: Segment • Improvement in conversion • US Solar Installations by State efficiency • U.S Utility Market Progress • Efficiency potential of CdTe Poli-silicon • Multiple Comparison • Polisilicon price forecast • SWOT Analysis • Polisilicon price and effect on • Recent deals FSLR Risk factors • Poly Si cost vs Module Cost Vs • Supply base interruption FSLR cost • Technology Risk: BIPV END 52
  • Back Up Slides 53
  • Customers • It has long-term solar module supply contracts with one United States and 15 European project developers • The Company’s customers develop, own and operate solar power plants or sell turnkey solar power plants to end users that include owners of land, owners of agencies • Blitz Storm, Colexon Energy AG, Conergy AG, Juwi Solar GmbH and Phoenix Solar AG 54
  • Opti-Solar •Price: $400 mil •Acquisition of the Project Pipeline and Development team of OptiSolar • 550MW Topaz project with PG&E • 1,300MW of projects in negotiations with utilities in the Western U.S. • •Expected incremental volumes of 600- 700 MW from 2010-2013 • Strategic land rights of ~136,000 acres (up to 19,000 MW) 55
  • Top Holders Shares % Share Filing Held O/S Change Date Estate of John T 23,003,857 28.2 0 12/31/08 Walton JCL Holdings L.L.C. 10,102,002 12.4 -2,000,000 12/31/08 Capital World 4,400,000 5.4 4,400,000 12/31/08 Investors Ahearn (Michael J) 3,573,839 4.4 -523,500 04/14/08 Fidelity Management 3,270,145 4.0 459,123 12/31/08 & Research Federated Investors 1,943,501 2.4 755,972 09/30/08 Inc. 56
  • Hedging •First Solar has hedged 26% of its forecasted 2009 revenue and 33% of anticipated net income at $1.42 per Euro •The company has hedged 52% of its revenue for the first half of 2009 and 12% of its revenue for the second half •Roughly $10M impact from a $0.01 change in the average value of the Euro 57
  • Margins Comparison First SunPower Sun Tech Energy Conv Column1 Solar Corp Power Dev Industry Revenue ($m) 1,246 1,435 1,924 256 1,205 Gross Margin 54.43 25.35 17.83 29.13 24 Operating Margin 35.17 11.74 9.49 2.52 8 Profit Margin 27.95 6.43 5.77 1.51 5 ROA 19.99 4.95 4.27 0.47 3 ROE 26.69 9.79 11.19 0.66 7 58
  • Performance 2008 2007 2006 Revenue (mil) 1,246 504 135 Gross Margin (%) 54.43 49.88 40.19 Operating Margin(%) 35.17 27.22 2.08 Profit Margin (%) 27.95 31.42 2.94 ROA 19.99 16.24 1.17 ROE 26.69 20.99 1.87 59
  • Capex Increasing factory run rate from 49 (2009 1Q) to >80 (2014) 60
  • Improvement in conversion efficiency 61
  • Efficiency potential of CdTe Source: First Solar Inc., 2009 Investors relations conference 62
  • Multiple Comparison First SunPower Sun Tech Energy Solar Corp Power Conv Dev Industry Price/Sales 5.19 1.241 1.526 1.715 2.418 P/E 18.13 14.003 22.769 21.656 19.1395 P/B 4.278 1.712 2.218 0.821 2.25725 EV/EBITDA 12.405 8.125 13.953 8.538 10.75525 63
  • SWOT Analysis Strengths Weakness •Top player in industry • Customers are facing •Long term contracts financial issue •Good Management • Solar Industry Growth •Independent on Silicon Opportunities Threats •Strong growth in foreseeable • More competition future •Break through technology •Expanding in US & Malaysia 64
  • Recent deals • Opti-Solar Project: Supply 550 MW in ext 4 years • Solar City Corporation: Five year contract, supplying 100 MW • Masdar Abu Dhabi Future Energy Company: supply 5MW • Sempra Generation: Supply 48 megawatt • Tri-State Generation and Transmission Association: 25-year contract, supply 30MW • Solar Shop Australia, Pty Ltd: Supply 1 MW 65
  • Obama Energy Plan Bill includes a host of provisions that will greatly benefit the renewable energy industry 1. Congress extended the 30% investment tax credits for clean energy. 2. Bill would allow taxpayers to receive a grant from the Treasury Department 3. Caps on the tax credits for residential solar hot water will be removed. 4. Create five million green jobs and invest $150 billion in a "clean energy economy" over 10 years 5. Mandate an increase in the use of renewable energy: 10% of the nation's electricity consumption from renewable energy sources by 2012, and 25% by 2025. 6. Manufacturing credits will not effect as it has only 66
  • Crystalline silicon Vs. thin-film 67
  • World Solar Demand Solar Demand (MW) 2006 2007 2008 2009E 2010E Germany 968 1,328 1,800 2,000 2,500 Spain 110 640 2,400 500 460 Japan 300 230 300 600 750 U.S.A. 140 220 400 600 1,500 Other 226 408 680 1,900 3,950 Total 1744 2826 5580 5600 9160 Source: Banc of America Securities - Merrill Lynch estimates 68
  • Solar Energy Production: Other, 0.3 Japan, 0.3 US, 0.4 2008: 5.5 GW Spain, 2.5 2010: 9-10 GW Germany, 1.5 2013: 10-20 GW 69
  • Recent deals • Opti-Solar Project: Supply 550 MW in ext 4 years • Solar City Corporation: Five year contract, supplying 100 MW • Masdar Abu Dhabi Future Energy Company: supply 5MW • Sempra Generation: Supply 48 megawatt • Tri-State Generation and Transmission Association: 25-year contract, supply 30MW • Solar Shop Australia, Pty Ltd: Supply 1 MW 70
  • US Solar Market: Segment 700 595 600 565 500 400 340 MW 300 200 143.7 167159138 162.3 109 100 73.8 51 22 0 2007 2008 2009E 2010E Source: IREC, SEIA, UBS Estimates Residual Commercial Utility • The biggest growth was in the utility segment driven mostly by California’s 20% 2010 Renewable Portfolio Standard 71
  • US Solar Installations by State Others 24% Colorado 7% California 61% New Jersey 8% 72
  • U.S Utility Market Progress 73
  • Polysilicon price forecast 74
  • Polisilicon price and effect on FSLR • Poly silicon prices moved from $70/kg (2007) to $450/kg. • Oversupply: Price went down to $70-80/Kg and stay around 50-70$ in 2009-10. • Impact: – End of 2008, FSLR did not face any impact due to less poly silicon price. – FSLR is 90% sold out this year. May impact 2010 75
  • Poly Si cost vs Module Cost Vs FSLR cost 76
  • Supply base interruption – Uses approx. 20 types of raw materials – Most of the company’s critical materials or components are either single sourced or supplied by a limited number of suppliers – Suppliers are small companies that sometimes might be unable to supply the company’s increasing demand. – VNP: main supplier. They will not buy this company as they may need large Capex to maintain the company. More over investment community may not like the idea. 77
  • Technology Risk: BIPV • BIPV: Building Integrated Photo voltaic cells. Their product is not well suited for this technology. They never mentioned in the quarterly or yearly meetings so far. In simple terms, not suitable for old buildings. May suitable for new building construction. Sun power and First solar are not qualified for the subsidy program offered by Italy and France. First solar is mainly for suitable for Free field Power plants, commercial and Residential Rooftop systems. On top of that only Italy and France are givng subsidies. But markets in these two countries are not so big so I am not expecting FSLR will do more research on this technology. 78
  • Thank You 79