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Suntech Power Capital Structure

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Part of a large due diligence presentation for school. This portion deals with some of STP's capital structure.

Part of a large due diligence presentation for school. This portion deals with some of STP's capital structure.

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Suntech Power Capital Structure Suntech Power Capital Structure Presentation Transcript

  • Reviewed by Arseny Lebedev BT 401 Due Diligence 12/3/2008
  • Table of Contents
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
    Arseny Lebedev
  • Definitions
      • “ PV ” – Photovoltaic
      • “ Si ” – The silicon used in PV production.
      • “ PV Cell ” – a device made from silicon wafer that converts sunlight into electricity.
      • “ PV Module ” – an assembly of PV cells that have been electrically interconnected and laminated in a durable and weather proof package for increased electrical output.
      • “ PV System ” – A package of one or more PV modules physically mounted and electrically interconnected with system components such as batteries and power electronics to produce or reserve electricity.
    Arseny Lebedev
  • 1. Pre-401 Summary Arseny Lebedev
  • Overview of PV 16-20% Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • PV Market Snapshot Arseny Lebedev
    • World solar photovoltaic (PV) market installations reached a record high of 2,826 megawatts (MW) in 2007, representing growth of 62% over the previous year.
    • Price / Watt = ~$4.10
    Current market size: $10-15 Bn Sources: SolarBuzz, Analysts
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Suntech Overview
    • Operations began in 2003
    • Firm went public in 2005 (NYSE:STP)
    • Initially financed by Chinese government
    • Top 3 producer of solar energy products
    • Finishing acquisition of MSK of Japan
    Dr. Zhengrong Shi Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Important Facts
    • World in economic trouble.
    • STP has long term contracts.
    • STP is actively increasing capacity.
    Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Changes in Comparables #1 Very similar operationally Vertically integrated for silicon production PV leader Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Comparables Arseny Lebedev $Millions
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
    Income Statement Quarterly 2007 2006 (Sep '08) MEMC Total Revenue $ 546.0 $ 1,921.8 $ 1,540.6 Gross Profit $ 269.7 $ 1,000.0 $ 689.0 Operating Income $ 227.5 $ 849.9 $ 558.3 Net Income $ 182.8 $ 826.2 $ 369.3 STP Total Revenue $ 594.4 $ 1,348.3 $ 598.9 Gross Profit $ 128.3 $ 274.1 $ 148.9 Operating Income $ 87.1 $ 171.6 $ 103.2 Net Income $ 55.9 $ 171.3 $ 106.0 Qcells Total Revenue $469.56 $1,125.78 $710.02 Gross Profit $130.03 $424.41 $273.09 Operating Income $69.40 $254.13 $166.41 Net Income $94.94 $191.44 $125.26
  • II. Financial Markets Arseny Lebedev
  • Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
    “ Suntech slashed its revenue forecasts for the fourth quarter, blaming the euro's sudden fall against the dollar and delayed orders by customers who had trouble getting project financing.” – Steve Gelsi, MarketWatch
  • Lifetime Stock Performance (STP) $80 $25 $8 80% Loss Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Since Last May $40 to $8/share Qcells Suntech MEMC Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Analyst Coverage Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
    Source: Marketwatch
  • Shareholders 64% of outstanding stock is held in the US Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • IV. Business Model Analysis Arseny Lebedev
  • PV Value Chain Majority of Revenue Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Products: PV Cells PV Modules Arseny Lebedev Priced in Watts, i.e. $4.00/Watt
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Segments & Ratios Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • P&L Arseny Lebedev $Millions
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
      FY 08 Q3 Q2 Q1 7-Dec 6-Dec 5-Dec 4-Dec     estimate 8-Nov 8-Jun 8-Mar (TTM) (TTM) (TTM) (TTM) Total Revenue $1,865.00 $594 $480 $435 $1,348 $599 $226 $85 Cost of Sales $1,398.75 $466 $364 $338 $1,047 $439 $154 $58 Gross Operating Profit $466.25 $128 $116 $96 $301 $160 $72 $27 Operating Profit before Depreciation (EBITDA) $251.78 $87 $77 $62 $199 $115 $47 $22 Total Net Income $ 216.94 $56 $65 $56 $ 171 $ 106 $ 31 $ 20
  • Capital Expenditures Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • 3. Capital Structure Arseny Lebedev
  • Debt / Equity 3 rd Quarter Arseny Lebedev 2 nd Quarter
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Other Debt Items Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Derivatives Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Leverage Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Debt / Equity Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Cost of Capital Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Utilized vs. Potential Capacity Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Why so Debt Heavy ? Utilized/Unutilized Capacity Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
    Total: 750 MW 2008 Total: 1 GW 2009
  • 4. Governance Arseny Lebedev
  • Governance Nuggets
    • Deals with companies owned by senior executives
    • Complicated company structure
    • SEC filings are non-standard
      • Many Non-GAAP # in filings
      • Depreciation ?
    Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Corporate Structure Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Board of Directors Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
    Name Title Expertise Shi, Zhengrong Chairman of the Board, CEO Technical Know-How Maynard, Jason Independent Director Finance Qiu, Zhi Zhong Independent Director Finance Zhang, Songyi Independent Director Finance Worley, Julian Independent Director Finance
  • Shareholders Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • GAAP vs Non-GAAP, Misc Arseny Lebedev
    • Depreciation is not included in quarterly statements, so estimation is difficult especially with new facilities opening soon.
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • 5. Valuation Arseny Lebedev
  • Market Valuation Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Discounted Cash Flow Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Assets 3 rd Quarter Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Asset Nuggets Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Inventory Turns Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • P/E History Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Metrics Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • More Ratios Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • 5. Other Risks, Conclusion Arseny Lebedev
  • Risks
    • US and Chinese Economy
      • Politics
    • Company Governance
    • Silicon shortage (maybe)
    Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Silicon Shortage 88% of global polysilicon supply comes from five companies.
    • Hemlock
    • Wacker
    • REC
    • Tokuyama
    • MEMC
    Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
    Suppliers
  • Polysilicon Prices Per Kilogram Source: Lehmen Brothers + Industry News Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Invest Focuses Arseny Lebedev
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
  • Conclusion (Investor POV) Arseny Lebedev
    • Supply obligations = must find customers that can pay.
    • Asset troubles (?):
      • Inventory
      • Receivables
    • Poor investing performance (derivatives)
    • Silicon pricing
    Negatives Positives
    • Massive capacity, new facilities
    • Silicon pricing
    • “ Undervalued” stock
    Short: Buy @ < $10 Long: Buy & Hold < $15
    • Pre-401 Summary
    • Financial Market Status
    • Business Model Analysis
    • Capital Structure
    • Governance
    • Valuation
    • Conclusion
    Disclaimer: I am an optimist. And STP shareholder.
  • Questions? Thank you