Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

<ul>
<li>The 2022 vintage of "5 High Conviction Ideas" had the weakest performance since 2017, with only China Shineway posting a positive return</li>
<li>Olam, Rex and Starhub all declined approximately 16% in FY22</li>
<li>Our 2023 vintage will hopefully perform better with 4 out of 5 favorites in the commodity space</li>
</ul>


The 2022 vintage of "5 High Conviction Ideas" had the weakest performance since 2017, with only China Shineway posting a positive return
Olam, Rex and Starhub all declined approximately 16% in FY22
Our 2023 vintage will hopefully perform better with 4 out of 5 favorites in the commodity space


Overview of My Winners and Losers in 2022...And 5 High Conviction Ideas Going into 2023

Equity Bottom-Up

<ul>
<li>Sunpower has had a rough +/-18 months as input cost rises coincided with Force Majeure issues at some of its clients due to never-ending rolling Chinese lockdowns.</li>
<li>Mr. Market has pushed Sunpower back below 0.27 SGD/share (-43% YTD) despite revenue- and EBITDA growth continuing at its GI division. Profits have been compressed due to rising input costs.</li>
<li>As China re-opens in FY23 Sunpower should benefit from normalization and recovery in demand from its industrial base customers. However, CB conversion details are needed for re-rating to start.</li>
</ul>


Sunpower has had a rough +/-18 months as input cost rises coincided with Force Majeure issues at some of its clients due to never-ending rolling Chinese lockdowns.
Mr. Market has pushed Sunpower back below 0.27 SGD/share (-43% YTD) despite revenue- and EBITDA growth continuing at its GI division. Profits have been compressed due to rising input costs.
As China re-opens in FY23 Sunpower should benefit from normalization and recovery in demand from its industrial base customers. However, CB conversion details are needed for re-rating to start.


Sunpower: 2023 China Re-Opening Stock, but CB Conversion Uncertainty Needs To Be Resolved

External broker reports(aggregated public sources), KGI Securities Singapore

KGI Securities

External broker reports(aggregated public sources)

<ul><li>The disposal of the M&amp;S business for RMB2.29bn has been completed, with two tranches of special dividend of S$0.1406 a share and S$0.1006 a share paid out in June and July.</li><li>New capacity from Tongshan P1, Shantou P2, Xintai Zhengda and Shanxi Xinjiang plants are expected to complete construction in 2021/early 2022 and contribute to the group next year.</li><li>We maintain our OUTPERFORM recommendation with an unchanged target price of $$1.22 based on the discounted cash flows of each project.</li></ul><div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

The disposal of the M&amp;S business for RMB2.29bn has been completed, with two tranches of special dividend of S$0.1406 a share and S$0.1006 a share paid out in June and July.New capacity from Tongshan P1, Shantou P2, Xintai Zhengda and Shanxi Xinjiang plants are expected to complete construction in 2021/early 2022 and contribute to the group next year.We maintain our OUTPERFORM recommendation with an unchanged target price of $$1.22 based on the discounted cash flows of each project.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Sunpower Group (SPWG SP): A purer play on clean energy going forward

<a href="https://www.smartkarma.com/entities/sunpower-group-ltd" target="_blank" data-smartkarma-citation="entities:18395:1" rel="noopener">Sunpower Group (SPWG SP)</a> last week reported 1H21 results which were its last results as an integrated M&amp;S/GI business. As discussed at length in previous insights the focus will now shift solely to GI.GI is underappreciated by investors as essentially this is a monopoly business with 30-year contracts where customers pay upfront. There is an automatic tariff increase mechanism in case key-input costs rise. The customer base of Sunpower is very diversified and should perform well in expansionary or recessionary environments (see sample set below). <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/266/original/image_74418366751629184318462.png?1629184301" class="editor-image img-responsive" data-smartkarma-image-id="224266"></figure>On the conference call management remained very bullish for 2H21 and 2022. It also started showing "total steam sales volume" which is a metric unique to the GI business. We suspect investors will like this metric and we look forward to further transparency into 3Q21.One remarkable feat in the new presentation deck was the emphasis on ESG and the adjacent areas of water and soil pollution. Other than its historical air pollution mandate this could become a growth area going forward should opportunities arise.Fair Value at 1.18 SGD, after adjusting for recent 0.2359 SGD special dividend payments. This fair value estimate is based on 20x FY22 EPS. Given the highly recurring cash flow of the GI business we think this is a reasonable multiple on a monopoly-style business. Upside (+84%) remains attractive from current 0.64 SGD level.

Sunpower Group (SPWG SP) last week reported 1H21 results which were its last results as an integrated M&amp;S/GI business. As discussed at length in previous insights the focus will now shift solely to GI.GI is underappreciated by investors as essentially this is a monopoly business with 30-year contracts where customers pay upfront. There is an automatic tariff increase mechanism in case key-input costs rise. The customer base of Sunpower is very diversified and should perform well in expansionary or recessionary environments (see sample set below). On the conference call management remained very bullish for 2H21 and 2022. It also started showing "total steam sales volume" which is a metric unique to the GI business. We suspect investors will like this metric and we look forward to further transparency into 3Q21.One remarkable feat in the new presentation deck was the emphasis on ESG and the adjacent areas of water and soil pollution. Other than its historical air pollution mandate this could become a growth area going forward should opportunities arise.Fair Value at 1.18 SGD, after adjusting for recent 0.2359 SGD special dividend payments. This fair value estimate is based on 20x FY22 EPS. Given the highly recurring cash flow of the GI business we think this is a reasonable multiple on a monopoly-style business. Upside (+84%) remains attractive from current 0.64 SGD level. 

Sunpower: Full Steam Ahead with GI; 84% Upside to 1.18 SGD Fair Value

<a href="https://www.smartkarma.com/entities/sunpower-group-ltd" target="_blank" data-smartkarma-citation="entities:18395:1" rel="noopener">Sunpower Group (SPWG SP)</a> reported its 1Q21 results which are likely the last in its combined M&amp;S/GI format. 1Q21 were very strong but the YoY comparison is skewed because 1Q20 was heavily impacted by a nationwide lockdown in China. Before the end of June (our estimate) shareholders will receive 0.2359 SGD as a special dividend. After this the focus will be 100% on GI as the M&amp;S divestment completes by end of 1H21. Investors in GI can look forward to:<ul>
<li>lower operating cost </li>
<li>lower labor cost </li>
<li>lower debt</li>
<li>better working capital management</li>
<li>lower receivables</li>
<li>lower interest costs</li>
<li>higher ROE </li>
<li>higher profit margins</li>
<li>more predictable earnings</li>
</ul>Our call is that in 2H21 a substantial re-rating is on the cards as investors "discover" the highly attractive aspects of being a GI pure play. On the call management was the most bullish we have heard them in years. Our Fair Value estimate remains unchanged at 1.38 SGD (including 0.2359 SGD dividend). This leaves another +/- 78% upside from its recent 0.80-0.81 SGD range. Once investor confusion abates, the deal closes we expect a serious re-discovery phase.

Sunpower Group (SPWG SP) reported its 1Q21 results which are likely the last in its combined M&amp;S/GI format. 1Q21 were very strong but the YoY comparison is skewed because 1Q20 was heavily impacted by a nationwide lockdown in China. Before the end of June (our estimate) shareholders will receive 0.2359 SGD as a special dividend. After this the focus will be 100% on GI as the M&amp;S divestment completes by end of 1H21. Investors in GI can look forward to:
lower operating cost 
lower labor cost 
lower debt
better working capital management
lower receivables
lower interest costs
higher ROE 
higher profit margins
more predictable earnings
Our call is that in 2H21 a substantial re-rating is on the cards as investors "discover" the highly attractive aspects of being a GI pure play. On the call management was the most bullish we have heard them in years. Our Fair Value estimate remains unchanged at 1.38 SGD (including 0.2359 SGD dividend). This leaves another +/- 78% upside from its recent 0.80-0.81 SGD range. Once investor confusion abates, the deal closes we expect a serious re-discovery phase.

Sunpower: Ex-Dividend Date Coming Soon; 100% GI Should Lead to Re-Rating; Fair Value Remains $1.38

China

Founded in 1997 and listed in 2005, Sunpower Group Limited (5GD.SI / SPWG SP) is an environmental protection company specialising in fighting air pollution using proprietary energy-saving and clean power technologies. Since 2017, Sunpower has expanded heavily into “Green Investments” (GI), its sizeable and valuable portfolio of anti-smog investment projects that generate long-term, recurring and high-quality cashflows and now account for more than half of recurring profits and cashflow. The “Manufacturing & Service” (M&S) business provides a variety of high-end customised environmental protection products and solutions to approximately 1,500 customers across 15 industries in over 30 countries, such as Wanhua Chemical, Hengli Petrochemical, CNOOC, CNPC, SINOPEC, ExxonMobil, BASF, BP, Shell, and many others. 70% of them are repeat customers.

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Sunpower Group (SPWG SP)

Overview of My Winners and Losers in 2022...And 5 High Conviction Ideas Going into 2023

Our FY22 vintage of High Conviction Ideas had its weakest performance since FY17. We hope for better returns for our commodity-focused FY23 selection.

Nicolas Van Broekhoven

Sunpower: 2023 China Re-Opening Stock, but CB Conversion Uncertainty Needs To Be Resolved

Sunpower is down -43% YTD and needs a resolution in its Convertible Bonds by April 2023 before any re-rating can start. Once that is achieved the...

Nicolas Van Broekhoven