18 NOVEMBER 2013
HONGINITIATION KONG / ALTERNATIVE 34 TAIWAN ENERGY /TECHNOLOGY HANERGY SOLAR 566 HK
HOW WE DIFFER FROM CONSENSUS MARKET RECS TARGET PRICE HKD1.34 TARGET PRICE (%) 52 POSITIVE 1 HOLD CLOSE HKD1.25 EPS 2013 (%) NA NEUTRAL 0 UP/DOWNSIDE +7.4%
CHANGEPRIOR TP IN TP HKD % EPS 2014 (%) NA NEGATIVE 1
Wait on the sidelines KEY STOCK DATA YE Dec (HKD m) 2012A 2013E 2014E 2015E
Revenue 2,756 4,556 5,275 6,182 n Downstream business is still too small to move the needle The 1H results were a surprise, with sales and profit growing 86% Rec. net profit 1,316 2,955 2,985 3,264 and 165% h-h. Momentum is likely to persist in 2H13 thanks to a Recurring EPS (HKD) 0.10 0.11 0.11 0.12 stable equipment business. However, concerns lie in the fact that EPS growth (%) 47.0 8.0 1.0 9.4
parent company Hanergy Group (not listed , 63% stake) is also the Recurring P/E (x) 12.8 11.8 11.7 10.7 sole customer. High reliance on the parent is a double-edged sword: Dividend yield (%) 0.0 0.0 0.0 0.0 Hanergy Solar receives both technical and financial support, but does not have total control over its business strategy. Expansion into EV/EBITDA (x) 9.5 7.0 8.6 7.2 downstream solar farms is a way out, as it could diversify the Price/book (x) 1.4 2.2 1.8 1.6 customer base, yet at 7% of projected sales in 2014, it is still too Net debt/Equity (%) (6.2) (14.2) (1.8) (4.8) small to move the needle. ROE (%) 11.9 21.4 17.2 15.9
Nov-12 Feb-13 May-13 Aug-13 Nov-13 n Environment friendly for TF, but cost-competitiveness unproven 394 We think the environment is favourable for Thin-Film (TF) given its 1.24 exemption from Europe’s price undertaking agreement, and lower 294 conversion requirement for distributed PV subsidies in China . Recent 0.74 194 IP acquisitions from global TF leaders MiaSolé and Solibro could 94 hasten CIGS-type TF’s commercialisation, however, its cost- 0.24 (6) (HKD) Hanergy Solar Rel to MSCI Hong Kong (%) competitiveness remains to be seen. Share price performance 1 Month 3 Month 12 Month n Initiate with a HOLD and a TP of HKD1.34 Absolute (%) (6.7) 76.1 363.0 We initiate coverage with a HOLD, our HKD1.34 TP is based on 9.5x Relative to country (%) (5.5) 74.1 352.6 2014E EV/EBITDA. We like the company’s smooth expansion into Next results February 2014
downstream and decent 2014 and 2015 ROE of 17% and 16%, but Mkt cap (USD m) 4,502 are cautious on its single-customer dependence. We suggest waiting 3m avg daily turnover (USD m) 29.0 on the sidelines for now. Faster ramp-up on solar farm projects would be a positive sign, as it implies a more diversified customer base. Free float (%) 37 Major shareholder Hanergy Group (63%)
Hanergy Solar’s sales mix: Moving into downstream solar farms 12m high/low (HKD) 1.43/0.26
(%) Equipment Downstream 3m historic vol. (%) 67.7 100 ADR ticker - 80 ADR closing price (USD) - 60 Issued shares (m) 27,927 40 Sources: Bloomberg consensus; BNP Paribas estimates 20 0 1H12 2H12 1H13E 2H13E 1H14E 2H14E 1H15E 2H15E
Sources: Hanergy Solar; BNP Paribas estimates
Esther C Chen [email protected] +886 2 8729 7065
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PREPARED BY NON-US BROKER-DEALER(S): BNP PARIBAS SE CURITIES (TAIWAN) LTD THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 34 Hanergy Solar 566 HK Esther C Chen
Investment thesis Catalyst Unlike c-Si, TFPV has higher technology entry barriers and Smooth progress on solar farm projects with 120MW to be broader applications than the conventional c-Si PV. In this on-grid in China by the end of 2013. This will start field, First Solar (FSLR US, Not Rated) is currently the only contributing sales and bring cash flow in 1Q14 but still a large-scale over one gigawatt (GW) production size TF solar small amount. manufacturer in the world, followed by Solar Frontier (not The environment for TF is favourable, as it is exempt from listed). As such, the TF supply chain is healthier than that for Europe’s anti-dumping levies; this provides a window for TF c-Si. Hanergy Solar has recently acquired the CIGS (a type of to gain market share. TF) leaders MiaSolé and Solibro, which should hasten CIGS’s commercialisation. However, its cost-competiveness Risks to our call remains to be proved. Key upside risks to our TP are faster-than-expected The downstream solar farm business is progressing expansion in the downstream solar farm business, and smoothly, with 120MW capacity to be on-grid by the end of earlier-than-expected commercialis ation of CIGS technology. 2013. Hanergy Solar can leverage its parent company Key downside risks are anti-dumping disputes on TF and Hanergy Group’s expertise. We believe the expansion into subsidy cuts from the China government. the downstream solar farm business is a key move as it will diversify the customer base and ease investors’ concerns on the current single-customer issue . However, our estimation of a 7% sales contribution in 2014E is still too small to move the needle. This diversification is more like a story for beyond 2015E.
Company background Key assumptions
Hanergy Solar offers field-proven turnkey solutions for large- 2012 2013E 2014E 2015E scale thin-film (TF) solar cell production systems. The company Equipment installation (MW) 500 1,030 1,122 1,184 acquired global TF leaders MiaSolé and Solibro in September Solar farm installation (MW) - - 280 370 2013. It is actively seeking investment opportunities in Equipment ASP (USD/watt) 0.71 0.57 0.56 0.55 downstream solar projects (solar farms) and moving towards the global photovoltaic power generation market. Solar farm ASP (USD/watt) - - 0.16 0.16
Source: BNP Paribas estimates Principal activities (2013E to 2014E sales mix) Earnings sensitivity
Year -end ------Base ------Best------Worst ----- Solar farm 7.3% 31 Dec 2014E 2015E 2014E 2015E 2014E 2015E Equipment installation (MW) 1,122 1,184 1,234 1,302 1,010 1,065 Change (%) 10 10 (10) (10)
Solar farm installation (MW) 280 370 308 407 252 333 Change (%) 10 10 (10) (10)
Sales (HKD m) 5,275 6,182 5,803 6,800 4,748 5,564 Change (%) 10 10 (10) (10) Solar Solar equipment equipment 100.0% 92.7% Key executives Source: BNP Paribas estimates
Age Since Title We believe the key factors for sales momentum are the Mingfang Dai (Frank) 49 2010 Chairman/CEO installation of equipment and solar farms. Dr. Li Yuan-min 54 2009 Deputy Chairman/CTO
Chen Li 40 2011 Executive Vice President A 10% increase in equipment and solar farm installation would raise 2014E and 2015E sales by 10% and 10%, all Hui Ka Wah (Ronnie), J.P. 49 2009 Finance Director and Senior VP else being equal. Li Guangmin 36 2002 Financial Controller A 10% increase in equipment and solar farm installation http://www.hanergysolargroup.com would raise 2014E and 2015E sales by 10% and 10%, all else being equal.
2 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Focused on Thin-Film technology
Why Thin-Film Photovoltaic? Instead of jumping into the competitive c-Si PV (crystalline silicon photovoltaic) TF supply chain is healthier than c-Si, arena, Hanergy Solar focuses on TFPV (Thin-Film Photovoltaic) technology. while conversion efficiency needs to According to EPIA, TF accounted for c.15% of global PV market share in 2012 be improved (Exhibit 1) with only a few players (around 10 active players vs. around 150 players in the c-Si field). Although TF’s conversion efficiency is lower than c-Si PV currently; we think it will gradually gain traction thanks to technology advances and the higher technology entry barriers, as well as its multiple advantages, which we outline below:
1. Semiconductor technology: While the c-Si solar cell is produced on a physical process, TF production, similar to semiconductor production, combines physical and chemical processes. Thus, it has higher entry barriers and fewer physical limitations, leaving more room for conversion efficiency to be improved.
2. Higher tolerance to hot temperatures: When the temperature is above 25ºC, conversion efficiency decreases accordingly. However, TF has a higher tolerance to hot temperatures: every 1ºC of decrease in temperature causes an approximately 1% reduction in c-Si PV vs c.0.5% for TF. As such, a TF module could generate a higher energy yield then c-Si in regions with average temperatures over 25ºC, such as South Africa, South America, and South-East Asia.
3. Better performance under weak light: TF could deliver a more-stable performance than c-Si when the irradiance is weak (e.g., at twilight, dawn, or during winter time), implying longer ultraviolet solar hours. TF could also work under shadow with indirect light, whereas shadows may cause significant power loss or even damage to c-Si panels.
4. More applications especially BIPV (Building-integrated Photovoltaics): TF could be easily installed on any type of rooftop without racks as it is thinner and lighter. This could also lower BOS cost (Balance of System, including inverter, labour, cables, wire, racking, frames, etc). Furthermore, as flexibility and transparency is achievable, TF could be applied in the growing BIPV market where c-Si is absent.
According to EPIA, TF’s production market share is expected to stabilize at c.15% TF is exempt from the price with a 6-9% CAGR range in 2013-17, depending on the type of TF technology. Given undertaking agreement rapid evolution, CIGS (Copper Indium Gallium Selenide) may gain the spotlight with (EUR0.56/watt) 8.7% CAGR. Upside could be driven by improving efficiency, new government subsidy programmes, and the growing BAPV/BIPV markets.
Worth noting is that TF companies are exempt from the recent price undertaking agreement (27 August 2013) following the European Commission’s anti-dumping and anti-subsidy tariffs against Chinese solar panels. In the agreement, the minimum price for Chinese c-Si module imports will be EUR0.56/watt (10% higher than the prior level) with the volume ceiling at 7GW. As such, we think this will create a window for TF to gain market share.
3 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 1: Global annual installation capacity EXHIBIT 2: PV company numbers
c-Si (LHS) TF (LHS) TF % (RHS) (nos) (GW) (%) 800 40 18 700 35 17 600 30 16 500 25 15 400 20 14
15 13 300
10 12 200
5 11 100
0 10 0 2010 2011 2012 2013E 2009 2010 2011 2012 2013E Sources: EPIA; BNP Paribas estimates Sources: EPIA; BNP Paribas estimates
EXHIBIT 3: TF vs c-Si - 2013-2017 CAGR by technology EXHIBIT 4: TF production market share
Thin-Film (%) CdTe a-Si CIGS (%) 18
10 8.70 16 8 14 5.95 6.34 6 12 10 4 3.17 8 2 6 0 4 (2) 2 (4) (2.98) 0 CIGS CdTe a-Si TF modules c-Si 2000 2002 2004 2006 2008 2010 2012 (inorganic) modules
Sources: EPIA; IHS Solar; PV Insider and SNE Research Sources: IHS Solar Research (Jan 2013)
TF is more environmentally friendly. Energy payback time (EPBT) is the time in which the energy input required to produce a module will be paid back from the electricity generated over its lifetime. This includes the electricity used to provide the raw materials for making a module. In general, c-Si PV modules require 2-3 years to pay back the electricity they used during production while TF modules take about one year, even with lower conversion efficiency. In addition, the by-product of the production of poly-silicon, Silicon Tetrachloride (SiCl4), is deadly to marine life and toxic to humans if poly-silicon manufacturers do not dispose of it safely and in an environmentally-friendly manner.
The key weakness of TF is its higher cost as poly prices have dropped tremendously since 2008 (from around USD475 in 2008 to merely USD16 in early 2013). Nevertheless, we think the bottom of poly prices has passed, given production control from c-Si PV makers; thus its impact on TF will be milder.
For more details regarding the TF supply chain, SWOT analysis, and applications in BIPV please refer to appendices.
4 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 5: TF vs crystalline silicon PV
Crystalline Thin Film
Environmentally friendly Energy payback time 2-3 years c.1 years
Impact from side product SiCl4 + H2O è acid *
Raw material bottleneck Polysilicon Nil
Performance Conversion efficiency 11-18% 7-14.6% Energy Yield ☼ ☼ ☼ ☼ ☼ Tolerance to hot temperature ☼ ☼ ☼ ☼ Weak light performance ☼ ☼ ☼ ☼ Performance under shadowing ☼ ☼ ☼ ☼ Light absorption bandwidth ☼ ☼ ☼ ☼ ☼
Commercialisation Production cost ☼ ☼ ☼ (lower) ☼ ☼ (higher) Suitable applications Rooftop; BAPV Solar farm; BIPV; BAPV
Maturity of technology Commercialised for over 30 years Commercialised for 10-15 years
Sources: EPIA; BNP Paribas estimates
TF could be categorised into three major technologies: silicon-based, CdTe (Cadmium Telluride), and CIGS (Copper Indium Gallium Selenide). With higher efficiency and lower cost, CdTe is the leading technology among TF. First Solar (FSLR US) is currently the only large-scale production-size CdTe TF manufacturer in the world with more than 1GW of annual production. It is also the largest solar cell producer globally with 1.6-1.7GW production in 1Q-3Q13. However, the key issue of CdTe is the use of a highly toxic material – Cadmium – and there are concerns about whether these panels pose a fire hazard. As such, Cadmium is restricted by the RoHS (Restriction of Hazardous Substances) directive in the European Union, as well as by the China government.
EXHIBIT 6: Thin-film PV comparison
Silicon based CdTe CIGS
Energy payback time ≤1 year 1 year 0.9 – 1 years
Toxic element N/A Cadmium N/A
Feedstock N/A Tellurium Indium
Conversion efficiency 6-7% single tandem; 8-9% double 9-13.9% 11-14.6% (commercialised level) tandem; 8-13% triple tandem Tolerance to hot temperature ☼☼☼ ☼☼ ☼
Performance under weak light ☼☼☼ ☼☼ ☼ condition Light absorption bandwidth ☼☼ (single) - ☼☼☼ (triple) ☼☼ ☼☼☼
Maturity of technology Commercialised for over 10 years Commercialised since 2005 Commercialised in 2008
Key players Sharp; Astronergy; NexPower; Trony First Solar Solar Frontier; Hanergy Solar (Solibro, Solar; Terra Solar; Hanergy Solar MiaSolé)
Source: BNP Paribas
Thin-Film PV conversion efficiency is improving Although TF’s conversion efficiency is lower than c-Si at the moment (maximum 14.6% vs c-Si’s 18% on production level), it is expected to improve, CIGS in particular. According to NREL, mc-Si PV has encountered a bottleneck after reaching 20.4% lab conversion efficiency in 2004 with little improvement afterwards, while CIGS continued to hit record highs with a new record of 20.4% in 2013.
Many TF companies have recently announced record-high conversion efficiencies from multiple technologies (Exhibit 8). Improving conversion efficiency in small-size substrates is easy, whereas manufacturing of large sizes is difficult. CdTe expert First Solar stated a world record high efficiency at 14.1% in October 2013. CIGS thin film PV manufacturer MiaSole (not listed), recently acquired by Hanergy Group (the parent company of Hanergy Solar), achieved 15.5% aperture area efficiency in flexible PV modules. Solar Frontier’s research centre also achieved 14.6% for its champion module in June 2013.
5 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 7: Conversion efficiency comparison by TFPV type EXHIBIT 8: TFPV makers announced record-high efficiencies
(%) Theoretical maximum Best research-cell Company Date Comments 70 Typical module production First Solar Oct-13 Perrysburg facility’s conversion efficiency reached 14.1%. Lead production line averaged module efficiencies was 60 13.9% at end-3Q13 and expected all lines to reach 13.9% over the next few quarters. 50 Solibro Oct-13 Solibro‘s thin-film modules offer world record efficiencies up to 13.4 % in serial production. 40 31 MiaSolé Sep-13 Reached 17.9% at the experimental setting, 15.5% for standard size module, 14.0% for its largest scale 30 commercial production lines. 15.5% for flexible TF (aperture 18 area efficiency) 20 15 13 12 Solar Frontier Jun-13 Solar Frontier’s latest champion module has achieved 10 14.6% conversion efficiency. Aperture area efficiency 10 reached 17.8% 2 Sharp Apr-13 Conversion efficiency of 37.9% achieved (at the research 0 level) for a triple-junction compound solar cell. CPV (3J) c-Si mc-Si CIGS CdTe a-Si OPV
Sources: NREL (Jan 2013); BNP Paribas Sources: Companies; BNP Paribas
Hanergy Solar is well positioned in Thin-Film PV Hanergy Solar has been developing amorphous silicon (a-Si) and silicon-germanium (SiGe) since 2009, currently in mass production with stable conversion efficiency at 8-10% (Exhibit 11). In June 2013, Hanergy Solar announced further technology breakthroughs on its “Fab 2.0 Program”, which significantly improved its conversion efficiency, output speed, and production capacity.
Triple Tandum: In 2012, Hanergy Solar upgraded its operational processing method from a double tandum to a triple tandum SiGe manufacturing line, which tremendously reduced the consumption of key material gases (germane, silane, and trimethylboron). Gases accounts for around 20% of cost; with the breakthrough of the triple-tandum process, Hanergy Solar could reduce direct material cost by 12.7% per watt.
Shorten PECVD process cycle : Hanergy Solar has successfully reduced the process cycle time of PECVD from 5.5 hours to 3.2 hours by upgrading the tools for laser scribing (from 48 seconds to 35 seconds), annealing, soldering, packaging, and lamination systems. Daily PECVD unit production was increased from 300 pieces to over 520 pieces and cost per module was reduced by 9.34%. The number of required workers was also reduced by 16% due to automation and production efficiency.
Nano-Crystal silicon (nc-Si): A new type of PECVD for nc-Si is under development, targeting mass production by mid-2014. nc-Si could achieve higher conversion efficiency; more importantly, it could be adopted in flexible PV.
EXHIBIT 9: Less usage of gases, higher conversion efficiency EXHIBIT 10: Cost could be reduced by 9.34% Conversion efficiency Raw material Depreciation SIH4 Silane consumption Facility operation Labour (%) TMB Borane consumption (%) Equipment operation 140 GEH4 Germane consumption 100 120 80 100 80 60 60 40 40
20 Jan-12 Jun-12 Mar-12 Dec-13 (expected)
Program) 0
breakthrough) Before Fab 2.0 Program After Fab 2.0 Program Dec-12 (PECVD Dec-12 May-13 (Fab 2.0 (Fab May-13 Sources: Hanergy Solar; BNP Paribas Sources: Hanergy Solar; BNP Paribas
6 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 11: Hanergy Solar: Technology roadmap
Glass(1-4mm) Glass(1-4mm) Glass(1-4mm) Glass(1-4mm) Glass(1-4mm) TCO TCO TCO TCO TCO a-Si a-Si a-Si a-Si Sulphide n a-Si-Ge a-Si-Ge CIGS p a-Si a-Si-Ge a-Si-Ge nc-Si Mo metal ZnO ZnO ZnO ZnO ZnO Glass(1-4mm) Glass(1-4mm) Glass(1-4mm) Glass(1-4mm) Glass(1-4mm)
Technology a-Si a-Si - SiGe a-Si – SiGe - SiGe a-Si – SiGe – nc-Si CIGS
Tandem Double Double Triple Triple
Year 2009 2010 2012 1H14 1H14
Conversion 6-7% 8-9% 8-10% 10-13% 14-16% efficiency Key product Target: 0.5 Cost 0.3-0.5 0.5-0.7 > 0.8 (USD/watt) 0.3-0.5 0.5
Sources: Hanergy Solar; BNP Paribas estimates
Hanergy is an aggressive participant in the consolidation trend Hanergy Solar collaborates with its parent, Hanergy Group, which transfers technology know-how from the Group to Hanergy Solar (Exhibit 13). On 19 April 2012, Hanergy Solar signed a Technology Transfer Agreement with the Group to obtain 5 TF patents and the nc-Si technology at an expense of HKD246m (34% of 2012 cash). In 2012-2013, the Group acquired two leading CIGS companies: Solibro and MiaSolé. Earlier than our expectation, in September 2013, Hanergy Solar bought the two companies’ IP (intellectual property) from the Group for HKD353m and HKD445m respectively.
Solibro GmbH (not listed) is a Germany-based company specialising in CIGS technology with its R&D centre located in Sweden. The company had sold 140MW to Q.SMART (QCE GR) to 2012; conversion efficiency is >14%. After the acquisition, Hanergy Group intends to ramp Solibro’s annual production to 100MW. On 7 October 2013, Solibro announced an efficiency breakthrough of its CIGS TF module at 18.7% (aperture area efficiency).
MiaSolé (not listed) is a US Silicon Valley-based TF company with expertise in CIGS and also has know-how in flexible PV technology. Ahead of its rivals, MiaSolé has achieved 15.5% conversion efficiency for its champion standard-size module and flexible PV in September 2012. Cost per watt is targeted to be improved from the current USD0.79 to USD0.5 thanks to localisation and economies of scale.
Also worth noting is that, to expand into the downstream residential solar market, the Group acquired another UK solar installation company Engensa (not listed) in May 2013. Engensa has successfully launched a financing model which allows customers to install solar panels with no upfront cost, an attraction for the Hanergy Group. Given Hanergy Group's past moves, we think further acquisitions for more CIGS/flexible PV IP are likely. The environment seems to be favourable for Hanergy Group as many US/Europe-based solar makers are still struggling. We believe the trend of consolidation in the industry will remain intact. Its strong cash position offers the Hanergy Group an opportunity to become one of the TF leaders in the future. However, the conversion efficiency of CIGS remains to be proved.
7 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 12: Production of top TFPV makers (2012) (MW) 1,600 1,400 1,200 1,000 800 600 Acquried by Hanergy Group 400 200 0 First Solar Sharp Astronergy Nex Trony MiaSolé T-Solar 3Sun Solibro Solar Frontier Power Solar
Type CdTe CIGS c-base c-base c-base c-base CIGS c-base c-base CIGS
Sources: Companies; BNP Paribas estimates
8 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Upstream business: Hanergy Group is the sole customer
Hanergy Solar provides TFPV equipment (Plasma Enhanced Chemical Vapor Hanergy Group is the parent Deposition/PECVD, Plasma Vapor Deposition/PVD) and turnkey solutions to its company of Hanergy Solar with a parent company, Hanergy Group, which is also its sole customer. Hanergy Group 63% stake (“the Group”) is one of the leading clean energy companies in China, and is engaged in hydro, wind, and solar power. The Group currently owns a 63% stake in Hanergy Solar. The Group’s solar business includes both midstream businesses (solar panels) and downstream businesses (solar power plants, roof-top projects), it has signed several solar power plant construction agreements with governments in Europe, America, and China for a total capacity of around 10GW.
After Apollo Solar was acquired by the Group in 2009, the price of poly collapsed due to significant over-production in the solar industry. Therefore, customers reduced or delayed their investments in manufacturing and R&D, some even ceased the whole operation. Hanergy Group, with its solid experience in the renewable energy field (hydropower, wind power) and close relationship with the Chinese government, decided to enter solar industry, and thus became the sole customer of the Apollo Group (renamed to Hanergy Solar in January 2013).
EXHIBIT 13: Business model: Hanergy Group and Hanergy Solar
Hanergy Group
63% holdings, will New shares, Patents $ increase to 70%+ options (contract R&D know-how base)
Hanergy Solar Equipment (contract base) Solar cells
Global Solar Power & Advanced Integrated Applications Group System Group (Upstream) (Downstream)
2014E 2015E Downstream 7% 18% EPC Build and Build and sell operate Upstream Solar farms, roof-top projects
Sources: Hanergy Solar; BNP Paribas
Working closely with the Group, Hanergy Solar’s key R&D team is located in Chengdu, Sichuan. There are two factories with six production lines each; to achieve 400MW of annual production upon completion, every production line requires seven sets of PECVD and seven of PVD.
PECVD (Plasma-enhanced chemical vapor deposition): Dual vacuum pumping systems and multi-RF electrode stabilisation technology enables stable plasma without interference among the RF sources. Hanergy Solar’s PECVD could process 72 pieces of substrate (cells) in a single batch with total surface area of 57 square metres. Its competitor, Applied Materials (AMAT US) could process seven independent chambers with each substrate reaching 5.7 square metres, leading to a total area of 40 square metres, 30% less than Hanergy Solar. In addition, Hanergy Solar is developing a new generation of PECVD for nc-Si PV, this PECVD will be able to process 48 pieces of substrate at the same time, and total area could reach 65-68 square metres.
9 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
PVD: A 10-chamber structure PVD with eight targets enables continuous deposition of a robust set of thin film targets for back electrodes, such as AZO, Ag and Al. It can also run fully automated, and is capable of connecting to other process equipment. Hanergy Solar’s PVD could be used for future nc-Si PV and flexible PV. Applied Materials’ ATON PVD 5.7 seems to have fixed the size at 5.7 square metres for both PECVD and PVD, leaving lower flexibility for future applications. However, its newly- launched “TopMet™ 4450” is a PVD for depositing ultra-thin aluminium films for flexible packaging applications. Applied Materials announced it is the world’s largest and fastest roll-to-roll machine, which allows up to 12 different thin film layers to be deposited simultaneously on flexible materials, enabling complex structures to be created in a single pass. This is a potential threat to Hanergy Solar if it does not manage to bring about synergies with MiaSolé’s R&D team.
Competition in the TF equipment market is intense, as equipment giant Applied Materials is the pioneer in this field. Hanergy Solar enjoys a high gross margin of above 70% given that more than 50% of its parts are procured from multiple Chinese suppliers. However, its competitiveness remains to be seen, since the parent company is also the sole customer.
EXHIBIT 14: Hanergy Solar provides turnkey solutions EXHIBIT 15: PECVD (left) and PVD (right)
Source: Hanergy Solar Source: Hanergy Solar
A contract-based business with its parent company Hanergy Group Hanergy Solar entered into two contracts with the Hanergy Group, in May 2010 and September 2011, respectively. A 10GW capacity plan bundling with a series of share subscription agreements was clearly stated in these two contracts. The Group will be able to purchase Hanergy Solar’s new shares at an agreed price; subscription is based on the progress of installation and payment (Exhibit 16). For instance, when the total payment of the first tranche reached HKD3.3b, the first subscription could take place, which is 1,965m of the new share issuance (capital increase) and a 10% holding increase.
There are three tranches in each contract plus an incentive agreement. To the end of September 2013, Hanergy Group had completed the conditional payment for the first tranche of the 2010 contract, and the first and second tranche of the 2011 contract, lifting its shareholding to 63%. Without taking options and convertible bonds into consideration, the Group’s stake in Hanergy Solar will reach 73% when both of the contracts are completed. We are expecting the conditional payment of the 2011 contract, tranche 3, to be completed by end-2014, which will inject HKD2.7b to the top line and HKD0.9b cash from new share issuance. The heavy cash requirements for solar farms could be partially eased.
10 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 16: 2010 and 2011 contracts with Hanergy Group
Installed Total Down Condition payment for Share to Share % of total Date Tranche volume payment payment share subscription be subscribed subscribed shares Price (MW) (USD m) (USD m) (HKD b) (m shares) (m shares) (%) (HKD)
5/20/2010 1 1,000 850 425 3.3 1,965 1,965 13 0.239
Equipment only 2 1,000 850 425 1.7 1,473 - 5 0.120
3 1,000 850 425 1.0 1,473 - 5 0.100
3,000 2,550 1,275 6.0 4,912 1,965 -
9/18/2011 1 2,000 1,700 850 1.8 6,000 6,000 28 0.100
50% equipment, 2 2,000 1,700 850 1.8 6,000 6,000 22 0.100 50% service 3 3,000 2,550 1,275 2.7 6,000 - 21 0.100
9/28/2011 Incentive agreement 3,000 - 11
7,000 5,950 2,975 6.3 21,000 12,000 -
Sources: Hanergy Solar; BNP Paribas
Installation progress is on schedule The installation of production lines is divided into four phases: move-in and installation, start of production (SOP), end of ramping (EOR), and lastly, mass production. Sales and cost are recognized according to the progress of these four phases. Hanergy Group has targeted eight bases in China with 7.55GW to be installed upon completion, while location of the remaining 2.45GW has not been finalised yet. Approximately 1.7GW of a-Si/SiGe PV capacity had been installed by June 2013; we forecast at least 200-250MW of new capacity will be installed per quarter.
EXHIBIT 17: Hanergy Group’s module manufacturing bases EXHIBIT 18: Installation progress (to June 2013)
Bases Plan Completed ------Phrases ------
7 City (MW) (MW) move-in SOP EOR 1. Chengdu 1,000 400 v v v
2. Heyuan 1,000 200 v v
3. Haikou 1,000 300 v
4. Wujin 1,000 200 v v
5. Yucheng 1,000 200 v v
6. Changxing 1,000 200 v v 5 4 7. Shuangyashan 300 200 v
8 8. Nanjing 1,250 - 1 6 TBD 2,450 -
Total 10,000 1,700 2
3
Sources: Hanergy Solar; BNP Paribas Sources: Hanergy Solar; BNP Paribas *TBD: to be determined
11 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Smooth downstream expansion, but still too small to move the needle
In January 2013, when Apollo Solar was renamed Hanergy Solar, the company structure was also reorganized into two divisions: Hanergy Advanced Integrated Systems Group and Hanergy Global Solar Power & Applications Group (Exhibit 13), representing upstream and downstream businesses respectively. This shows Hanergy Solar’s determination to go into the downstream solar business.
Unlike other solar module companies, Hanergy Solar is not manufacturing the solar module. Instead, it purchases modules from the Group, builds solar farms/roof-top power plants, and then either sells them out or operates them by itself. Besides, Hanergy Solar also acts as a contractor to design and build for others. There are three typical models for a solar farm business:
Build and operate: build and operate the solar farms/rooftop power plants. Electricity may be connected to the power grid, or supplied directly to the underlying for rooftop projects. Hanergy Solar is targeting an unleveraged IRR of 8% or above, which implies a leveraged IRR of 20% or above, assuming 75% leveraged ratio. Currently several projects are ongoing in Europe and Asia. Note it is the only segment we have factored into our model as its progress is running ahead of the other two segments.
Build and sell: build and sell the solar farms/rooftop power plants to long-term investors, e.g. pension funds or mutual funds. Finance through financial instruments such as securitisation, real estate investment trusts (REIT) or other forms of trusts to transfer the interests in these projects. While some projects are already at the initial stage, we believe it will take another 2-3 years for the finance regulation to be ready, and for the investors to fully understand these structured products. PV securitisation is maturing in the US while it is still at the early stages in Asia.
EPC (Engineering Procurement and Construction): act as contractors to design the installation, procure the solar panels and build the solar farms or rooftop projects. The service content of EPC is negotiable; customers could choose the panel supplier by themselves and only outsource BOS to contractors. In June 2013, the Group signed an agreement with IKEA: the Group will install 383MW TF PV modules for IKEA’s outlets in the PRC over the next three years. We think Hanergy Solar is likely to get involved in this project as a coordinator.
It’s worth noting that in April 2012, Hanergy Solar signed a Master Supply Agreement with the Group, which allows Hanergy Solar to purchase TF solar panels at a price not higher than either: 1) the prevailing market price; or 2) USD1/watt. This makes Hanergy Solar’s cost structure more competitive than peers. The cap of the total power generation capacity in this agreement is 1.5GW (400MW, 500MW, and 600MW for 2012, 2013, and 2014).
Downstream business could bring stable cash inflow Hanergy solar recently announced progress on two new solar farm projects in China, with a total capacity of 120MW being connected to the grid by end 2013. As the locations of these two solar farms (Qinghai and Xinjian) are high-latitude areas, the average sunshine hours could reach 2,500-3,500 hours. FiT is anticipated to be RMB1.0 per kWh, resulting in an unleveraged IRR of more than 10%.
We believe the build and operate solar plant business will run ahead of other two sub-segments (build and sell, EPC). We forecast downstream business to account for 7% of sales in 2014 and reach 18% in 2015. However, the net margin for solar farms is much lower than the upstream equipment business for the first two to three years as hefty upfront capex leads to high depreciation and in high interest expense (at 75% of leverage ratio). We model a 14% net margin for the downstream business in 2014E vs 60% for upstream equipment. As such, we expect the downstream business to only contribute 2% and 6% of 2014 and 2015 net profits.
12 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 19: Hanergy Solar sales mix EXHIBIT 20: Hanergy Solar net profit mix
(%) Equipment Downstream Equipment (LHS) Downstream (LHS) Equipment NM (RHS) Downstream NM (RHS) 100 (%) (%) 100 80
80 70 80 60 60 50 60 40 40 40 30
20 20 20 10
0 0 0 1H12 2H12 1H13E 2H13E 1H14E 2H14E 1H15E 2H15E 1H12 1H13E 1H14E 1H15E
Source: BNP Paribas estimates Source: BNP Paribas estimates
The business of solar plants is based on long-term contracts with the government, typically 15-20 years at a fixed FiT (Feed-in Tariff). As upfront capex is heavy, IRR (Internal Rate of Return) becomes a key factor. Hanergy Solar has conservatively set the minimum unleveraged IRR at 8%. However, we believe 10% of unleveraged IRR is achievable thanks to its superior cost structure. Despite some ongoing projects being from Europe, where the FiT is higher than other regions, we conservatively use USD0.16/kWh (RMB0.95/kWh) as our FiT assumption for 2014E. This leads to 13% of unleveraged IRR and 23% leveraged IRR on 75% leverage ratio.
Under the assumptions of 10% conversion efficiency, 1,700 sunlight hours per year, 5% opex (indirect labour, utility and others), 7% annual interest rate, and 17% effective tax rate, we think 280MW installation in 2014E will require a front-end investment of HKD939m in cash, which is 25% of total capex, given 75% financial leverage (Exhibit 21). The capex payback and cash payback periods are around 17 and 5 years, respectively. As to the P&L, we estimate net profit margin will grow from 15% in 2014 to 43% in 2033 at an accelerating speed as interest expense will decrease as principal is repaid.
EXHIBIT 21: Cash flow of 2014E downstream projects EXHIBIT 22: Net profit of 2014E downstream projects
(HKD m) Principle Repayment (LHS) Capex payback period: 17 years 400 (HKD m) Interest Expense (LHS) (%) Net profit margin (RHS) 200 50 250 43 0 200 40 (200) Cash payback period: 5 years 150 (400) 30
(600) 100 20 15 (800) 50
(1,000) 0 10 2013E 2018E 2023E 2028E 2033E 2014E 2017E 2020E 2023E 2026E 2029E 2032E Source: BNP Paribas estimates Source: BNP Paribas estimates
Exhibit 23 shows the cash flow and margin trends for downstream projects in the next two years (2014-15E). We forecast 280MW and 370MW of new installation in 2014E and 2015E respectively. A stable annual cash inflow at HKD550m-650m is estimated in 2016-34 with net margin improving from 14% to 46% during the same period.
In the long term, we expect Hanergy’s downstream business to continue to expand on both organic growth and M&A. Its close relationship with the Group will be a plus
13 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
as the Group has started constructing solar farm projects (Exhibit 24) in both overseas countries and in China. The Group stated that a total of 10GW of capacity has been signed with various governments. Catalysts for the downstream business should come from: 1) increasing conversion efficiency for TF, 2) increasing demand for BIPV; 3) China government’s future subsidy programmes.
EXHIBIT 23: Cash flow and margin trends for 2014-2015 downstream projects
(HKD m) Cash flow (LHS) Gross margin (RHS) (%) Operating margin (RHS) Net margin (RHS) 800 70 600 60 400 46 50 200 0 40
(200) 30 (400) 20 14 (600) 10 (800) (1,000) 0 2013E 2015E 2017E 2019E 2021E 2023E 2025E 2027E 2029E 2031E 2033E
Source: BNP Paribas estimates
EXHIBIT 24: Hanergy Group: Ongoing downstream projects as at 1H13
Location Type Planned installation Installed Completed
(KW) (KW) (Date)
Overseas
Russia Rooftop 5,000 101
Italy - L'Aquila Rooftop 837 837 Jun-12
Greece - Solel Achaias Ground-mounted 2,000 grid-connected Jan-13
Greece - Solel Imathias Ground-mounted 2,000 grid-connected Jan-13
China
Guangdong Rooftop 1,554 1,554 Oct-12
Wujin BIPV 66 grid-connected May-12 Ningxia Wuzhong Power Plant 20,000 grid-connected Late-2012 Taiyangshan Power Plant Hainan BIPV 3,000 under construction
Beijing Olympic Forest Park BIPV 2,000 under construction
Beijing BIPV (CIGS) 335 under construction
Qinghai Ground-mounted 50,000 under construction
Partnership with IKEA EPC 383,000 under construction
Total 469,792
Sources: Hanergy Solar; BNP Paribas
14 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Valuation and financial statements
HOLD with TP of HKD1.34, 7% upside Hanergy Solar is currently trading attractively at 8.6x 2014E EV/EBITDA, the higher- end of TF equipment peers’ 6-9x range. We like the company’s smooth progress in downstream solar farm expansion, as well as its decent 2014 and 2015 ROEs of 17% and 16%. However, our concerns lie with the issue of its reliance on one sole customer. Downstream business should diversify its customer base and relieve investors’ concerns, but this is still too early to gauge. As such, we initiate with a HOLD rating and a HKD1.34 TP, based on 9.5x 2014 EV/EBITDA. We suggest investors to wait on the sidelines, while a faster-than-expected ramp of solar farms would be a positive sign.
EXHIBIT 25: Peer comparison
Market Share ------P/E------P/BV------ROE------EV/EBITDA---
Company BBG code Rating cap price 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E
(USD b) (LC) (x) (x) (x) (x) (%) (%) (x) (x)
Global TF equipment suppliers Hanergy Solar* 566 HK HOLD 4.5 HKD1.25 11.8 11.7 2.2 1.8 21.4 17.2 7.0 8.6
Applied Materials AMAT US NR 21.1 USD17.56 16.1 13.6 2.8 2.5 17.0 18.4 9.4 7.9
Oc Oerlikon OERL SW NR 0.7 CHF13.40 19.7 16.8 2.2 2.0 9.3 12.3 6.9 6.0
Ulvac 6728 JP NR 0.7 JPY1336.00 11.8 10.5 1.3 1.2 9.3 9.8 8.2 7.4
Global TF module makers
First Solar FSLR US NR 6.4 USD64.28 14.8 18.5 1.4 1.3 9.2 6.3 7.8 7.4 Sharp 6753 JP NR 4.9 JPY286.00 282.9 14.7 2.4 2.4 4.7 34.8 7.8 7.1
China c-Si module makers
GCL-Poly* 3800 HK BUY 5.2 HKD2.58 n.a. 27.8 2.2 2.0 (5.0) 8.1 15.1 9.9
Yingli – ADR YGE US NR 1.1 USD6.35 n.a. n.a. 3.4 5.9 (48.8) (7.0) 33.0 15.1
Trina Solar – ADR TSL US NR 1.3 USD16.28 n.a. n.a. 1.5 1.5 (14.1) 1.8 130.9 14.8
Canadian Solar CSIQ US NR 1.5 USD31.88 31.3 9.0 3.3 2.1 10.0 34.4 11.6 5.1
Hanwha SolarOne – ADR HSOL US NR 0.4 USD4.37 n.a. n.a. na na n.a. n.a. n.a. n.a.
JA Solar – ADR JASO US NR 0.5 USD12.03 n.a. n.a. na na n.a. n.a. n.a. n.a.
LDK – ADR LDK US NR 0.3 USD1.48 n.a. n.a. na na n.a. n.a. n.a. n.a.
Solargiga Energy 757 HK NR 0.2 HKD0.38 1.4 0.8 na na n.a. n.a. n.a. n.a.
Singyes Solar Tech 750 HK NR 0.7 HKD8.64 8.7 7.3 2.4 1.9 23.2 23.1 6.0 5.3
Price as at 15 Nov 2013; Ulvac: year-end 31 Mar.; Applied Materials, Oc Oerlikon: year-end 31 Oct Sources: *BNP Paribas estimates; all others (not rated) are Bloomberg consensus estimates
EXHIBIT 26: 12-month forward P/E bands EXHIBIT 27: 12-month trailing P/E bands (HKD) (HKD)
2.0 2.0
1.5 14x 1.5 14x
1.0 9x 1.0 9x
5x 0.5 0.5 5x
2x 2x
0.0 0.0 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13
Sources: Bloomberg; BNP Paribas Sources: Bloomberg; BNP Paribas
15 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 28: 12-month forward P/BV bands EXHIBIT 29: 12-month trailing P/BV bands (HKD) (HKD) 2.0 2.0
1.5 2.2x 1.5 2.2x
1.0 1.5x 1.0 1.5x
0.5 0.8x 0.5 0.8x
0.2x 0.2x 0.0 0.0 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Sources: Bloomberg; BNP Paribas Sources: Bloomberg; BNP Paribas
DCF model: Weight more on debt implies lower WACC Our DCF model shows a conservative WACC at 14.7%, derived from 5.1% after-tax cost of debt and 15.8% cost of equity, leading to an implied share price of HKD1.30, close to our HKD1.34 TP. Normally solar equipment peers such as Applied Materials and Oc Oerlikon have lower debt weighting in WACC (Applied Materials: 10%, Oc Oerlikon: 9%) while downstream solar cell/module companies borrow more capital via debt, especially Chinese companies (e.g., First Solar: 19%, Suntech Power: 85%, Yingli Green Energy: 87%).
EXHIBIT 30: DCF valuation
WACC calculation (%) Enterprise value Target Capital Structure Present value of Free Cash Flow 6,264
Debt to Total Capitalization 9.8
Equity to Total Capitalization 90.2 Terminal Value 41,362
Debt to Equity Ratio 11.7 Discount Factor 0.3
Present Value of Terminal Value 10,473
Cost of Debt (after tax) 5.1 % of Enterprise Value 63
Cost of Debt (before tax) 6.0
Taxes 15.0 Enterprise value 16,737
Less: Total debt -
Cost of Equity 15.8 Plus: Cash and Cash Equiv. 721
Risk-free rate 1.9 Net Debt (721)
Market risk premium 11.5
Levered Beta 1.2 Implied Equity Value 17,458
Outstanding shares 13,431
WACC 14.7 Implied share price 1.30
Sources: Bloomberg; BNP Paribas estimates
EXHIBIT 31: WACC sensitivity analysis EXHIBIT 32: Share price sensitivity analysis
WACC ------Equity to total capital ------Price ------Perpetuity growth ------
80 85 90 95 100 2.0% 2.5% 3.0% 3.5% 4.0%
1.0 11.81 12.23 12.65 13.07 13.49 12.7 1.57 1.64 1.73 1.83 1.94 1.1 12.73 13.21 13.69 14.16 14.64 13.7 1.36 1.43 1.49 1.57 1.65
Beta 13.66 14.19 14.72 15.26 15.79 14.7 1.19 1.24 1.30 1.36 1.43
1.2 WACC
1.3 14.58 15.17 15.76 16.35 16.94 15.7 1.05 1.09 1.14 1.19 1.24
1.4 15.50 16.15 16.80 17.45 18.10 16.7 0.93 0.97 1.00 1.04 1.09
Source: BNP Paribas estimates Source: BNP Paribas estimates
16 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 33: DCF assumptions
Year-end 31 Dec 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E
(HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m)
Revenue 4,556 5,275 6,182 6,367 6,558 6,755 6,958 7,166 7,381 7,603
COGS (905) (1,172) (1,519) (1,565) (1,566) (1,644) (1,688) (1,732) (1,790) (1,842)
Gross profit 3,651 4,103 4,662 4,802 4,992 5,111 5,269 5,434 5,591 5,761
OpEx (241) (386) (387) (379) (351) (326) (319) (312) (305) (311)
Operating Profit (EBIT) 3,410 3,717 4,275 4,423 4,641 4,785 4,951 5,123 5,286 5,450
Net interest income (63) (205) (435) (428) (416) (404) (390) (375) (360) (343)
Tax (392) (527) (576) (599) (634) (657) (684) (712) (739) (766)
Net income 2,955 2,985 3,264 3,396 3,591 3,724 3,877 4,035 4,187 4,341
Add back Depreciation & amortization 54 212 457 509 509 509 509 509 509 509
Interest expenses (net of tax) 56 174 369 364 354 343 331 319 306 291
EBITDA 3,072 3,402 4,156 4,868 5,088 5,234 5,402 5,576 5,741 5,908
Less Capex (1,817) (4,242) (2,926) (1,463) (731) (512) (410) (205) (123) (123)
Change in working capital (2,415) (2,058) (1,864) 502 (214) (175) (284) (292) (301) (310)
Unlevered FCF (1,569) (3,430) (1,208) 3,309 3,508 3,889 4,024 4,366 4,578 4,708
Discount period (year) 0.8 1.8 2.8 3.8 4.8 5.8 6.8 7.8 8.8 9.8
Discount factor 0.89 0.78 0.68 0.60 0.52 0.46 0.40 0.35 0.31 0.27
Present value of FCF (1,399) (2,666) (819) 1,954 1,806 1,745 1,574 1,489 1,361 1,220
Sources: Hanergy Solar; BNP Paribas estimates
CBs and Options: 14% potential EPS dilution At end-2012, Hanergy Solar had HKD848m of outstanding convertible bonds with an exercise price of HKD0.27, transferrable into 3,116m shares. Maturity date has been extended from November 2013 to December 2014. These convertible bonds imply 10% share dilution. On top of this, outstanding options held by Hanergy Option Limited and management will lead to another 4% dilution (Exhibit 34). The 14% total dilution is likely to bring downside pressure to its share price. Hanergy Group’s stake has risen from 20% in early 2013 to 63% at present.
EXHIBIT 34: EPS dilution from CBs and options EXHIBIT 35: Shareholder structure
Convertible/exercisable CB & Options share number EPS dilution Funds (m shares) (%) 7.0%
Convertible bonds (maturity to be 3,116 10.04 Institutions extended to 31-Dec-2014, 9.0% exercise price: HKD0.27)
Option A (5-Nov-2009) 2.4 0.01
Option B (18-Sep-2011) 758 2.64 Individuals 21.0% Option C (6-Sep-2012) 422 1.49 Hanergy Total 4,298 14.18 Group
63.0%
Sources: Hanergy Solar; BNP Paribas Sources: Hanergy Solar; BNP Paribas
17 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Potential risks Continuous deterioration of macro economy: The solar industry is still a cost- Grid parity: cost of solar modules ≤ driven industry. Before reaching grid parity, it is highly correlated to government the price of electricity grid subsidy programmes and macroeconomics. When the economy turns down, governments invest less money in subsidy programmes, they may delay launches, cut total rebates, or, more commonly, lower the FiT (Feed-in Tariff). A recent example is August 2012, when the UK government cut FiT from GBP21p to GBP16p per kwh and shortened the subsidy contract from 25 years to 20 years. As the UK economy is still in turmoil, further FiT cuts seem likely.
Highly reliant on Hanergy Group, a private company: It is obvious that Hanergy Solar is highly reliant on its parent company, especially in upstream businesses. Therefore, the credibility and financial liquidity of the Group becomes key. Hanergy Group is the largest private-owned hydropower energy company in China; upon the acquisition of MiaSolé in January 2013, Li Hejun, the chairman, stated that its hydropower dams could generate several hundred million dollars a year in free cash flow, which should be sufficient for the solar investment. However, as it is a private company, its financial liquidity is still a wild card to investors.
Refinancing risks: High capex for solar farms will require long-term debt or syndicated loans. It is not common for banks to sign a 20-year loan, therefore Hanergy Solar may face refinancing risks when the debt/loan reaches maturity, usually in 7-8 years. Refinancing risks include interest, liquidity, credit, financial environment risks upon maturity. Hanergy Solar has set a credit account in the CDB (Central Development Bank) with amounts of RMB30b and USD5b, but it can be activated only when the solar farms start generating stable cash inflow.
Other risks include possible levy punishment from the European Commission on China TF solar makers, slower-than-expected improvement of conversion efficiency, challenges associated with marketing if entering into the residential market, breakthrough of other technologies where Hanergy Solar does not have a presence such as HCPV (High Concentrated Photovoltaic) and OPV (Organic Photovoltaic).
18 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Financial statements analysis
Assumptions and P&L analysis We assume solar equipment to be shipped steadily at 200-250MW installation per quarter with a stable ASP of USD0.56 per watt. While the contribution of the downstream business is still too early to gauge, we forecast 280MW/370MW capacity to be installed in 2014E/15E, and sales contributions to reach 7% and 18% respectively, which is around 5-6% of global TF market share when fully utilised.
With promising sales contribution from upstream equipment, and the expansion into downstream solar power plants, we forecast 2013 and 2014 sales will grow 65% and 16% y-y. Solar farm projects will lower its net margin from 65% in 2013E to 57% in 2014E, but will bring a stable operating cash flow.
EXHIBIT 36: Key assumptions: Both upstream and downstream, ASP, volume, sales mix
Key assumptions 1H12 2H12 1H13E 2H13E 1H14E 2H14E 1H15E 2H15E 2012E 2013E 2014E 2015E Sales mix (%)
Solar equipment 100 100 100 100 95 90 85 80 100 100 93 82
Solar farm 5 10 15 20 7 18
Net profit mix (%)
Solar equipment 100 100 100 100 99 98 95 92 100 100 98 94
Solar farm 1 2 5 8 2 6
Installed capacity (MW)
Solar equipment 285 215 468 562 545 577 577 606 500 1,030 1,122 1,184
Solar farm 130 150 170 200 280 370
ASP (USD/Watt)
Solar equipment 0.74 0.67 0.57 0.57 0.56 0.56 0.55 0.55 0.71 0.57 0.56 0.55
Solar farm - FIT 0.16 0.16 0.16 0.16 0.16 0.16
Sources: Hanergy Solar; BNP Paribas estimates
19 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 37: Quarterly P&L
Year-end Dec 1H12 2H12 1H13 2H13E 1H14E 2H14E 1H15E 2H15E 2012 2013E 2014E 2015E
(HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m)
Revenue 1,637 1,119 2,080 2,476 2,505 2,770 2,937 3,245 2,756 4,556 5,275 6,182
Depreciation (14) (14) (21) (32) (80) (132) (192) (265) (28) (54) (212) (457)
COGS (540) (250) (405) (500) (539) (633) (704) (816) (790) (905) (1,172) (1,519)
Gross profit 1,097 870 1,675 1,976 1,966 2,137 2,233 2,429 1,967 3,651 4,103 4,662
Other income 2 3 64 8 13 12 14 14 5 72 25 29
Operating expense (98) (148) (139) (173) (212) (199) (206) (210) (246) (313) (411) (416)
Operating income 1,001 725 1,599 1,811 1,767 1,950 2,042 2,234 1,726 3,410 3,717 4,275
Net Interest Income (29) (31) (32) (32) (77) (128) (185) (250) (60) (63) (205) (435)
Net Other Income ------
Pre Tax profit 972 694 1,568 1,779 1,690 1,822 1,857 1,984 1,666 3,347 3,512 3,841
Tax (200) (150) (125) (267) (254) (273) (279) (298) (350) (392) (527) (576)
Net profit 772 544 1,442 1,513 1,437 1,548 1,578 1,686 1,316 2,955 2,985 3,264
EPS (HKD) 0.06 0.04 0.11 0.07 0.05 0.06 0.06 0.06 0.10 0.11 0.11 0.12
Margins (%)
Gross margin 67.0 77.7 80.5 79.8 78.5 77.1 76.0 74.9 71.4 80.1 77.8 75.4
Operating margin 61.1 64.8 76.9 73.1 70.5 70.4 69.5 68.8 62.6 74.8 70.5 69.2
EBITDA margin 61.7 66.6 77.9 74.4 73.7 75.1 76.1 77.0 63.6 76.0 74.5 76.6
Net margin 47.1 48.6 69.3 61.1 57.4 55.9 53.7 52.0 47.7 64.9 56.6 52.8
Sequential growth (%)
Revenue (7) (32) 86 19 1 11 6 10 7 65 16 17
Gross profit (8) (21) 93 18 (1) 9 5 9 22 86 12 14
Operating profit (1) (28) 120 13 (2) 10 5 9 65 98 9 15
Net profit 1 (29) 165 5 (5) 8 2 7 83 125 1 9
EPS 1 (29) 165 (35) (26) 8 2 7 48 8 1 9
Sources: Hanergy Solar; BNP Paribas estimates
Balance sheet and cash flow analyses Downstream solar farm business requires heavy front-end capex investment for solar modules and other materials; hence we forecast capex intensity (capex/sales) to rise significantly from 0.02x in 2012 to 0.80x in 2014E. The capex may come from: 1) stable operating cash flow; 2) continued new share subscription from the Group, based on the upstream equipment contracts; and 3) issuance of new debt.
In 2012, the company turned net debt to net cash, given the payback of long-term debt. To ramp up downstream business, we expect the company to issue new debt. As such, we factor in HKD3b/4b of long-term debt in 2014E/15E. Nevertheless, we forecast net cash to remain, with gearing ratio being controlled within a reasonable range (up from the current 0% to 18% in 2015E vs peers’ 15-30% in 2013E, Exhibit 40). The company should be able to turn net debt to net cash within three to five years on the back of stable operating cash flow. Free cash flow will suffer in 2014E when ramping up solar farm capacity, while it should gradually turn positive after being connected to the grid.
Compared to equipment rivals, Hanergy Solar’s AR days are much longer (Exhibit 43), implying a weaker receivables term due to the sole-customer issue. As at June 2013, HKD2.1b of outstanding receivables was due from the Hanergy Group. Although Hanergy Solar stated the Group’s intention to settle HKD0.5b of due payment in October, HKD0.6b in November, and HKD1.0b in December 2013, this payment delay has caused investors some concern.
20 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 38: Downstream business will weigh on capex… EXHIBIT 39: …while net cash and gearing remains healthy
Capex (LHS) Depreciation (LHS) Net debt / (cash) (LHS) Gearing (RHS) Capex intensity (RHS) (x) (HKD m) (x) (HKD m) 5,000 1.0 3,000 50 45 2,000 4,000 0.8 40 35 3,000 0.6 1,000 30 2,000 0.4 0 25 20 1,000 0.2 (1,000) 15 10 0 0.0 (2,000) 5 (1,000) (0.2) (3,000) 0 2009 2010 2011 2012 2013E 2014E 2015E 2009 2010 2011 2012 2013E 2014E 2015E Sources: Hanergy Solar; BNP Paribas estimates Sources: Hanergy Solar; BNP Paribas estimates
EXHIBIT 40: Gearing ratio comparison – TF equipment EXHIBIT 41: Gearing ratio comparison (2013E) Hanergy Solar Applied Materials (x) Oc Oerlikon Ulvac (%) 1,000 First Solar 100 800
80 600
60 400
40 200
20 0 LDK Trina Yingli 0 Oc Solar* Hanwha Hanergy JA Solar JA Applied
2009 2010 2011 2012 2013E 2014E 2015E Oerlikon* Canadian Materials* Solar First Sources: Bloomberg; BNP Paribas estimates * Equipment makers Sources: Bloomberg consensus; BNP Paribas estimates
EXHIBIT 42: Operating cash flow EXHIBIT 43: AR days comparison (HKD m) Operating cash flow Free cash flow (days) Hanergy Solar Applied Materials Oc Oerlikon Ulvac 4,000 500
3,000 400 2,000
1,000 300
0 200
(1,000) 100 (2,000)
0 (3,000) 2010 2011 2012 2013E 2009 2010 2011 2012 2013E 2014E 2015E
Sources: Hanergy Solar; BNP Paribas estimates Sources: Bloomberg; BNP Paribas estimates
DuPont analysis Based on our DuPont Analysis, Hanergy Solar's ROE improved to 11.9% in 2012 from 7.7% in 2011 mainly thanks to higher net margin, while both asset turnover and financial leverage remained stable.
21 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Looking forward, the solar farm business will add pressure to the net margin and increase fixed assets (solar plants), and hence will lift financial leverage; however, it will be partially offset by the increasing equity due to share subscription agreements. Net net, we forecast ROE to improve to 21% in 2013 but slightly lower to 17% and 16% in 2014 and 2015 when solar farms commence operation.
EXHIBIT 44: DuPont analysis
(x) Asset turnover (LHS) Asset / Equity (LHS) (%) Net profit margin (RHS) ROE (RHS) 1.6 70
1.4 60 50 1.2 40 1.0 30 0.8 20
0.6 10 0 0.4 (10) 0.2 (20) 0.0 (30) 2009 2010 2011 2012 2013E 2014E 2015E
Source: BNP Paribas estimates
22 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Appendix 1: Company background and management
Hanergy Solar Group Limited (Hanergy Solar) Hanergy Solar Group Limited, formerly known as Apollo Solar Energy Technology Holdings Limited, provides integrated solutions for large-scale thin-film solar cell production systems. Hanergy Solar is one of the suppliers of equipment production and integrated solutions for world-class thin-film solar PV modules. Hanergy Solar is actively seeking investment opportunities in downstream solar projects, and moving towards the global photovoltaic power generation market.
The company’s turnkey systems offer automated high yield, short time-to-market and low-maintenance manufacturing solutions. These systems could provide customers the best performance in the industry's thin-film silicon PV production equipment, at the lowest production cost per watt. The company also provides customised modular designs, which facilitates further upgrades of the system and capacity expansion, allowing truly scalable production.
The company has a global presence with employees worldwide; currently the company has full-range research and development teams comprising an equipment and manufacturing research and development team based in Beijing, a technology research and development team based in Chengdu and a silicon-based research and development team in Tianjin, providing global customer support and training through sales and service centres in Mainland China and Hong Kong.
Hanergy Holding Group, Ltd. (Hanergy Group) Hanergy Holding Group, Ltd., Hanergy Solar’s parent company with 63% stake, is China’s largest privately-held energy enterprise encompassing hydroelectricity, wind electricity and solar electricity generation. Its headquarters are located in Beijing, China, with branch offices in several Chinese provinces, North America, Europe, and the Asia Pacific region. More than 5,000 scientists, engineers, technicians, and management and professional support staff are dedicated to providing clean energy.
Hanergy Group has completed total installed capacity of 6GW of hydroelectric projects and 131MW of wind electricity projects. Additionally, Hanergy Group has been heavily investing in solar photovoltaics (PV) research and manufacturing facilities in several Chinese provinces. It is anticipated that Hanergy Group’s total PV production capacity will reach 3GW by end-2013, making it the largest thin film PV producer in China. Hanergy Group is actively involved in developing power plants worldwide. It has entered into various power plant construction agreements with authorities and project owners in China, the U.S.A and Europe. The total capacity of these solar electric power plant agreements is in excess of 10GW. Hanergy Group has become a fully integrated clean energy enterprise in the energy industry from technology research, facilities manufacturing, and PV cell production to solar power utilization.
23 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 45: Hanergy Solar’s management and R&D team
Name Title Experience Frank Mingfang Dai Chairman and Chief Mr. Dai is a senior vice president of Hanergy Holding Group Limited. Mr. Dai has extensive experience in asset Executive Officer restructuring, mergers and acquisitions, international financing and development of photovoltaic business. Prior to Hanergy Holding Group Limited, Mr. Dai was engaged for many years in business management and market development in the PRC, Hong Kong and the United States. Mr. Dai graduated from the Faculty of Industrial Economy Management of Shenyang University in 1984 and later obtained an Executive Master of Business Administration degree in 2000 from the University of Texas at Dallas, the United States.
Dr. Li Yuan-min Vice Chairman and Dr. Li joined the Group in 2009 and is the Chief Technology Officer of the Group. Dr. Li graduated from the Department Chief Technology of Modern Physics at the University of Science and Technology of China in 1982. Dr. Li obtained a Master's degree in Officer physics from Harvard University in 1984 and a PhD in applied physics from Harvard University in 1989. Dr. Li has over 30 years of experience in international thin-film materials preparation, characterisation and deposition technologies, photovoltaic (PV) devices design, synthesis, analysis and optimisation, large-area PV module manufacturing and related process engineering, displays and optoelectronic devices and materials. Dr. Li is the co-inventor of numerous patents in relation to thin-film materials preparation and technologies and PV devices design. Dr. Li is currently a member of the Technical Advisory Board of SEMI (China) PV Committee, an organisation promoting the PV industry headquartered in Shanghai. Dr. Li is also the President and Chief Technology Officer of a thin-film PV company in New Jersey, the United States and a consultant to a number of other PV companies in the People's Republic of China, Taiwan and the United States Hui Ka Wah, Ronnie Finance Director and Mr. Hui joined the Group in 2009 as Chief Financial Officer of the Group, a position which he later vacated following his J.P. Senior Vice-president appointment as an Executive Director and the Chief Executive Officer of the Company in August 2011. Mr. Hui is a specialist in Paediatrics and also a Chartered Financial Analyst. Mr. Hui holds a Master of Business Administration (MBA) degree conferred by Universitas 21 Global. Mr. Hui is a member of the Energy Advisory Committee and the Small and Medium Enterprises Committee of the Government of the Hong Kong Special Administrative Region ("HKSAR") and also a non-official member of the Women's Commission of the Government of the HKSAR. Chen Li Executive Vice- Mr. Chen has many years of experience in financial management, risk management and arranging finance. He obtained president a Master's degree in business administration from the University of International Business and Economics in 2006. Mr. Chen is currently the Executive Vice-president of the Company. He is also the Vice-president and the Chief Head of Finance Management of Hanergy Holdings Group Company Limited. Before joining Hanergy, Mr. Chen was employed by the Jinan branch of the Bank of China, responsible for the credit business Li Guangmin Financial Controller Mr. Li joined Hanergy Holdings Group Company Limited in 2002 and is currently the Senior Deputy Financial Controller. Mr. Li was previously employed by Beijing Crane Factory from 2000 to 2002. He graduated from Northern Jiaotong University, currently known as Beijing Jiaotong University with a bachelor's degree in accountancy in 2000.
R&D Team
Dr. Xu Xixiang Chief Technology Dr. Xu has over 30 years of experience in silicon-based thin-film solar cells, thin-film process technology & materials Officer characterisations, & semi-conductor process development. He has developed a nc-Si:H process with over 12% efficiency for large-area solar cells based on nc-Si (world record confirmed by National Renewable Energy Laboratory/NREL, February 2011). He has significantly improved a-SiGe based solar cells with 11% stable large-area efficiency (world record confirmed by NREL, September 2010). Dr. Xu has a PhD in Materials Science from Kanazawa University in 1990. Dr. Shan Hongqing General Manager of R&D center Dr. Shan has over 20 years of experience in semiconductor and photovoltaic industries, specialising in plasma diagnostics, plasma processing and plasma and photovoltaic devices developments. He is also the inventor of 67 granted US patents. Prior to Hanergy Solar, he was the leader of a series of successful semiconductor-processing equipment developments at Applied Materials and Mattson Technology. Dr. Shan has a PhD from Stanford University. Deputy Director of R&D Dr. Zhang has over 20 years R&D experience in thin-film & semiconductor integrated circuit manufacturing fields. Dr. Dr. Zhang Jinyan center Zhang is the inventor of a number of patents. Prior to Hanergy Solar, he was the CTO of a photovoltaic company. He has a PhD in Materials Science from Kanazawa University.
Source: Hanergy Solar
24 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Appendix 2: Thin Film technology and its application in BIPV
In the solar PV industry, crystalline PV technology has been commercialised for over 25 years. Traditional crystalline silicon photovoltaic technologies are generally classified as 1st generation (Gen 1). Thin film PV technology (TFPV) has also been on the market for a long time. Low power amorphous silicon PV solar cells have been present in calculators and watches for decades. We classify amorphous silicon (a-Si), as well as CIGS and CdTe solar cells as 2nd generation (Gen 2) technology. For 3rd generation (Gen 3), we refer to emerging technologies like organic solar cells and dye sensitized solar cells (DSSC). The primary distinction between each of the segments has been the use of different target materials and configurations for producing the absorber layer of the photovoltaic cell.
EXHIBIT 46: Classification of TFPV technologies
Mono-crystalline (c-Si) Gen 1: Crystalline
Multi-crystalline (mc-Si)
Amorphous (a-Si)
Micromorph/Tandem (a-Si/µc-Si) Silicon based
Other a-Si-alloy multi-junction PV Gen 2: Thin film
Cadmium Telluride (CdTe)
Chemical Copper Indium Diselenide (CIS) compound Copper Indium Gallium Diselenide (CIGS)
III-V : GaAs
Polymer
Gen 3: Emerging Dye sensitized (DSSC)
Organic
Source: BNP Paribas
EXHIBIT 47: Classification of Thin-film Structure
Thin film structure
Back metal Back metal Back metal Buffer layer ZnO: Buffer layer uc-Si P-CdTe ZnO a-Si N-CdS Cu(In,Ga)Se2 TCO TCO Mo Substrate glass Substrate glass Substrate glass
Tandem cell structure CdTe cell structure CIS cell structure
Source: BNP Paribas
25 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Amorphous silicon technology Today most amorphous silicon (a-Si) PV solar cells use a p/i/n device configuration rather than a p/n junction configuration because amorphous silicon solutions have higher defect densities. This results in lower minority-carrier lifetimes adding to costs and processes for efficient collection of carriers. The majority of amorphous silicon production technology is focused on multi-junction substrate strategies because single-junction cell-efficiencies have long demonstrated that enhancements in single junction would show diminishing cost/performance returns in cell efficiency against multi-junction approaches. Multi-junction structures use several layers of thin film and allow the cell to capture more of the solar spectrum in order to convert it to electricity. Over the past three decades, researchers have developed more efficient alloys that use hydrogenated amorphous silicon and new material deposition process technologies to produce devices with higher conversion efficiencies. Currently, amorphous thin film technology uses a tandem or multi-junction approach. Because lower conversion efficiencies command lower selling prices, single-junction amorphous thin film technology is being phased out in major markets like Europe and Japan.
Amorphous silicon uses plasma enhanced chemical vapor deposition (PECVD) method, a process used to deposit thin films from the usage of target materials to a substrate. The process is key to making good thin film panels with higher stability, resulting in more reliable performance of the products it can produce. There are not many quality PECVD vendors in the world – major equipment providers using amorphous-based silicon thin-film technology offering turnkey solutions include Applied materials (AMAT US), Oerlikon Solar (OERL EU) and ULVAC (6728 JP).
CdTe technology CdTe thin-film PV technology involves using Cadmium Telluride (CdTe) and Cadmium Sulfide (CdS) as materials to build p/n junctions for the absorber layer. First Solar (FSLR US) is currently the only large-scale production-size CdTe thin-film solar manufacturer in the world with more than 1GW of annual production. It is also the largest solar cell producer globally (cumulative product surpassed 7GW in 2012). The company recently entered the India market and aimed to reach 25% market share (10GW accumulative installation) in the following three years. First Solar’s production cost has also dramatically decreased from USD0.87/W in 2009 to USD0.59/W in 3Q13 with conversion efficiency being improved from 11% to 13.3% over the same period.
Although First Solar has been successful in the solar sector, the major issue with the technology is the use of a highly toxic material, Cadmium, to produce its panel, and there are concerns about whether these panels pose a fire hazard. Cadmium is restricted in the RoHS (Restriction of Hazardous Substances) directive in the European Union. If the RoHS directive is eventually applied to solar modules, it would become a hurdle to further business development.
CIGS/CIS technology As a relatively new technology, the main issue with CIS/CIGS technology is still on the capability of its commercialisation. There are several layers to build up the p/n device in absorber layer. The panel has to pass through many chambers to deposit Cu, In/Ga and Se on the substrate. Stability of the process is very important, with even slight deviation in the thickness of each target material potentially causing incompatibility in the electrical performance of the panel. Another problem is the feedstock of Indium, which may become a bottleneck to CIS/CIGS manufacturers if it ever becomes the dominant mainstream solar technology.
26 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 48: CIS manufacturing process and product structure
Roll in substrate Roll in strong glass
Glass cleaning Place EVA
Solar Cell Glass ID marking Fabrication Place thin film cell (front end)
Mo-layer Sputtering Place EVA
Laser scribing Place backsheet
H2S coating Lamination
Module Light absorbing Edge trimming Assembly (back end)
Buffering layer sputtering Light absorbing
Cutting by needles Cooling down
ZnO 2 deposition by MOCVD Frame installation
Cutting by needles Junction box sealing
Al frame Plasting ribbons on Junction box Visual inspection ribbon cells Backsheet
Place label Thin film on plain glass 1.8mm
EVA Packaging Strengthen glass 3.2mm
Substrate
sunlight
Source: BNP Paribas
27 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
EXHIBIT 49: TFPV SWOT analysis
Strength Weakness
Higher energy yield Lower conversion efficiency than crystalline
More absorption of sunlight High capex investment
Better performance in shadowing
Less energy payback time (more environmentally friendly)
Monolithic manufacturing process
Opportunities Threats Hot and cloudy regions – Middle East, Southeast Asia, Aggressive cost cutting and vertical integration South America and places closed to equator from Crystalline PV manufacturing Large scale ground-mounted solar field BIPV applications Oversupply in polysilicon
Exemption from anti-dumping levies to China solar makers
Source: BNP Paribas
TFPV application in BAPV/BIPV Energy can be produced through photovoltaic panels using Building Applied PV (BAPV) or Building Integrated PV (BIPV) methods. BAPV panels are added and integrated in the building after the construction work is completed. We believe BAPV will be a large volume market in the near term as it is relatively easy to install and maintain solar panels on rooftops or buildings like factories and warehouses. We believe BAPV installations have to be architecturally and aesthetically appealing even though it is just about installing photovoltaic panels on buildings.
EXHIBIT 50: Residential BAPV EXHIBIT 51: Commercial BAPV
Source: BNP Paribas Source: BNP Paribas
When photovoltaic systems are integrated in buildings using construction materials and built and constructed along with an object, it is called building-integrated photovoltaic (BIPV). BIPV converts sunlight into useful electricity and also acts as a building material replacing conventional building materials in parts of the building such as roofs, facades or shades. BIPV systems are also planned together with the object. They can form part of the actual structure of a wall, providing a waterproof shell, or be positioned alongside the wall to provide shade from the sun. Additional costs incurred for installing integrated photovoltaic panels over non-integrated photovoltaic panels can be offset, even if partially, by savings incurred on building materials and labour required to construct the part of the building.
If we analyse the installed capacity of a BIPV project along with its complexity, we can easily understand that as the complexity of a BIPV project increases, installed capacity drops significantly (Exhibit 52). The challenges become far greater when we integrate solar technologies into the structure or materials of a building to generate power, as sustainability, maintenance, functionality and architectural aesthetics become critical factors. Seamless integration of structural components requires knowledge of solar technologies and also building construction, architectural design, material sciences and aesthetics. It is fairly easy to install photovoltaic panels in partially integrated rooftops, while facades require a higher standard of building
28 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
integrated knowhow as it is not simply about installing PV modules as curtain walls, but requires a combination of the original curtain wall and mixing different patterns. Facades are being installed on existing buildings as well as old buildings to provide a completely new look as well as to enhance the appeal of the buildings.
EXHIBIT 52: Complexity and installed capacity in various BIPV
Source: BNP Paribas
We believe BIPV will play a significant role as a market with higher margins and higher barriers to entry in the medium and longer term. BIPV will remain a tricky solution as critical issues in material/technology choices need to be addressed for aesthetic reasons. We are well aware of the technical challenges for BIPV, with installation of PV films on windows increasing the indoor temperature of the building, violating energy-efficiency principles and dramatically affecting the uniformity of energy production.
EXHIBIT 53: Examples of BIPV projects
Source: BNP Paribas
We think BIPV will not just remain an overhead application but will use an entire building structure to generate its own power and feed additional power into the grid system creating a sustainable energy solution. According to Navigon Research‘s Building Integrated Photovoltaic report in January 2013, the market size of BIPV and BAPV is expected to increase from USD606m in 2012 to USD2.4b in 2017. The global BIPV and BAPV markets will witness more than 400% growth as these markets are expected to grow from c.400MW in 2012 to 2,250MW in 2017. With BIPV as an available solution, we expect solar suppliers to team up with building and construction companies, as well as designers and architects to generate a new revenue stream altogether. Even building companies are interested in associating with these players to exploit available opportunities in the green building space. It is interesting to know that construction companies and architectural firms are aiming to construct net-zero energy buildings, which will have zero net-energy consumption or carbon emissions. We reaffirm that BIPV could provide aesthetically pleasing, non- intrusive, multi-purpose building elements, ensuring supply reliability, reducing energy and peak demand charges and contributing to environmental protection. It represents the combination of renewable energies and traditional building practices on the building exterior.
29 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Critical success factors for BIPV Though BIPV is expected to grow significantly in medium term, we believe the BIPV industry has to overcome several challenges.
1. Cost-to-performance : We believe project economics is the most crucial success factor not only in the BIPV segment but also the entire solar industry. The existing BIPV system costs are almost double the normal solar field application costs. As BIPV is a customised solution, it cannot be mass-produced, thus impeding BIPV‘s scalability. We believe lack of economies of scale and learning curve coming through manufacturing process deployment limits cost reductions, which could eventually impact adoption of the BIPV technology.
2. Performance deterioration from dissipation and shadowing : Unlike rack- mounted PV, BIPV modules tend to generate greater heat as they are installed flat on the building and prohibit any airflow between module and host structure. Higher temperatures result in quality deterioration of the module‘s semiconducting material that could lower conversion efficiency. Although BIPV enhances the available space for PV-suitable space of a building (given more than just the roof is eligible for installation), the sub-optimal angle of irradiation on these non-horizontal surfaces and obstructions posed by surrounding buildings results in diminished energy. Performance deterioration can be minimised to a certain extent by installing air exhaust ventilation systems and the right choice of PV technology.
3. Aesthetic concern : Designers and architects have to choose the right PV technology and product design to minimise the aesthetic concern.
4. Local regulatory : The BIPV systems industry is facing difficulties in electrical design and permission procedure as each country has unique regulatory requirements. Also, the BIPV industry has to adhere to codes and standards, and regulatory requirements of two separate industries (PV and construction). For instance, even measuring standards could create problems in BIPV project deployment as the construction industry uses square metre units signifying area, while the PV industry uses watt units measuring electrical output. Hence, it becomes imperative to harmonise incongruence between different industry standards involved in BIPV deployment.
We think building construction, aesthetic design, and energy-efficiency are the three pillars for successful BIPV project deployment. Moreover, companies with tactical knowledge in the building and photovoltaic segments as well as economies of scale are likely to have a definite competitive advantage.
Thin Film Solar Solutions Project developers and system integrators have been trying to come up with different optimised solutions to increase adoption of BIPV projects. Currently, we come across common solutions such as flexible thin film PV, rigid thin film PV and crystalline silicon PV in the market.
EXHIBIT 54: Types of BIPV modules
Source: BNP Paribas
30 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
TFPV is an important development in recent years as it helps to generate affordable solar electricity. Thin films use a very thin layer of semiconductor, which is just a millionth of a metre (microns) thick. They are not only relatively easy to manufacture, but also efficiently use raw materials and energy, resulting in reduced costs and carbon footprint. The monolithic manufacturing process in thin film PV technology improves the efficiency of the production process and helps decrease labour costs. Thin films are relatively energy-efficient as the energy payback time (EPBT), the time required to generate electricity equivalent to the energy input required to manufacture a PV module, including the energy input for its raw materials, is approximately one year, even with lower conversion efficiency (7-15%). Due to their natural features such as higher energy yield, higher tolerance to hot temperature, better performance in shadowing and higher transparency, thin-film technologies have a unique position in the BIPV market. Although crystalline silicon PV has better conversion efficiency than thin film technology, the latter scores more than crystalline silicon PV on other parameters such as energy yield, tolerance to hot temperature and performance in shadowing. Leading thin film PV producers have started using environmental management principles based on Life Cycle Analysis (LCA), which will help offer sustainable energy solutions with no, or minimum, hidden environmental costs. The LCA approach considers and analyses the total life-cycle impact of a technology from raw material sourcing to recycling of the technology.
We believe Hanergy Solar (566 HK) could benefit from the increasing use of BIPV and thin films in the construction of buildings, but that it is more likely to be a 2015 and beyond story. We believe the cost-performance ratio will be the most critical factor for survival and growth of these companies, given the solar utility industry is cost-driven rather than technology-driven. As discussed above, companies with tactical knowledge of semiconductor, solar and building industries will have a definite advantage over competition.
31 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Financial statements Hanergy Solar
Profit and Loss (HKD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E Revenue 2,565 2,756 4,556 5,275 6,182 Cost of sales ex depreciation (934) (761) (852) (961) (1,062) Gross profit ex depreciation 1,630 1,995 3,705 4,314 5,119 Other operating income 7 5 72 25 29 Operating costs (572) (246) (313) (411) (416) Operating EBITDA 1,065 1,754 3,464 3,928 4,732 Depreciation (19) (28) (54) (212) (457) Goodwill amortisation 0 0 0 0 0 Operating EBIT 1,046 1,726 3,410 3,717 4,275 Net financing costs (79) (60) (63) (205) (435) Associates 0 0 0 0 0 Recurring non operating income 0 0 0 0 0 Non recurring items (4) 0 0 0 0 Profit before tax 963 1,666 3,347 3,512 3,841 Tax (244) (350) (392) (527) (576) Profit after tax 719 1,316 2,955 2,985 3,264 Minority interests 0 0 0 0 0 Preferred dividends 0 0 0 0 0 Other items 0 0 0 0 0 Reported net profit 719 1,316 2,955 2,985 3,264 Non recurring items & goodwill (net) 4 0 0 0 0 Recurring net profit 724 1,316 2,955 2,985 3,264
Per share (HKD) Recurring EPS * 0.07 0.10 0.11 0.11 0.12 Reported EPS 0.07 0.10 0.11 0.11 0.12 DPS 0.00 0.00 0.00 0.00 0.00 Growth Revenue (%) (25.5) 7.5 65.3 15.8 17.2 Operating EBITDA (%) (40.3) 64.8 97.4 13.4 20.5 Operating EBIT (%) (40.4) 65.0 97.5 9.0 15.0 Recurring EPS (%) (74.2) 47.0 8.0 1.0 9.4 Reported EPS (%) (74.2) 47.9 8.0 1.0 9.4 Operating performance Gross margin inc depreciation (%) 62.8 71.4 80.1 77.8 75.4 Operating EBITDA margin (%) 41.5 63.6 76.0 74.5 76.6 Operating EBIT margin (%) 40.8 62.6 74.8 70.5 69.2 Net margin (%) 28.2 47.7 64.9 56.6 52.8 Effective tax rate (%) 25.3 21.0 11.7 15.0 15.0 Dividend payout on recurring profit (%) 0.0 0.0 0.0 0.0 0.0 Interest cover (x) 13.3 28.7 54.0 18.1 9.8 Inventory days 105.6 180.0 156.3 169.4 202.9 Debtor days 311.0 435.4 330.5 353.5 328.7 Creditor days 77.6 92.0 100.7 111.7 114.3 Operating ROIC (%) 57.7 65.7 85.9 47.6 36.8 ROIC (%) 10.2 15.5 27.1 22.7 21.2 ROE (%) 7.7 11.9 21.4 17.2 15.9 ROA (%) 6.7 10.6 19.2 15.2 14.0
*Pre exceptional, pre-goodwill and fully diluted
Revenue By Division (HKD m) 2011A 2012A 2013E 2014E 2015E Solar equipment 2,565 2,756 4,556 4,888 5,074 Solar farm 0 0 0 387 1,107 Others 0 0 0 0 0 - - - - - Sources: Hanergy Solar; BNP Paribas estimates
32 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Financial statements Hanergy Solar
Cash Flow (HKD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E Recurring net profit 724 1,316 2,955 2,985 3,264 Depreciation 19 28 54 212 457 Associates & minorities 0 0 0 0 0 Other non-cash items 0 0 0 0 0 Recurring cash flow 742 1,344 3,008 3,197 3,721 Change in working capital (1,636) (14) (894) (983) (126) Capex - maintenance 0 0 0 0 0 Capex - new investment (1) (43) (1,817) (4,242) (2,926) Free cash flow to equity (894) 1,287 297 (2,028) 669 Net acquisitions & disposals 0 0 0 0 0 Dividends paid 0 0 0 0 0 Non recurring cash flows 152 (226) 13 0 0 Net cash flow (742) 1,062 310 (2,028) 669 Equity finance 1,231 10 1,234 19 21 Debt finance (1,263) (682) (6) 3,088 1,046 Movement in cash (774) 390 1,537 1,080 1,736
Per share (HKD) Recurring cash flow per share 0.07 0.10 0.11 0.11 0.13 FCF to equity per share (0.08) 0.10 0.01 (0.07) 0.02 Balance Sheet (HKD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E Working capital assets 3,297 4,307 4,974 6,537 6,256 Working capital liabilities (802) (1,798) (1,571) (2,152) (1,743) Net working capital 2,495 2,509 3,403 4,386 4,512 Tangible fixed assets 119 134 1,898 5,928 8,397 Operating invested capital 2,614 2,643 5,301 10,314 12,909 Goodwill 0 0 0 0 0 Other intangible assets 0 0 0 0 0 Investments 0 86 86 86 86 Other assets 8,373 8,513 8,500 8,500 8,500 Invested capital 10,987 11,242 13,887 18,900 21,495 Cash & equivalents (331) (721) (2,258) (3,338) (5,074) Short term debt 0 0 0 0 0 Long term debt * 729 0 0 3,000 4,000 Net debt 398 (721) (2,258) (338) (1,074) Deferred tax 0 0 0 0 0 Other liabilities 197 251 244 333 378 Total equity 10,392 11,712 15,901 18,906 22,191 Minority interests 0 0 0 0 0 Invested capital 10,987 11,242 13,887 18,900 21,495
* includes convertibles and preferred stock which is being treated as debt
Per share (HKD) Book value per share 0.77 0.87 0.57 0.68 0.79 Tangible book value per share 0.77 0.87 0.57 0.68 0.79 Financial strength Net debt/equity (%) 3.8 (6.2) (14.2) (1.8) (4.8) Net debt/total assets (%) 3.3 (5.2) (12.7) (1.4) (3.8) Current ratio (x) 4.5 2.8 4.6 4.6 6.5 CF interest cover (x) (10.3) 23.1 34.5 11.8 9.3 Valuation 2011A 2012A 2013E 2014E 2015E Recurring P/E (x) * 18.8 12.8 11.8 11.7 10.7 Recurring P/E @ target price (x) * 20.1 13.7 12.7 12.6 11.5 Reported P/E (x) 18.9 12.8 11.8 11.7 10.7 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 P/CF (x) 18.3 12.5 11.6 10.9 9.4 P/FCF (x) (15.2) 13.0 117.5 (17.2) 52.2 Price/book (x) 1.6 1.4 2.2 1.8 1.6 Price/tangible book (x) 1.6 1.4 2.2 1.8 1.6 EV/EBITDA (x) ** 13.4 9.5 7.0 8.6 7.2 EV/EBITDA @ target price (x) ** 14.3 10.2 7.6 9.2 7.8 EV/invested capital (x) 1.6 1.4 2.4 1.8 1.6 * Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income
Sources: Hanergy Solar; BNP Paribas estimates
33 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Disclaimers and Disclosures
APPENDIX DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S) (BNP Paribas Securities (Taiwan) Ltd) ANALYST(S) CERTIFICATION Esther C Chen, BNP Paribas Securities (Taiwan) Ltd, +886 2 8729 7065, [email protected].
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N/A N/A N/A
BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months. 5. It beneficially owns 1% or more of any class of common equity securities of the subject company. 6. It makes a market in securities in respect of this company. 7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted. 8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from the company. IMPORTANT DISCLOSURES REQUIRED IN KOREA The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or recommended in this report: Company Ticker Price (as of 15-Nov-2013 closing price) Interest N/A N/A N/A N/A
1. The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (“BNPPSK”) by means of payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations. 2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company. 3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act. 4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares. 5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year. 6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act, BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision shall apply only where tender offer has not expired. 7. the listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering into arrangement for public offering or underwriting-related agreement for issuance of stocks 8. The Company is recognized as having considerable interests with BNPPSK. 9. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the following securities or rights (hereinafter referred to as “Securities, etc.” in this Article) regardless of whose name is used in the trading. 1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited. 2) Stock options of the Company whose securities dealings are being solicited. 3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.
GENERAL DISCLAIMER This report was produced by BNP Paribas Securities (Taiwan) Ltd, member company(ies) of the BNP Paribas Group. This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the recipient’s own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this report may not be available for sale in certain jurisdictions.
34 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
As an investment bank with a wide range of activities, BNP Paribas may face conflicts of interest, which are resolved under applicable legal provisions and internal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in this document, either for its own account or for the account of its clients. Australia : This report is being distributed in Australia by BNP Paribas Sydney Branch, registered in Australia as ABN 23 000 000 117 at 60 Castlereagh Street Sydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 and therefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this document you agree to be bound by the foregoing limitations, and acknowledge that information and opinions in this document relate to financial products or financial services which are delivered solely to wholesale clients (in terms of the Corporations Act 2001, sections 761G and 761GA; Corporations Regulations 2001, division 2, reg. 7.1.18 & 7.1.19) and/or professional investors (as defined in section 9 of the Corporations Act 2001). Canada : The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Hong Kong: This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whose business involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a subsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities, providing automated trading services, dealing in futures contacts and advising on corporate finance. For professional investors in Hong Kong, please contact BNP Paribas Securities (Asia) Limited for all matters and queries relating to this report. India: In India, this document is being distributed by BNP Paribas Securities India Pvt. Ltd. ("BNPPSIPL"), having its registered office at 5th floor, BNP Paribas House, 1 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 (Tel. no. +91 22 3370 4000 / 6196 4000). BNPPSIPL is registered with the Securities and Exchange Board of India (“SEBI”) as a stockbroker in the Equities and the Futures & Options segments of National Stock Exchange of India Ltd. and Bombay Stock Exchange Ltd. (SEBI regn. nos. INB/INF231474835, INB/INF011474831). Indonesia : This report is being distributed by PT BNP Paribas Securities Indonesia and is delivered by licensed employee(s) to its clients. PT BNP Paribas Securities Indonesia, having its registered office at Menara BCA, 35th Floor, Grand Indonesia, Jl. M.H.Thamrin No.1, Jakarta, 10310, Indonesia, is a fully subsidiaries company of BNP Paribas SA and is licensed under Capital Market Law No. 8 of 1995 and the holder of broker-dealer and underwriter licenses issued by the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK). PT BNP Paribas Securities Indonesia is also a member of Indonesia Stock Exchange. Neither this research publication nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens except in compliance with applicable Indonesian capital market laws and regulations. This research publication is not an offer of securities in Indonesia. Some of the securities referred to in this research publication have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstance which constitute an offer within the meaning of Indonesian capital market laws and regulations. Japan : This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments and Exchange Law Enforcement Order. BNP Paribas Securities (Japan) Limited is a financial instruments firm registered according to the Financial Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers Association, the Financial Futures Association of Japan and the Type II Financial Instruments Firms Association. BNP Paribas Securities (Japan) Limited accepts responsibility for the content of a report prepared by another non-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Malaysia : This report is issued and distributed by BNP Paribas Capital (Malaysia) Sdn Bhd. The views and opinions in this research report are our own as of the date hereof and are subject to change. BNP Paribas Capital (Malaysia) Sdn Bhd has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of BNP Paribas Capital (Malaysia) Sdn Bhd. This publication is being provided to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of BNP Paribas Capital (Malaysia) Sdn Bhd. Philippines: This report is being distributed in the Philippines by BNP Paribas Manila Branch, an Offshore Banking Unit (OBU) of BNP Paribas whose head office is in Paris, France. BNP Paribas Manila OBU is registered as an offshore banking unit under Presidential Decree No. 1034 (PD 1034), and regulated by the Bangko Sentral ng Pilipinas. This report is being distributed in the Philippines to qualified clients of OBUs as allowed under PD 1034, and is qualified in its entirety to the products and services allowed under PD 1034. Singapore : This report is distributed in Singapore by BNP Paribas Securities (Singapore) Pte Ltd ("BNPPSSL") and may be distributed in Singapore only to an Accredited or Institutional Investor, each as defined under the Financial Advisers Regulations ("FAR") and the Securities and Futures Act (Chapter 289) of Singapore, as amended from time to time. In relation to the distribution to such categories of investors, BNPPSSL and its representatives are exempted under Regulation 35 of the FAR from the requirements in Section 36 of the Financial Advisers Act of Singapore, regarding the disclosure of certain interests in, or certain interests in the acquisition or disposal of, securities referred to in this report. For Institutional and Accredited Investors in Singapore, please contact BNP Paribas Securities (Singapore) Ptd Ltd for all matters and queries relating to this report. South Africa : In South Africa, BNP Paribas Cadiz Securities (Pty) Ltd and BNP Paribas Cadiz Stock Broking (Pty) Ltd (hereinafter referred to as “BNPP Cadiz”) are licensed members of Johannesburg Stock Exchange and are authorised Financial Services Providers and subject to regulation by the Financial Services Board. BNPP Cadiz does not expressly or by implication represent, recommend or propose that the financial products referred to in this report are appropriate to the particular investment objectives, financial situation or particular needs of the recipient. Switzerland: This report is intended solely for customers who are “Qualified Investors” as defined in article 10 paragraphs 3 and 4 of the Swiss Federal Act on Collective Investment Schemes of 23 June 2006 (CISA) and the relevant provisions of the Swiss Federal Ordinance on Collective Investment Schemes of 22 November 2006 (CISO). “Qualified Investors” includes, among others, regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes, regulated insurance companies as well as pension funds and companies with professional treasury operations. This document may not be suitable for customers who are not Qualified Investors and should only be used and passed on to Qualified Investors. For specification purposes, a “Swiss Corporate Customer” is a Client which is a corporate entity, incorporated and existing under the laws of Switzerland and which qualifies as “Qualified Investor” as defined above." BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the Swiss Federal Market Supervisory Authority FINMA. BNP Paribas (Suisse) SA is registered at the Geneva commercial register under No. CH-270-3000542-1. BNP Paribas (Suisse) SA is incorporated in Switzerland with limited liability. Registered Office: 2 place de Hollande, CH-1204 Geneva. Taiwan : Information on securities that trade in Taiwan is distributed by BNP Paribas Securities (Taiwan) Co., Ltd. Such information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decision. Information on securities that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. BNP Paribas Securities (Taiwan) Co., Ltd. may not execute transactions for clients in these securities. This publication may not be distributed to the public media or quoted or used by the public media without the express written consent of BNP Paribas . Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to an arrangement between BNP PARIBAS (“BNPP”) and Finansia
35 BNP PARIBAS 18 NOVEMBER 2013 Hanergy Solar 566 HK Esther C Chen
Syrus Securities Public Company Limited (“FSS”). The International Investment Advisory Team at FSS prepares and distributes research under the brand name “BNP PARIBAS/FSS”. FSS is not an affiliate of BNPP. FSS also publishes a different research product under the brand name “FINANSIA SYRUS,” which is prepared by research analysts who are not part of the International Investment Advisory Team and who may cover the same securities, issuers, or industries that are the subject of this report. The ratings, recommendations, and views expressed in this report may differ from the ratings, recommendations, and views expressed by other research analysts or research teams employed by FSS. This report is being distributed outside Thailand by members of BNP Paribas. Turkey: This report is being distributed in Turkey by TEB Investment and outside Turkey jointly by TEB Investment and BNP Paribas. Notice Published in accordance with “Communiqué Regarding the Principles on Investment Consultancy Activities and the Investment Consultancy Institutions” Series: V, No: 55 issued by the Capital Markets Board. The investment related information, commentary and recommendations contained herein do not constitute investment consultancy services. Investment consultancy services are provided in accordance with investment consultancy agreements executed between investors and brokerage companies or portfolio management companies or non-deposit accepting banks. The commentary and recommendations contained herein are based on the personal views of the persons who have made such commentary and recommendations. These views may not conform to your financial standing or to your risk and return preferences. Therefore, investment decisions based solely on the information provided herein may fail to produce results in accordance with your expectations. United States : This report may be distributed in the United States only to U.S. Persons who are “major U.S. institutional investors” (as such term is defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a “major U.S. institutional investor”. U.S persons who wish to effect transactions in securities discussed herein must do so through BNP Paribas Securities Corp., a US- registered broker dealer and member of FINRA, SIPC, NFA, NYSE and other principal exchanges. Certain countries within the European Economic Area: This document may only be distributed in the United Kingdom to eligible counterparties and professional clients and is not intended for, and should not be circulated to, retail clients (as such terms are defined in the Markets in Financial Instruments Directive 2004/39/EC (“MiFID”)). This document will have been approved for publication and distribution in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas SA whose head office is in Paris, France. BNP Paribas SA is incorporated in France with limited liability with its registered office at 16 boulevard des Italiens, 75009 Paris. BNP Paribas London Branch (registered office: 10 Harewood Avenue, London NW1 6AA; tel: [44 20] 7595 2000; fax: [44 20] 7595 2555) is authorised by the Autorité de Contrôle Prudentiel and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request.This report has been approved for publication in France by BNP Paribas, a credit institution licensed as an investment services provider by the Autorité de Contrôle Prudentiel whose head office is 16, Boulevard des Italiens 75009 Paris, France. This report is being distributed in Germany either by BNP Paribas London Branch or by BNP Paribas Niederlassung Frankfurt am Main, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Other Jurisdictions : The distribution of this report in other jurisdictions or to residents of other jurisdictions may also be restricted by law, and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by the foregoing instructions. This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. All research reports are disseminated and available to all clients simultaneously through our internal client websites. For all research available on a particular stock, please contact the relevant BNP Paribas research team or the author(s) of this report. Additional Disclosures Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative. All share prices are as at market close on 15 November 2013 unless otherwise stated. RECOMMENDATION STRUCTURE Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B) . The upside is 10% or more. HOLD (H) . The upside or downside is less than 10%. REDUCE (R) . The downside is 10% or more. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. * In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value. Industry Recommendations Improving (é): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Stable (previously known as Neutral) (çè): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating (ê): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O) . Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Neutral (N) . Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Underweight (U) . Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.
RATING DISTRIBUTION (as at 18 November 2013)
Total BNP Paribas coverage universe 640 Investment Banking Relationship (%)
Buy 324 Buy 5.2
Hold 195 Hold 1.5
Reduce 121 Reduce 3.3
Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report. © 2013 BNP Paribas Group
36 BNP PARIBAS 18 NOVEMBER 2013