Doubts linger as to Hanergy's stellar stock price

Hanergy Thin Film Power Group (Hanergy TF) is one of the stellar solar companies to emerge onto the main stage in recent times. However, this is more in terms of stock price than in major sales agreements. In his latest solar stock price analysis for pv magazine, the Trout Group’s Adam Kropp noted:

“Top-weighted Hanergy Thin Film Power Group continued to buck the trend [in February], adding another 29% despite minimal company-specific news flow.”

Equipment supply

But while it is true that the news flow is minimal, it would be incorrect to say that Hanergy has not been announcing any sales at all. Late last week Hanergy reported that fully-owned subsidiary equipment supplier Fujian Apollo would supply 600 MW of production equipment for BIPV applications. It is to supply the equipment to Shandong Macrolink New Resources Technology Limited, for a price including technical support of US$660,000 million.

Included in the deal is a commitment from Shandong Macrolink to purchase 3.6% of existing Hanergy TF shares, and 1.5 million new shares in Hanergy, a total of 3.48% of the company’s enlarged share capital. The shares were offered at a discounted price. A much larger tranche of shares will be offered to Shandong Macrolink on the payment of 80% of the tool order.

In an equipment market where large sales are few and far between, the deal is significant, although the unusual payment terms raise questions about the true nature of the deal. There has even been some speculation that given the vast gap between Hanergy’s reported production capacity and its shipment reports that the equipment may be existing amorphous silicon tooling that the company is looking to unload.

Module supply

Hanergy TF has also recently publisehd a master supply contract for modules rolling of its various thin film production lines. Hanergy made the announcement last week that it was to supply 1.5 GW of a-Si/Si-Ge thin film modules to Hanergy Group. It would also supply 5,300,000 square meters of BIPV modules and two supply deals for its CIGS modules.

While a supply deal would seem like a positive sign, the use of square meters for PV sales for the BIPV supply deal is rather unusual. As too is the lack of detail as to what the breakdown of the 1.5 GW of a-Si/Si-Ge module supply deal. Smart Solar Consulting CEO Goetz Fischbeck concludes that the deal raises as many questions as it does answers.

“Hardly anybody in the industry uses this type of thin film modules anymore,” Fischbeck told pv magazine. “Without clear specifications provided for these modules it is hard to tell if there would be any demand for such modules in the general market, given the advances that have been achieved in terms of module efficiencies in all of the competing technologies.” Fischbeck is also skeptical of the internal nature of the sales.

“Overall it remains mysterious why Hanergy TF only wants to sell to its parent company.” The 1.5 GW of shipments are to parent company Hanergy Group for its project business. “In order to dispel all the rumors in the market the easiest move would be to sell some 10% to 15% of its production to outside customers so that everyone could verify the validity of the claims Hanergy TF makes with respect to the performance of its modules and the capacities in place,” said Fischbeck.

The rumors to which the solar veteran refers have made it far beyond the solar industry media iteslf. The Financial Times in particular has written two scathing reports about Hanergy TF’s tendency to book sales to its parent company and its accessing of high-cost financing.

CLSA takes a “best case scenario” outlook – and remains skeptical

Analysts at CLSA have also continued to issue notes questioning Hanergy TF’s impressive stock performance, in light of the many questions regarding its ability to execute on its CIGS technology portfolio, let alone its amorphous silicon fleet. In a second note investigating Hanergy TF published last week, CLSA Charles Yonts and Johnny Lau set aside “mundane” concerns regarding the company’s 2015 and 2016 likely figures and took a long-term view. The CLSA report, titled the 10th man on Hanergy takes a best-case-scenario view of Hanergy TF’s plans and investigates the three possible business models through which it intends to sell or deploy its modules.

The considered models include straight module sales, the deployment of modules to downstream PV projects it develops itself and also the application of modules in the consumer market – such as to the e-mobility space or on consumer tech such as mobile charging for laptops and smartphones. CLSA also assumes that Hanergy can execute of its plans to cost-effectively ramp the fleet of CIGS technologies it has acquired.

Even under these conditions, CLSA was less than thrilled by Hanergy TF’s outlook. In terms of more conventional PV supply models, either module supply or project development, CLSA concludes that it would put Hanergy TF’s price/earnings (PE) at 13x the estimated earnings per share in 2020 – 13 x 20F PE. “While the above is not horrible, necessarily, it is barely exciting,” writes CLSA’s Yonts and Lau. The analysts set out the 2020 margins as such:

“Given low ASPs, even these bold assumptions would not lead to really exciting numbers for 2020: 13.6 GW at $0.42/W and $0.20/W COGS would lead to US$5.7b sales and US$2.9b gross profit. Assuming no debt (capex could comfortably be funded through cashflow), 10% opex and 25% income tax, this leads to $1.8b net profit, or HK$14.1b.”

Where CLSA sees a potential upside is for the supply of Hanergy’s thin film products for consumer applications, e-mobility or the supply of military charging applications, for which higher ASPs can result – as much as $2/W. But here the assumptions required to make this scenario work are incredibly ambitious.

“Could the market support >13 GW pa (from almost nothing today…) of building and device integrated solar by 2020? That’s a big ask…” writes the CLSA analysts. “Would ASPs hold up with such a big ramp? Almost certainly not.” CLSA also notes that Hanergy would surely not be without competition in supplying the market. And once again, all of this relies on Hanergy being able to execute on its CIGS technology acquisitions, with which other companies have “lost their shirts” in the past.

But as with CLSA’s previous analysis and the FT reporting, Hanergy TF seems to shrug off such criticisms pretty easily. It even posted a PDF of the latest CLSA report on its own website, in a move Bloomberg New Energy Finance’s Jenny Chase described adroitly on Twitter as an “odd choice of content”.

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