Suntech Power Holdings Co., Ltd. (ADR) (STP)

MerageP (48.91) Submitted: 8/06/07 4:26 PM : Start Price: $38.15 STP Score: -39.29

Alternative energy is playing more important role in the world facing high oil


the Investment:    price and deteriorating environments. Technology breakthroughs make solar energy one of the most feasible and affordable alternative energy sources. The solar energy industry is booming with strong government sponsorship. Suntech is the fourth- and third-largest solar energy company in the world based on production output and capacity of solar cells. It is the largest solar energy company in the world based on solar module production output.


   


   Suntech has realized annual revenue growth rate of more than 100% every year since incorporation. This fast growth is expected to continue thanks to the high demanding of solar cells in global market. According to the CEO, Suntech already has firm purchase contracts in place for the entire 2007 projected output, which is more than double of the 2006 output. And it is receiving purchase orders for 2008.





   Suntech attributes its success to the combination of leading technology and low manufacturing cost when compared to competitors. Suntech has an experienced international management team with a research-and-development group led by accomplished PV technology scientists. The founder and CEO, Dr. Zhengrong Shi, was once a frontier scientist in solar cell research area. With one of the largest dedicated solar R&D teams in the world, Suntech is an industry leader in solar technology innovation and stay ahead of the PV innovation curve. Also, because its cost structure in China cannot be replicated by overseas competitors, it is able to maintain its cost advantages. The net result is that Suntech can achieve better margins than peer companies in the solar industry worldwide.


   The company is aggressive expanding its manufacturing capabilities. The company made an acquisition last year buying Japanese MSK which makes construction materials with solar cells implanted. This could provide a very effective distribution method and allow the company to recognize even greater margins by selling to the primary end user. One big challenge to solar cell manufacturing companies is the soaring price of polysilicon, the material used to make solar cell as well as semiconductors, which is currently in short supply due to high demand from both solar and semiconductor industries . Suntech hedge the raw material supplying risk fairly pro actively by securing contracts with suppliers for the next several years. The most recent example is a 10 year $678 million contract signed in June with Hoku Materials.


   While STP is not debt free, it does have a healthy balance sheet with enough cash to be able to make the capital expenditures necessary to continue to ramp production and grow its business. Analysts do not expect the company to have to go to the capital markets to raise cash unless they decide to ramp production more quickly than originally planned. The company spends a great deal on Research and Development, but this has paid off with some of the technological breakthroughs that allow them to compete on an international level. Besides, the company receives strong financial and policy supports from central and local governments in China.

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