Suntech Power Holdings Co.. Ltd. (STP.N) Neutral [V] A. Chan
CP: US$ 37.13 TP: US$ 50 CAP: US$ 5.7b
Acquisition and strong euro yields strong 2Q results; Raising Estimates and Target Price to US$50 (from US$48)
• STP reported 2Q revenue of US$480 mn, 3% below our estimate of US$495 mn but 9% above consensus. Gross margin was
24.1%, vs our estimate of 22.1% and 22.2% for 1Q08, thanks to higher ASP from strong Euro vs USD in 2Q08 with more
sales in Europe. Operating margin of 16.1% was also higher than our estimate of 14.1%, 15.1% of consensus, and 14.2% for
1Q08.
• STP 2Q08 net income was US$65 mn, 7% above our estimate and 16% above consensus. Basic EPS was US$0.4, 5%
above our estimate and 35% above consensus.
• STP has secured 900MW of silicon for 2009 production (i.e. 90% needed to fulfil our 2009 output estimate) with 30-40% to
come from poly start-ups including about 30% from STP's affiliates which STP has minority stakes in (see our sector note).
• Based on signed sales and wafer purchasing contracts, STP said ASP would be flattish to less than 5% decline (we assume
more) in 2009 while wafer cost is expected to drop by 20%.
• We raise our DCF-based target price from US$48.0 to US$50.0.
• We are raising 2008E, 2009E by 13% and 25% respectively.