Solar, another small cap. leading in what it does.
Solarton Public Company (7.65). February 14 "06.
In March of last year Solar came public at 8 Baht per share. Solar steadily moved up reaching 17 a few days early June of "05. After consolidating around and above 15 this stock then went on a long fall downwards to currently 7.65 where it seems to have found the bottom. Today I am adding Solar to my favorite list at 7.65. The company will not likely pay much in dividends for last year but has formidable earnings growth prospects going into year 2007. If it was not for this short term caveat, I would rate the stock a very strong buy.
My sense is that as we get closer to that date the price of the stock will climb back-up.
I went to visit Solar a few months ago, but other then mentioning this selection as an accumulate buy have not commented much about it. Back then, I righly sensed the stock price was still to highly valued. Today I feel differently.
The key issue with Solar is that the company does not expect to earn any substantial profit until year 2007, when profitably should soar. Short term it"s a bit bottoming guessing, but longer term I think Solar has much merit to a rational, mid to longer term view, value small cap portfolio. Solar is yet another example of a leading company in a field Thailand does -and ought to- do well.
The issues seems to be is that: 1) there is a shortage of silicon waver until year 2007 , 2) Solarton will soon bring on stream a major new factory (by beginning of 2007), which should substantially upward propel earnings as not only capacity will vastly increase but the cost of goods sold will fall by at least 20%. 3) To date the Thai government has been a t lame when it comes to buying back electricity from individuals or companies whom produce peaks of excess power. Unlike in some other countries like Germany and Japan, EGAT will not pay much of a premium at all for excess electric produced by say, solar panels. As these three things change, so will Solar’s earnings prospects and from what I see they are gearing up in a big way.
One would think Thailand wants to be a leader in this green and ample energy and I for one am convinced they wont" let this opportunity to pass by.
Solarton is planning a new mega factor to come on stream by the end of 2006 or early 2007 with BOI, 8 year tax privileges already approved and granted. 30 Megawatts and set to increase to 50 (as I understand) or the biggest one in ASEAN.
At first this company wanted to do a rights offering to finance this new factory, but then it became clear that their stock price was just too low and the project/factory should be, must be increased in size. This came about due to the energy pricing situation which became only much worse last year, when the global price of oil kept increasing beyond most expected. Here is what Solarton reported to the SET in its last news release:
"Solartron Public Company Limited would like to inform the details of Siam Commercial Bank Financial Package in order to support the Solar Cell Factory Project of which total investment value around 1,100 million baht. This factory is the first solar cell factory in South East Asia, which will reduce the cost of goods sold up to 20%....
Does this building use the Sun’s energy?
It ends with this statement:
"According to financial statement dated September 30, 2005. Company debt to equity ratio is 0.32 and the interest coverage ratio is 54.10. In the case where the company draws down all aforementioned loans, the interest expense is around 16 million baht per year which slightly affect the company operating performance.
"The company debt to equity ratio will increase to 0.85 while the interest coverage ratio will decrease to 24.60 which are still better than the average ratios of the energy industry. These could indicate that, despite higher leverage, the companys financial status has remained solid and also has plenty of repayment capability."
To me its clear that Solarton has made the right move to seek debt rather then dilute its shares, at a time when the stock appears oversold. Solar will finance this 1.1 Bill Baht expansion all with SCB Bank loans and so asserts its conviction in the viability of this mega expansion. Solar has projected its revenues to be 1.3 Bill Baht this year and sees a "30% annual growth" over the next many years, according the the Thai language newspaper "StockWave" of Feb. 14 "06, which quotes Solar’s managing director, Ms. Wandee.
As Solar’s earnings prospects become more visible & understandable it will be clear that the company should have a bright future. A green company with strong earnings prospects starting next year. You can see their core products/solar panels at this link:
http://www.solartron.co.th/Newer/product.aspx
From the most recent SET release:
"The Company expects to manage the project to be finished within the original time frame and mass production will commence in Q2 of 2007".
The seventh largest shareholder is Goldman Sachs, they own some 2.5% of the outstanding shares. Management and insiders own some 45%. The Managing Director Ms. Wandee owns some 8%. The company has some 450 Million Baht cash on hand. The company reported poor earnings recently the main reason being as stated: "Because very high growth in global solar cells market leads to worldwide material shortage". But as was explained to me this shortage is expected to be alleviated substantially by year 2007.
From their web site at:
www.solartron.co.th
"SOLARTRON Co., Ltd. was established since 1986 with a strong intention to bring solar technology to develop Thailand. We provide a high quality solar system which is a clean energy, environmental friendly, long lifetime and easy for maintenance. SOLARTRON has designed and installed more than 3,000 solar systems of various applications throughout Thailand and neighboring countries i.e. Laos and Cambodia. In 2003, SOLARTRON has setup the Solartron Technology Center in Nakonratchasima province with a 30MW solar assembly line. This is the biggest facility in this region completed with a training and demonstration center."
From Solar’s IPO Prosepectus:
You can see the full prospectus at this link, insert stock symbol:
http://www.set.or.th/set/companyinfo.do
"Target markets for the solar system at this stage can be classified into (1) remote areas where there is no access to the national electricity grid, thus solar home system, water pumping via solar system, solar battery charging, and hybrid system can respond the need for this market; (2) private markets which follow the government policy of using renewable energy. The system that serves the need of this market is the grid-connected system or roof top system.
"Major customers of the company are central and local governmental agency, which generated approximately 70% of total revenues over the past 5 years. The company has been promoted knowledge on renewable energy for both public and private sectors and has distributed the products through sales marketing responsible for each area all over
the country. The company also arranges marketing promotion for the private sectors.
"The company imports its main raw material, solar cells, from many leader manufacturers, with which the company is in a good relation, in various counties such as Germany, Japan, U.S.A and Australia. However, the fluctuation of global solar cell price has an impact on company’s operation. Other raw materials such as battery charge controller, inverter, battery, water pumping can be sourced domestically.
"Solar energy industry in Thailand has great potential growth driven from the government projects such as (1) The government budget of 7.63 billion Baht for the Solarhome Project in order to help increase the standard of living of people in rural areas that lack of electricity (2) The government’s renewable portfolio standard for newly operated
power producers that supports and promotes the use of alternative sources of energy e.g. solar, wind or biomass energy at a minimum of 5% of the output, And (3) The power purchase agreements from very small power producers have been promoted in order to alleviate the capacity utilization during the peak demand. The Ministry of Energy anticipates that the solar power provide approximately 250 MW in 2011."
There are 300 mill. shares outstanding at PAR 1, no warrants are outstanding but there is a plan to issue free warrants to shareholders in April.
Always diversify your portfolio!
Best Regards,
Paul A. Renaud.
