DBS Group Research has upgraded its rating of Sunpower Group from “hold” to “buy” with a higher target price of 69 cents from 49 cents previously, after the company saw revenue and earnings for 2Q20 reach record highs.
Revenue for 2Q20 rose 64.5% y-o-y to RMB1.08 billion ($214 million), which was led by the Manufacturing & Services segment. Underlying net profit, which was bolstered by lower finance costs, soared 131.2% y-o-y to RMB122.5 million for the quarter.
Analyst Ling Lee Keng said the worst appears to be over for Sunpower as China’s economic activities resume. Sunpower’s green investments (GI) growth could be back on track given that the textile sector has seen domestic sales return to pre-COVID-19 levels.
Ling elaborated that the textile sector, which uses steam from Sunpower’s GI plants for printing & dyeing purposes, contributes 40-50% of Sunpower’s GI revenue. Altogether, as the economic recovery continues, GI performance should see at least a slight improvement from last year.
Sunpower attributed the strong 2Q20 M&S performance to its proven quality and execution ability, and pointed to evidence including its blue-chip customer base (such as Shell, BASF) and how 70% of its customers are repeat customers.
Going forward, Ling expects the M&S segment is likely to perform better in 2H20 relative to 1H20 as M&S sales typically peak in the fourth quarter of every year driven by seasonal factors.
The GI is also expected to pick up in 2H20, as the fourth quarter of every year typically recording higher sales, likely due to higher heating demand.
She therefore expects 2H20 GI performance to improve over 1H20, especially with economic indicators pointing to a resumption of activity.
As at 4.00pm, shares of Sunpower Group were trading at 57 cents, with an FY20 price to book ratio of 1.2 and dividend yield of 0.6%.
