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Suntech Power Capital Structure

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Information about Suntech Power Capital Structure
Business & Mgmt

Published on December 15, 2008

Author: saldb

Source: slideshare.net

Description

Part of a large due diligence presentation for school. This portion deals with some of STP's capital structure.
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Reviewed by Arseny Lebedev BT 401 Due Diligence 12/3/2008

Table of Contents Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion Arseny Lebedev

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Definitions “ PV ” – Photovoltaic “ Si ” – The silicon used in PV production. “ PV Cell ” – a device made from silicon wafer that converts sunlight into electricity. “ PV Module ” – an assembly of PV cells that have been electrically interconnected and laminated in a durable and weather proof package for increased electrical output. “ PV System ” – A package of one or more PV modules physically mounted and electrically interconnected with system components such as batteries and power electronics to produce or reserve electricity. Arseny Lebedev

“ PV ” – Photovoltaic

“ Si ” – The silicon used in PV production.

“ PV Cell ” – a device made from silicon wafer that converts sunlight into electricity.

“ PV Module ” – an assembly of PV cells that have been electrically interconnected and laminated in a durable and weather proof package for increased electrical output.

“ PV System ” – A package of one or more PV modules physically mounted and electrically interconnected with system components such as batteries and power electronics to produce or reserve electricity.

1. Pre-401 Summary Arseny Lebedev

Overview of PV 16-20% Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

PV Market Snapshot Arseny Lebedev World solar photovoltaic (PV) market installations reached a record high of 2,826 megawatts (MW) in 2007, representing growth of 62% over the previous year. Price / Watt = ~$4.10 Current market size: $10-15 Bn Sources: SolarBuzz, Analysts Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

World solar photovoltaic (PV) market installations reached a record high of 2,826 megawatts (MW) in 2007, representing growth of 62% over the previous year.

Price / Watt = ~$4.10

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Suntech Overview Operations began in 2003 Firm went public in 2005 (NYSE:STP) Initially financed by Chinese government Top 3 producer of solar energy products Finishing acquisition of MSK of Japan Dr. Zhengrong Shi Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Operations began in 2003

Firm went public in 2005 (NYSE:STP)

Initially financed by Chinese government

Top 3 producer of solar energy products

Finishing acquisition of MSK of Japan

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Important Facts World in economic trouble. STP has long term contracts. STP is actively increasing capacity. Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

World in economic trouble.

STP has long term contracts.

STP is actively increasing capacity.

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Changes in Comparables #1 Very similar operationally Vertically integrated for silicon production PV leader Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Comparables Arseny Lebedev $Millions Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion Income Statement Quarterly 2007 2006 (Sep '08) MEMC Total Revenue $ 546.0 $ 1,921.8 $ 1,540.6 Gross Profit $ 269.7 $ 1,000.0 $ 689.0 Operating Income $ 227.5 $ 849.9 $ 558.3 Net Income $ 182.8 $ 826.2 $ 369.3 STP Total Revenue $ 594.4 $ 1,348.3 $ 598.9 Gross Profit $ 128.3 $ 274.1 $ 148.9 Operating Income $ 87.1 $ 171.6 $ 103.2 Net Income $ 55.9 $ 171.3 $ 106.0 Qcells Total Revenue $469.56 $1,125.78 $710.02 Gross Profit $130.03 $424.41 $273.09 Operating Income $69.40 $254.13 $166.41 Net Income $94.94 $191.44 $125.26

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

II. Financial Markets Arseny Lebedev

Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion “ Suntech slashed its revenue forecasts for the fourth quarter, blaming the euro's sudden fall against the dollar and delayed orders by customers who had trouble getting project financing.” – Steve Gelsi, MarketWatch

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Lifetime Stock Performance (STP) $80 $25 $8 80% Loss Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Since Last May $40 to $8/share Qcells Suntech MEMC Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Analyst Coverage Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion Source: Marketwatch

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Shareholders 64% of outstanding stock is held in the US Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

IV. Business Model Analysis Arseny Lebedev

PV Value Chain Majority of Revenue Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Products: PV Cells PV Modules Arseny Lebedev Priced in Watts, i.e. $4.00/Watt Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Segments & Ratios Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

P&L Arseny Lebedev $Millions Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion   FY 08 Q3 Q2 Q1 7-Dec 6-Dec 5-Dec 4-Dec     estimate 8-Nov 8-Jun 8-Mar (TTM) (TTM) (TTM) (TTM) Total Revenue $1,865.00 $594 $480 $435 $1,348 $599 $226 $85 Cost of Sales $1,398.75 $466 $364 $338 $1,047 $439 $154 $58 Gross Operating Profit $466.25 $128 $116 $96 $301 $160 $72 $27 Operating Profit before Depreciation (EBITDA) $251.78 $87 $77 $62 $199 $115 $47 $22 Total Net Income $ 216.94 $56 $65 $56 $ 171 $ 106 $ 31 $ 20

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Capital Expenditures Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

3. Capital Structure Arseny Lebedev

Debt / Equity 3 rd Quarter Arseny Lebedev 2 nd Quarter Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Other Debt Items Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Derivatives Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Leverage Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Debt / Equity Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Cost of Capital Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Utilized vs. Potential Capacity Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Why so Debt Heavy ? Utilized/Unutilized Capacity Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion Total: 750 MW 2008 Total: 1 GW 2009

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

4. Governance Arseny Lebedev

Governance Nuggets Deals with companies owned by senior executives Complicated company structure SEC filings are non-standard Many Non-GAAP # in filings Depreciation ? Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Deals with companies owned by senior executives

Complicated company structure

SEC filings are non-standard

Many Non-GAAP # in filings

Depreciation ?

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Corporate Structure Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Board of Directors Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion Name Title Expertise Shi, Zhengrong Chairman of the Board, CEO Technical Know-How Maynard, Jason Independent Director Finance Qiu, Zhi Zhong Independent Director Finance Zhang, Songyi Independent Director Finance Worley, Julian Independent Director Finance

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Shareholders Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

GAAP vs Non-GAAP, Misc Arseny Lebedev Depreciation is not included in quarterly statements, so estimation is difficult especially with new facilities opening soon. Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Depreciation is not included in quarterly statements, so estimation is difficult especially with new facilities opening soon.

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

5. Valuation Arseny Lebedev

Market Valuation Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Discounted Cash Flow Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Assets 3 rd Quarter Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Asset Nuggets Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Inventory Turns Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

P/E History Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Metrics Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

More Ratios Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

5. Other Risks, Conclusion Arseny Lebedev

Risks US and Chinese Economy Politics Company Governance Silicon shortage (maybe) Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

US and Chinese Economy

Politics

Company Governance

Silicon shortage (maybe)

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Silicon Shortage 88% of global polysilicon supply comes from five companies. Hemlock Wacker REC Tokuyama MEMC Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion Suppliers

Hemlock

Wacker

REC

Tokuyama

MEMC

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Polysilicon Prices Per Kilogram Source: Lehmen Brothers + Industry News Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Invest Focuses Arseny Lebedev Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Conclusion (Investor POV) Arseny Lebedev Supply obligations = must find customers that can pay. Asset troubles (?): Inventory Receivables Poor investing performance (derivatives) Silicon pricing Negatives Positives Massive capacity, new facilities Silicon pricing “ Undervalued” stock Short: Buy @ < $10 Long: Buy & Hold < $15 Pre-401 Summary Financial Market Status Business Model Analysis Capital Structure Governance Valuation Conclusion Disclaimer: I am an optimist. And STP shareholder.

Supply obligations = must find customers that can pay.

Asset troubles (?):

Inventory

Receivables

Poor investing performance (derivatives)

Silicon pricing

Massive capacity, new facilities

Silicon pricing

“ Undervalued” stock

Pre-401 Summary

Financial Market Status

Business Model Analysis

Capital Structure

Governance

Valuation

Conclusion

Questions? Thank you

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