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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
12 February 2018 Americas/United States
Equity Research Alternative Energy
SunPower (SPWR) Rating NEUTRAL [V] Price (09-Feb-18, US$) 6.85 Target price (US$) 7.20 52-week price range (US$) 11.39 - 6.04 Market cap(US$ m) 956 Target price is for 12 months.
[V] = Stock Considered Volatile (see Disclosure Appendix)
Research Analysts
Michael Weinstein, ERP
212 325 0897
w.weinstein@credit-suisse.com
Maheep Mandloi
212 325 2345
maheep.mandloi@credit-suisse.com
Khanh Nguyen, CFA
212 538 3524
khanh.l.nguyen@credit-suisse.com
Aric Li
212 325 2679
aric.li@credit-suisse.com
INITIATION
Hurdles to Jump; Initiating at Neutral
■ We initiate coverage of SunPower (SPWR) with a Neutral rating and $7.20
target price. Management's focus on its residential and commercial
segments as well as a less capital-intensive manufacturing and sales
strategy make sense in the long term, especially as the company competes
with low-cost Asian solar modules. However, the import tariffs on US
shipments have put a dent in the plans, and SPWR faces near-term
refinancing ($300m convertible debt due June 2018).
■ Manufacturing Strategy Takes Advantage of Oversupply: SunPower has
augmented its proprietary high-efficiency solar module technology with its
patented P-Series that takes advantage of cell/module oversupply in the
value chain, achieving scale (>5 GW in few years) at lower capex.
■ Come for Modules, Stay for Everything Else: With the pivot to higher
ASP/GM% segments (residential and commercial), SunPower also benefits
from offering in-house micro-inverters and ancillary solar components in an
engineered package. A growing storage adoption in the market could further
position it as the system integrator of choice for dealers and contractors.
■ Neutral on Near-Term Uncertainty: Impact of tariffs is uncertain, and key
question remains how much of the 30% tariff on modules in the US could be
passed down to customers. Management is trying to seek an exemption
given its differentiated high-efficiency product, but we would remain on the
sidelines until uncertainty settles. Catalysts: Monetize non-core assets
(8point3 sale close in summer 2018), refinance $300m convert due June 1.
■ Valuation: We arrive at our $7.20 TP based on a 10x forward multiple on our
2019 EBITDA estimate, less net debt, discounted back at 10% and adding
value from 8point3 sale. Note the potential for 62.5% upside (+$4.50/sh) if
SPWR gets tariff exemption in the US. Risks: US trade uncertainty, cost
targets, net metering and renewable policies, and oversupply in value chain.
Share price performance
On 09-Feb-2018 the S&P 500 INDEX closed at 2568.72
Daily Feb09, 2017 - Feb09, 2018, 02/09/17 = US$6.97
Quarterly EPS Q1 Q2 Q3 Q4 2016A -0.30 -0.22 0.68 -0.64 2017E -0.36 -0.35 0.21 0.08 2018E -0.03 -0.03 -0.01 -0.07
Financial and valuation metrics
Year 12/16A 12/17E 12/18E 12/19E EPS (Excl. ESO) (US$) -0.48 -0.43 -0.14 0.06 EPS (CS adj., ) -0.48 -0.43 -0.14 0.06 Prev. EPS (CS adj., US$) P/E (CS adj.) (x) -14.4 -16.0 -47.5 115.9 P/E rel. (CS adj., %) -59.7 -73.6 -253.5 682.4 Revenue (US$ m) 2,702.9 2,008.5 2,846.0 3,035.3 EBITDA (US$ m) 163.6 166.9 206.3 230.3 Net Debt (US$ m) 1,177 1,410 1,263 1,285 OCFPS (US$) -2.36 -1.29 0.97 1.00 P/OCF (x) -2.9 -5.3 7.1 6.8
Number of shares (m) 139.57 Price/Sales (x) 0.45 BV/share (Next Qtr., US$) 6.3 P/BVPS (x) 1.5 Net debt (Next Qtr., US$ m) 1,409.7 Dividend (current, US$) - Dividend yield (%) - Source: Company data, Thomson Reuters, Credit Suisse estimates
12 February 2018
SunPower (SPWR) 2
SunPower (SPWR)
Price (09 Feb 2018): US$6.85; Rating: NEUTRAL [V]; Target Price: US$7.20; Analyst: Michael Weinstein
Income Statement 12/16A 12/17E 12/18E 12/19E
Revenue (US$ m) 2,702.9 2,008.5 2,846.0 3,035.3 Sales 2,702.9 2,008.5 2,846.0 3,035.3 EBITDA 163.6 166.9 206.3 230.3 Operating profit (151.3) (88.2) (16.1) 20.6 Recurring profit (151.4) (177.3) (88.2) (55.1)
Cash Flow 12/16A 12/17E 12/18E 12/19E
Cash flow from operations (314) (180) 137 144 CAPEX (187) (113) (100) (80) Free cashflow to the firm (501) (292) 37 64 Cash flow from investments (377) (266) 10 (166) Net share issue(/repurchase) 0 0 0 0 Dividends paid 0 0 0 0 Issuance (retirement) of debt 982 355 (77) 60 Other (837) (144) 77 (60) Cashflow from financing activities 145 212 0 (0) Effect of exchange rates 1 1 0 0 Changes in Net Cash/Debt (545) (233) 147 (22) Net debt at end 1,177 1,410 1,263 1,285
Balance Sheet ($US) 12/16A 12/17E 12/18E 12/19E
Assets Other current assets 834 594 594 594 Total current assets 1,915 1,537 1,453 1,548 Total assets 4,567 4,381 4,115 4,219 Liabilities Short-term debt 0 0 0 0 Total current liabilities 1,090 1,189 1,037 1,089 Long-term debt 1,565 1,440 1,363 1,423 Total liabilities 3,376 3,497 3,268 3,380 Shareholder equity 1,008 633 596 587 Total liabilities and equity 4,567 4,381 4,115 4,219 Net debt 1,177 1,410 1,263 1,285
Per share 12/16A 12/17E 12/18E 12/19E
No. of shares (wtd avg) 133 139 141 143 CS adj. EPS (0.48) (0.43) (0.14) 0.06 Prev. EPS (US$) Dividend (US$) 0.00 0.00 0.00 0.00 Free cash flow per share (3.77) (2.11) 0.26 0.44
Earnings 12/16A 12/17E 12/18E 12/19E
Sales growth (%) 3.5 (25.7) 41.7 6.7 EBIT growth (%) (162.6) 41.7 81.7 227.6 Net profit growth (%) (118.7) 5.8 65.8 141.6 EPS growth (%) (122.1) 10.0 66.4 141.0 EBIT margin (%) (5.6) (4.4) (0.6) 0.7
Valuation 12/16A 12/17E 12/18E 12/19E
EV/Sales (x) 0.79 1.18 0.78 0.74 EV/EBIT (x) (14.1) (26.8) (137.6) 108.9 P/E (x) (14.4) (16.0) (47.5) 115.9
Quarterly EPS Q1 Q2 Q3 Q4 2016A -0.30 -0.22 0.68 -0.64 2017E -0.36 -0.35 0.21 0.08 2018E -0.03 -0.03 -0.01 -0.07
Company Background
SunPower is a US based high-efficiency crystalline silicon photovoltaics (PV) module manufacturer and project developer.
Blue/Grey Sky Scenario
Our Blue Sky Scenario (US$) 11.70
Under a Blue sky scenario we assume the company succeeds in getting an exemption under US tariffs. Our blue sky value is driven by 10x multiple on 2019 blue sky EBITDA, adjusted for net debt entering 2019, discounted at 10% and adding SunPower's ownership in the 8point3 YieldCo.
Our Grey Sky Scenario (US$) 2.70
Under a grey sky scenario we assume that SunPower doesn't gets any exemption under the US tariff, and has to absorb the incremental tariffs. Our blue sky value is driven by 10x multiple on 2019 grey sky EBITDA, adjusted for net debt entering 2019, discounted at 10% and adding SunPower's ownership in the 8point3 YieldCo.
Share price performance
On 09-Feb-2018 the S&P 500 INDEX closed at 2568.72
Daily Feb09, 2017 - Feb09, 2018, 02/09/17 = US$6.97
Source: Company data, Thomson Reuters, Credit Suisse estimates
12 February 2018
SunPower (SPWR) 3
Table of Contents
Key Charts 4
Executive Summary 5
Capital-Light Expansion Strategy—Maintains Efficiency/Cost Competitiveness ..... 5
Strategic Shift—Focus on DG Business .................................................................. 6
Knight in French Armor—Strategic Relationship with Majority Holder Total ............ 7
US Import Tariffs—There Is Still Hope ..................................................................... 7
Stressed Balance Sheet—$300m Due June ............................................................ 8
Catalysts ................................................................................................................... 9
Solar Market Overview 10
Solar Demand—A Dip in 2018 Before Recovery in 2019 ...................................... 10
US Solar Demand................................................................................................... 13
Solar Supply—Easing Up in 2018 .......................................................................... 17
Company Overview 19
Cash Flow Focus—Simplify Business and Grow DG ............................................. 21
Drivers and Financials 23
Financial Models..................................................................................................... 27
Key Debates and Catalysts 29
P-Series—Taking Advantage of China Oversupply ............................................... 29
Competition with Low-Cost c-Si Industry ............................................................... 30
Knight in French Armor .......................................................................................... 32
US Import Duty Priced In—Upside to Exemption ................................................... 33
8point3 Sale ............................................................................................................ 35
Valuation 36
Investment Risks 38
Historical Valuation Multiples and Comps 39
Management, Compensation, & Governance 42
12 February 2018
SunPower (SPWR) 4
Key Charts
Figure 1: Increasing DG Shipments Figure 2: GM% Are Higher in DG Business
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
Figure 3: P-Series Increases Project Value by $0.03-
0.04/W, or 10% of Module Price in Asia
Figure 4: While P-Series Takes Advantage of Solar
Oversupply
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
Figure 5: Upside from US Tariff Appeal Figure 6: $300m Convert Due in 2018
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
341 292 321 480 520 600
193 305 347
480 700
800
592 743 714
740
780
775
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500
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2015A 2016A 2017E 2018E 2019E 2020E
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18.1%
21.0%
23.3%21.7%
19.5% 20.0% 20.0% 20.0%
3.2%
13.1%11.2%
7.8%
10.9%
14.0%15.0% 15.0%
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16.6%
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2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E
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100%
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2011 2012 2013 2014 2015 2016 2017 2018 2019
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Equity value $/sh Tariff pass through ASP
$ 7.2 - 10.0% 20.0% 30.0% 40.0% 50.0%
Tariff/w in yr 1 $ - $ 11.7 $ 11.7 $ 11.7 $ 11.7 $ 11.7 $ 11.7 Blue sky
$ 0.05 $ 9.1 $ 9.4 $ 9.7 $ 9.9 $ 10.2 $ 10.4
$ 0.10 $ 4.5 $ 5.3 $ 6.0 $ 6.7 $ 7.4 $ 8.1
Grey sky $ 0.12 $ 2.7 $ 3.6 $ 4.5 $ 5.4 $ 6.3 $ 7.2 Base case
$ 0.15 $ (0.0) $ 1.1 $ 2.3 $ 3.5 $ 4.7 $ 5.8
200 250 100
100 150
325
$0
$200
$400
$600
$800
$1,000
4Q17 2018 2019 2020 2021 >2021
Convert, owned by TOTAL Convert - others Non-recourse and other debt
12 February 2018
SunPower (SPWR) 5
Executive Summary We initiate coverage of SunPower (SPWR) with a Neutral rating and $7.20 target price.
US-based SPWR manufacturers its high-efficiency solar modules primarily in the
Philippines, Malaysia, and Mexico and sells modules, system components, and complete
solar systems to residential, commercial, and utility-scale solar customers globally.
SunPower is further integrated downstream, as it sells modules, components, and
engineered solutions through dealer network and hence captures a higher value compared
to generic module manufacturers. SunPower's differentiated high-efficiency technology
and less capital-intensive expansion strategy is clouded by near-term challenges, such as
import tariffs on solar modules sold in the US and the refinancing of $300m convertible debt.
Capital-Light Expansion Strategy—Maintains
Efficiency/Cost Competitiveness
SunPower's X-Series is still among the world's highest-efficiency products well suited for
tight spaces, especially residential and commercial applications. However, the company is
expanding its P-Series capacity, which competes with regular c-Si modules produced by
the rest of the supply chain. X-Series production stands at 1.1 GW today, and P-Series
was guided at 600 MW exiting 2017. The company's JV in China plans to build a 5-GW
production capacity for P-Series.
P-Series is made using off-the-shelf solar cells available at lower prices in an oversupplied
market, while capex for building P-Series manufacturing capacity (<$0.05/W) is a fraction
of the capex in the solar value chain ($0.25-0.35/W wafer-to-module capex). Management
expects P-Series to command a ~$0.10/W price premium, and it costs significantly less
when ramped up, resulting in reasonable margins. Customers benefit from a higher
efficiency (7% above conventional), lower balance of system (BOS) costs, improved
performance (5-6% higher energy yield), and lower module degradation. P-Series will
predominantly be used for utility-scale installations (power plant division) and commercial
installations, but we would not be surprised to see it compete with mono/multi silicon
modules in cost-sensitive residential applications as well.
Figure 7: Converting Regular c-Si Cells to P-Series
Figure 8: P-Series Produces 5-6% More Yield and
$0.03-0.04/W in Incremental NPV
Source: Company data. Source: Company data.
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12 February 2018
SunPower (SPWR) 6
Figure 9: Growing Oversupply in Solar Value Chain
Figure 10: Lower Utilization Rates Will Pressure
Cell/Wafer Prices (Input Cost for SunPower)
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
Strategic Shift—Focus on DG Business
Growing DG: SunPower is growing its distributed generation (DG) business in residential
and commercial segments, as the traditional power plant business is increasingly less
profitable due to intense competition. We forecast residential+commercial revenue share
increases from 46% average share in 2013-2016 to 77% by 2020, while we forecast DG
shipments grow from 48% in 2015-2017 to 64% by 2020. DG sales command a higher
average selling price (ASP) on $/W basis due to smaller system sizes and higher cost of
components for a rooftop application. Gross margins for DG systems are also higher, as
the segments are less competitive compared to utility-scale projects. We estimate
residential/commercial gross margins at 20% /15% in coming years (before import tariffs)
vs 10% for utility-scale systems.
Figure 11: Growing Share of Residential and
Commercial Shipments… Figure 12: …Which Command a Higher GM%
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
7
33 35 29 27 30
24
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30
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40
60
80
100
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2010
2011
2012
2013
2014
2015
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Cell overcapacity
Demand (ex thin film)
Total cell capacity (ex thin film)
12
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40
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Wafer overcapacityDemand (ex thin film)Total wafer capacity (ex thin film)
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2011 2012 2013 2014 2015 2016 2017 2018 2019
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341 292 321 480 520 600
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2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E
Residential Commercial Power Plant
12 February 2018
SunPower (SPWR) 7
Growing Module+ Business: Equinox for residential markets and Helix for commercial
markets are complete solutions that offer more than just modules. Modules now become
the star attraction and help the company upsell an engineered plug-and-play system
developed in-house. The integrated product helps lower installation costs for customers
due to hassle-free and faster installations. SunPower is in a unique position to offer such a
solution compared to peers, given its presence in DG markets and strong dealer network
based sales strategy globally.
Knight in French Armor—Strategic Relationship with
Majority Holder Total
Total owns a majority ownership in SunPower (59% equity and 49% debt). Total has not
indicated whether it wants to acquire rest of the stake, but we believe that any decision to
do so would depend on SunPower's ability to maintain profitability and potential synergies
from having an integrated solar+storage offering. Nevertheless, we do see near-term
opportunities for SunPower to grow market reach using Total's business network.
SunPower will supply ~50 MW/yr to Total for solar installations at gas stations, while the
two have collaborated together to develop and install solar projects in South Africa, Japan,
and France.
SunPower could also potentially benefit from a common renewable+battery platform as, in
the last two years, Total has acquired a Lithium-ion battery manufacturer, a small wind
turbine manufacturer, solar project developer, and energy efficiency company and has
also started its downstream solar project development business.
US Import Tariffs—There Is Still Hope
SunPower's modules shipped into the US are subject to the import tariff levied by
President Trump in January 2018 because the company manufactures cells and modules
in Philippines, Malaysia, and Mexico. Note that US import tariffs do not exempt any major
solar manufacturing country or company, except for non c-Si thin-film modules. SunPower
has announced that it would appeal against the ruling and seek exemption since its
higher-efficiency modules are different compared to c-Si modules manufactured by the
rest of the industry and since it is a US-headquartered company with majority of R&D
taking place in the country. We see ~$4.50/sh upside potential to our target price if
SunPower receives an exemption under the import tariffs, or if the US government
withdraws the tariffs altogether due to oppositions from WTO and member countries.
Figure 13: $4.50/Sh Upside to Our TP If SunPower Receives Tariff Exemption
Source: Credit Suisse estimates.
Equity value $/sh Tariff pass through ASP
$ 7.2 - 10.0% 20.0% 30.0% 40.0% 50.0%
Tariff/w in yr 1 $ - $ 11.7 $ 11.7 $ 11.7 $ 11.7 $ 11.7 $ 11.7 Blue sky
$ 0.05 $ 9.1 $ 9.4 $ 9.7 $ 9.9 $ 10.2 $ 10.4
$ 0.10 $ 4.5 $ 5.3 $ 6.0 $ 6.7 $ 7.4 $ 8.1
Grey sky $ 0.12 $ 2.7 $ 3.6 $ 4.5 $ 5.4 $ 6.3 $ 7.2 Base case
$ 0.15 $ (0.0) $ 1.1 $ 2.3 $ 3.5 $ 4.7 $ 5.8
12 February 2018
SunPower (SPWR) 8
Stressed Balance Sheet—$300m Due June
SunPower has a total debt of ~$1.77B (net debt $1.39B) as of 3Q17, which includes
$1.125B convertible debt, and the balance is project debt and debt associated with
residential leases. The $300m convertible debt due June 2018 is trading at par ($97.59),
while the longer-dated converts are trading at a discount ($400m due 2021 at $74.50,
$425m due 2023 at $82.31).
Non-core Monetization to Help: Selling solar power plants under construction could help
raise $552m ($3.83/sh proceeds), assuming a 10% gross margin on book value of assets.
More near term though, 8point3 sale could help raise ~$357m ($2.48/sh) at the acquisition
price offered by Capital Dynamics. 8point3 management expects the sale to close before
August 2018 and is awaiting independent shareholder approval and regulatory clearance.
Figure 14: Debt Schedule—$300m Convert Due in 2018
Source: Company Data.
Figure 15: SPWR Is More Levered Compared to Solar Peers
Source: Company data, Credit Suisse estimates.
200 250
100
100
150 325
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
4Q17 2018 2019 2020 2021 >2021
Convert, owned by TOTAL Convert - others Non-recourse, other
Non-recourse - Residential Non-recourse - El Pelicano
$ (3,000)
$ (2,500)
$ (2,000)
$ (1,500)
$ (1,000)
$ (500)
$ -
$ 500
$ 1,000
$ 1,500
$ 2,000
FSLR SEDG ENPH DQ LONGi JASO HQCL YGE SPWR JKS CSIQ
Net Cash $m
12 February 2018
SunPower (SPWR) 9
Catalysts
■ US Tariff Case Resolution: SunPower is seeking exemption from US import tariffs.
We believe the White House could announce a decision on exempted
companies/countries in 1H18, but timing is uncertain, as the president is not bound
by any deadline. We expect up to $4.5/sh upside potential to our TP if SunPower
receives the exemption.
■ 8point3 Sale Close—By August 2018: Capital Dynamics announced plan to
acquire 8point3 for an equity value of $977m ($12.35/sh) on February 5, 2018.
SPWR owns 36.5% equity in the YieldCo, FSLR owns 28%, and the balance is
owned by independent shareholders. SPWR's ownership is worth $357m (or
$2.48/sh) to SPWR shareholders (reflected in our valuation). Both the sponsors had
announced plans to exit the JV in 2017. 8point3 management expects the deal to
close by May-August 2018 after getting approval from the majority of independent
shareholders and necessary regulatory approvals.
■ Convertible Debt—June 1, 2018: $300m convertible debt matures on June 1,
2018. Total owns two-thirds of the debt and could be likely called upon to refinance.
Total had backstopped a $100m revolver in 3Q17.
■ Non-Core Monetization—Through 2018: Monetizing residential lease business -
Securitizing solar leases booked, 412-MW as of 3Q17, at average proceeds of
~$1.36/W, in-line with recent issuances, could help raise ~$500m ($3.47/sh
proceeds). Selling solar power plants under construction could help raise $552m
($3.83/sh proceeds), assuming a 10% gross margin on book value of assets.
■ India Protectionist Trade Case—4Q18: India proposed preliminary tariffs on solar
imports of up to 70%. A final decision will still take six to nine months and involves
another round of public hearing before going to the government for the final
approval. Any tariffs would jeopardize the Indian government’s goal to achieve its
100 GW target by 2022 and it even announced plans to auction 74 GW solar over
the next 27 months. Rising pollution in its major cities is also prompting the
government to install cheaper, carbon-free, and faster-to-market technologies. The
proposed tariff exempts SunPower's manufacturing capacity located in the
Philippines and Mexico.
12 February 2018
SunPower (SPWR) 10
Solar Market Overview Solar demand increased at a 24% CAGR from 2010 to 2016, while module costs declined
>76% and solar levelized cost of energy (LCOE) declined 60% from $100/MWh to
~$40/MWh during the same period. We forecast solar module demand grows to 116GW
by 2020, at a CAGR of 6% in 2017-2020, driven by policy support and continued decline in
solar energy prices.
On the supply side, polysilicon and solar wafers were in short supply in 2017 leading to
higher raw material costs for crystalline-silicon (c-Si) manufacturers. We tabulate more
capacity will come online across the value chain in 2018 and 2019, easing supply.
Solar Demand—A Dip in 2018 Before Recovery in
2019
We forecast solar model demand was 97 GW in 2017, up 22 GW y/y vs 75 GW in 2016,
due to stronger-than-expected demand in China (50 GW in 2017 vs 30 GW in 2016) and a
demand rush in the US ahead of a decision on import tariffs (incremental 4.9 GW modules
imported for 2018 demand).
We forecast solar module demand in 2018 declines to 92 GW, down ~5 GW or 5% y/y,
partially due to a decline in solar demand in China (down 5 GW y/y to 45 GW) but also
because of 4.4 GW of modules added to inventory in the US at 2018 prices. The decline in
the China and US markets is offset to an extent by growing solar demand in India (10 GW
vs 7 GW in 2017) and other emerging markets (Middle East and Latin America).
In the long term, we forecast global solar demand accelerates as declining solar costs and
cheaper storage increasingly replace conventional generation sources. Note that solar
generation represents less than 3% of global electricity generation today. We forecast
demand grows at a 6% CAGR from 2017 to 2020.
Figure 16: Global Solar Module Demand Grows at a 6% CAGR from 2016 to 2020
Source: Company data, Credit Suisse estimates.
1 3 4 11 11 15
30
50 45 45 45
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7
6
6 6
6
0 1
1
1 1
2
5
7
10 12
18
16 16 13
7 6
7
5
5
5
5
6
3 4 6
6 12
11
13
16 18
22
25
2127 29
3645
53
75
9792
103
116
2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
Demand (GWs)
Other
Europe
India
Japan
US
China
12 February 2018
SunPower (SPWR) 11
Global Demand Drivers
■ Policy Support: Solar demand is supported by governments through various policy
measures due to inherent environment benefits, no fuel or commodity risks,
attractive economics, and ease of deployment. Countries support via strong long-
term targets (India – 100 GW by 2022, China – 230 GW by 2020), upfront
incentives (tax credits in the US market), production incentives (feed-in-tariff in
China, Japan), etc.
■ Falling Costs for Solar Equipment: Solar module prices have declined
significantly in 2011-12 (down 36%), and then in from 4Q15 to 1Q17 (down 38%)
due to lower raw material and processing costs for c-Si modules. We expect module
prices will decline ~10%/yr going forward as crystalline silicon manufacturers switch
to higher-efficiency technologies that consume less polysilicon and also reduce
processing costs.
Figure 17: Spot Solar Module Price $/Watt Declines
Source: PVInsight, PV-Energy Trend, Credit Suisse estimates.
■ Declining LCOE for Solar Electricity: Including tax credits, our estimate (based
on SEIA/GTM cost data) for levelized cost of energy (LCOE) from utility solar has
declined 73% from $125-170/MWh in 2010 to only $34-47/MWh in 2016 and
forecast to go down to $25-35/MWh by 2020 (before the impact of possible tariffs).
Without investment tax credits, we estimate residential solar LCOE would be
$40/MWh higher.
$0.00
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Silicon $/W Non-Si cost $/W Margin $/W
US utility PPA -~$200/MWh
PPA ~$100/MWh
PPA ~$60/MWh PPA
~$40/MWh PPA ~$30/MWh
12 February 2018
SunPower (SPWR) 12
Figure 18: Solar LCOE Has Declined Below
$40/MWh in the US
Figure 19: PPAs Have Declined Across Major
Markets
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
■ Solar TAM—131-280 GW/Yr Unsubsidized: We calculate annual solar TAM of
131 GW assuming no growth in global electricity demand and that 25% of new
demand is met with solar (and 25% wind). Assuming 3% y/y growth in demand (in-
line with 1995-2016 CAGR), we calculate solar TAM of ~280 GW/yr in 2020. For
comparison, as per IEA, wind and solar capacity additions in 2016 accounted for
44% of global electricity capacity additions.
$0
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$180
1Q10 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 1Q16 4Q16 3Q17
LC
OE
-$/
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US Utility Solar LCOE range (subsidized, 30% ITC)
$0
$20
$40
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eliz
ed P
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-$/
MW
hUS PPA India PPA Germany PPA
Subsidized US PPA (30% ITC)
UnsubsidizedIndia PPAs
UnsubsidizedGermany PPAs
12 February 2018
SunPower (SPWR) 13
US Solar Demand
2017 Demand: We forecast 2017 US solar module demand of 13.6 GW, which includes
9.3 GW of solar installations in the year and 4.4 GW of module demand pull-in for 2018
installations, as developers rushed to build inventory ahead of President Trump's decision
on the solar import tariffs. Installation demand in 2017 is further divided into 5.2 GW of
utility-scale demand (EIA data), 2.2 GW of residential demand (CS est), and 1.8 GW of
commercial solar (15% growth y/y).
A strong demand rush in 2016 was driven by a previously scheduled tax credit step-down.
The US legislature did extend the tax credits through 2021 in late December 2015, but
was too late to postpone most of the scheduled utility-scale solar deployments.
Figure 20: US Solar Demand Forecast
Source: GTM/SEIA, Company data, Credit Suisse estimates.
2018 Demand: We forecast solar installation demand will increase to 11.9 GW in 2018.
We forecast residential demand will increase from 2.2 GW to 2.4 GW after a dip in 2017
and that commercial demand grows due to favorable economics vs 2H17. Utility-scale
demand will increase given prior RFPs. However, module demand declines to 7.5 GW
(from 13.6 GW in 2017) due to ~4.4 GW of modules added to inventory in 2017.
Long-Term Growth Attractive: We forecast demand increases to 16 GW by 2020 driven
by cheaper solar PPAs, price declines that offset import tariffs, growing corporate and
customer interest, state-level renewable portfolio standards, and a demand rush in
2020/21 ahead of the decline in the federal tax credit to 10% after 2021.
Long-Term US Solar Demand Drivers:
■ Federal Investment Tax Credit (ITC)—Available Through 2021: New solar PV
and thermal plants are eligible to receive a 30% ITC on fair market value if the
plants are under construction before the end of 2019, after which the ITC tapers off
for new starts to 26% in 2020 and 22% in 2021. In 2022, the ITC expires for
residential systems and declines to 10% for commercial and utility-scale systems.
All utility-scale plants not placed in service prior to January 1, 2024, receive a 10%
ITC regardless of the date the construction was commenced. Unlike wind under the
PTC, the IRS has not yet indicated a safe-harbor rule for the ITC. The tax credits
receive bipartisan support in Congress and are unlikely to be pulled or tampered
with; however, further extensions are less likely given the declining cost of solar
systems and lower LCOE.
0.4 0.6 1.7 2.9 4.0 4.2
10.6
5.2 7.5 8.0
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16.3
2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
Utility Residential Commercial Inventory
Demand pull in from 2018 to 2017 due to
201 trade case
12 February 2018
SunPower (SPWR) 14
Figure 21: US Federal Tax Credit for Renewables
Source: Government data.
■ Growing Corporate Interest: Coupled with the tax credits, lower solar system and
wind turbine costs imply that the levelized cost of energy generated from solar and
wind projects is lower than most of the other technologies globally as well as in the
US, barring US natural gas in certain cases. NEE's internal analysis shows that
declining costs have been the driver for 93% of wind projects developed owing to
favorable economics in 2015-16 versus 26% prior to 2010.
Figure 22: US Renewable Demand
Drivers for Unregulated Utility
Figure 23:Corporate Renewable
Procurement Is Rising
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
■ State RPS Acts as a Demand Backstop: State Renewable Portfolio Standards
(RPS) and renewable credit trading programs continue to be increased about as
fast as states meet their existing requirements. We forecast that US RPS will drive
127 GW of solar+wind demand from 2017 to 2030, assuming each of the
technologies meet half of the incremental renewable generation required under RPS.
■ Markets Beyond 2021 and ITC: Looking beyond 2021, we expect US renewable
demand will grow even without tax credits for wind or solar projects partially owing
to RPS demand as aforementioned but also as continued decline in wind turbine
and solar system prices will more than compensate for the decline in subsidies. We
expect wind and solar LCOE to decline to $20-40/MWh without any subsidies and
in-line with, if not better than, current solar and wind LCOE with tax credits.
2016 2017 2018 2019 2020 2021 2022 2023
Solar Investment Tax Credit (ITC), %
% of investment 30% 30% 30% 30% 26% 22% 10% 10%
Wind Production Tax Credit (PTC), $/MWh
If construction begins in…
2016 (100% PTC) $ 23.0 $ 23.0 $ 23.0 $ 23.0 $ 23.0
2017 (80% PTC) $ 19.2 $ 19.2 $ 19.2 $ 19.2 $ 19.2
2018 (60% PTC) $ 14.4 $ 14.4 $ 14.4 $ 14.4 $ 14.4
2019 (40% PTC) $ 9.6 $ 9.6 $ 9.6 $ 9.6 $ 9.6
2020 $ - $ - $ - $ -
2021 $ - $ - $ -
*PTC is subject to annual inflation adjustment
Tax credit by COD yearCurrent law - no change under
Tax reform
12 February 2018
SunPower (SPWR) 15
Figure 24: LCOE (¢/kWh) of Wind and Solar vs Conventional Fuel Generation,
Post-2020, Excludes Tax Credits
Source: Company data, Credit Suisse estimates.
China—The (Solar) Elephant in the Room
■ Higher-than-Expected Demand in 2017: China installed >50 GW of solar in 2017,
representing more than 50% of global solar demand, an increase of 66% y/y
primarily due to (1) demand rush ahead of feed-in-tariff (FiT) cuts starting July 2017;
(2) lucrative feed-in-tariffs in 2H17 yielding >12% unlevered IRR for utility-scale
projects and >17% for distributed generation projects, (3) strong policy support for
provincial level quota, government programs like poverty-alleviation, and high
efficiency module auctions under Top Runner program, and (4) and government
push to increase distributed generation installations.
■ China Solar Demand Will Remain Elevated at Current Levels 2018-2020: The
Chinese government announced further FiT cuts in 2018, but the declining cost of
solar systems implies that new FiT can still yield 15% unlevered IRR for DG projects
and 11% for utility-scale projects. We forecast solar demand will remain elevated at
45 GW/yr from 2018 to 2020 in the country due to continued support from the
government for cleaner, cheaper, and fast to market energy technologies. The
installation run rate implied the country would surpass the cumulative target of 230
GW by 2020. Our demand forecast implies China will account for 44% of global
solar demand in 2018-2020.
■ However, Demand Still Dependent on Subsidies: China solar demand is
dependent on government energy subsidies that pay developers 37-90% above the
wholesale electricity tariffs. The only exception being 8-10 GW of annual solar
demand auctioned through a Top Runner program at rates closer to wholesale
tariffs. These subsidies are passed down to industrial electricity customers in the
form of an electricity surcharge of RMB 0.019/kWh. Despite the energy surcharge,
the country reported a RMB 50 billion ($7.8B) shortfall in subsidies that has led to
subsidy payment delays. A two-year delay in subsidy payments can lower project
unlevered IRRs by 5-6%. This shortfall will only grow as China doubles its solar
installed capacity (cumulative installations) from 2017 to 2020. Moody's forecasts a
RMB 200 billion ($30.2B) subsidy shortfall by 2020. The government plans to bridge
the subsidy gap by enforcing a national renewable energy certificate market by
imposing renewable quotas on coal-fired power plants in 2018 and by creating a
nation-wide carbon emission trading market in 2018. A $10/MT of hypothetical
carbon price could force coal power producers to pay $0.01/kWh, or 15% of
wholesale electricity tariffs in China.
12 February 2018
SunPower (SPWR) 16
■ In comparison, solar PPAs in other markets such as India, Middle East, Latin
America, and Europe are lower than conventional technologies, lower than
wholesale rates in most cases, and are largely unsubsidized (barring favorable
policy support).
Figure 25: China Solar FiT Cuts
Source: NDRC.
Figure 26: China Solar Demand
Remains Elevated in 2018–2020
Figure 27: India Solar Demand—37%
CAGR 2017–2020
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
India Will Likely Outpace US Solar Demand by 2020
We forecast India installed ~7GW of solar projects, mostly at utility-scale level, vs 4.5GW
in 2016. The growth is driven by new utility-scale project auctions in the country under the
government's National Solar Mission to achieve 100 GW solar PV by 2022. Central and
state governments have shown interest in solar auctions since solar PPAs have achieved
costs below $40/MWh, cheaper than conventional energy sources in the country. The
government plans to auction 14 GW solar projects in 1Q18 and additional 30 GW in
FY19 (April 2018 to March 2019) and 30 GW in FY20 (April 2019 to March 2020). As a
result, we forecast solar installations will grow to 18 GW by 2020 at a CAGR of 41% vs
2017 levels.
FiT Rates, RMB/kWh
2014 to 1H16 2H16 to 1H17 2H17 to 1H18 2H18
RMB/kWh RMB/kWh % chg RMB/kWh % chg RMB/kWh % chg
Ground-mount FiT
Region I 0.90 0.80 (11.1)% 0.65 (18.8)% 0.55 (15.4)%
Region II 0.95 0.88 (7.4)% 0.75 (14.8)% 0.65 (13.3)%
Region III 1.00 0.98 (2.0)% 0.85 (13.3)% 0.75 (11.8)%
Distributed solar 2014 to 1H16 2H16 to 1H17 2H17 Jan 2018
DG subsidy 0.42 0.42 - 0.42 - 0.37 (11.9)%
13 4
11 11
15
30
50
45 45 45
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1.7%
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GW
Solar demand, GW
Solar generation as % of total mix
01 1 1 1
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18
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Solar demand, GW
Solar generation as % of total mix
12 February 2018
SunPower (SPWR) 17
Solar Supply—Easing Up in 2018
The global solar supply chain has suffered from oversupply in the past few years, which
resulted in sharp module price decline in 2016 (down 35% through the year). Demand
surge in 2017 provided the much needed relief in the sector, as module prices declined
only 13% through the year.
■ 2017 Was Undersupplied: We also compare annual changes in demand vs
increases in poly, wafer, and cell capacities based on announced planned
expansions. Demand grew >20 GW in 2017, but capacity additions were limited to
10-15 GW across the value chain, which led to supply tightness across the value
chain. The supply tightness affected polysilicon prices the most (up 15% in 2017)
because of scheduled maintenance in 3Q17 in China for major suppliers, a
protectionist trade policy in China that charges up to 50% import duty on polysilicon
imported by the US, and expansion delays in China due to strict environmental
compliance requirements. Wafer prices also increased in the year due to higher
polysilicon prices and a tight Tier-1 supply.
■ Supply Eases in 2018: Based on our bottom-up solar supply model, capacity
additions in 2018 vs a decline in demand will result in lower capacity utilization
across the supply chain and result in lower prices. While we forecast demand
declines by ~6.4-GW y/y in 2018, poly/wafer/cell capacity increases by
28/15.6/8.8 GW.
■ …But Timing of Capacity Additions Will Keep Poly Prices Stable in 1H18: New
polysilicon capacity is likely to come in service toward the end of 2018. Strong
demand in 1H18 ahead of China FiT cut deadline on June 30, 2018, could squeeze
supply in 1H18 and keep polysilicon prices elevated. Wafer prices could also be
under pressure due to quarterly supply shortages and as manufacturers swap out
multi-si capacity for mono-si capacity.
■ Expect Module Price Declines in 2018-19: We estimate module prices will decline
10% y/y on average due to lower demand in 2018, growing oversupply, and
declining FiTs in China. Based on current capacity announcements and demand
expectations of 116 GW in 2020, we believe 2020 could also be oversupplied
leading to lower module prices.
Figure 28: Solar Supply Demand Summary
Source: Company data, Credit Suisse estimates.
Solar Supply/Demand Summary 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Demand, MW 21,107 26,900 29,291 36,417 45,138 52,656 75,000 97,034 91,654 103,248 116,231
Demand (ex thin film), MW 19,673 24,920 27,700 34,789 43,263 49,991 71,903 94,834 88,754 98,248 110,531
Total poly capacity, MT 206,390 288,143 320,560 333,260 374,710 413,410 446,410 485,260 575,260 625,260 625,260
(-) semi demand (from msi data, assuming 3gm/sq ini) 28,110 27,129 27,093 27,201 30,291 31,302 32,214 33,825 35,516 37,292 39,156
Total poly capacity available for solar, MT 178,280 261,014 293,467 306,059 344,419 382,108 414,196 451,435 539,744 587,968 586,104
Blended poly usage, grams/watt 7.0 5.9 5.5 5.4 5.15 4.90 4.62 4.17 3.98 3.81 3.65
Total solar poly capacity (ex semi, ex thin film), MW 25,325 44,090 52,687 56,158 66,892 77,909 89,621 108,200 135,522 154,234 160,599
(+) Thin Film supply (FSLR), MW 1,434 1,980 1,591 1,628 1,875 2,665 3,097 2,200 2,900 5,000 5,700
Total solar capacity (poly + thin film), MWs 26,759 46,070 54,278 57,786 68,767 80,574 92,719 110,400 138,422 159,234 166,299
Total wafer capacity (ex thin film), MW 32,013 45,535 51,174 58,211 64,982 72,183 86,753 104,689 119,603 132,603 151,103
Total cell capacity (ex thin film), MW 26,764 57,628 62,996 64,083 70,556 80,312 96,070 109,983 118,083 118,483 118,483
Average Capacity Utilization (ex-thin film)
Polysilicon 71.8% 57.2% 63.9% 70.3% 69.0% 85.8% 95.9% 72.8% 67.8% 70.2%
Wafer 64.3% 57.3% 63.6% 70.2% 72.9% 90.5% 99.1% 79.1% 77.9% 77.9%
Cell 59.1% 45.9% 54.8% 64.3% 66.3% 81.5% 92.0% 77.8% 83.1% 93.3%
12 February 2018
SunPower (SPWR) 18
Figure 29: Demand vs c-Si Cell and Wafer Capacity Figure 30: Utilization Falls Below 2016 Levels
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
What Could Surprise Our Thesis?
■ US—Tariffs/Tax-Reform Impact Harsher Than Expected: We forecast a limited
impact to our US demand estimates due to the 30% import tariffs, as the impact is
minimal on residential- and commercial-scale installations and major utility
developers have already contracted supplies. However, demand could decline if the
tariff impact is harsher than assumed. Tax equity constraints due to the BEAT
provision in the tax reform could also result in lower demand at the tail end of small-
scale developers.
■ China—Government Stops FiT Support: Solar demand in China can fall if the
government pulls the plug on feed-in-tariffs. FiTs are 37-67% higher than wholesale
tariffs and 2x low-cost subsidy-free solar PPAs, even when compared with markets
such India that have a higher cost of capital.
■ India—Protectionist Policy: A 70% import tariff under a current proposal would
jeopardize the Indian government’s goal to support solar installations. If implemented,
a tariff would result in higher module prices and lower demand in India.
■ Emerging Markets: Higher demand due to demand elasticity in emerging markets
such as Middle East, Latin America, Europe, and Australia.
■ New Capacity Build: Poly, wafer and cell capacity expansions announced by
manufacturers
7
33 35 29 27 30
24
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Demand (ex thin film)
Total cell capacity (ex thin film)
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Wafer overcapacityDemand (ex thin film)Total wafer capacity (ex thin film)
40%
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2011 2012 2013 2014 2015 2016 2017 2018 2019
Glo
bal
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acit
y u
tiliz
atio
n
Cell Wafer poly
12 February 2018
SunPower (SPWR) 19
Company Overview SunPower (SPWR) is a vertically integrated global manufacturer and developer of solar
projects that was founded in 1985. The company develops, manufactures, installs, and
sells solar systems (designed to provide electricity for ~25 years) to residential-,
commercial-, and utility-scale power plants customers. In addition, SPWR offers project
development; sales; engineering, procurement, and construction (EPC); and operations
and maintenance (O&M) services for its installations. It also leases solar systems to
residential customers and sells inverters manufactured by third parties.
SPWR is a subsidiary of French oil and gas company, Total Energies (TOT), which
currently owns a 59% majority interest (including warrants).
SPWR is known for its high-efficiency polysilicon modules, with efficiency measured as
amount of sunlight converted by the module into electricity. Its modules hold efficiencies of
>22% compared with an industry average of ~17%. Highly efficient modules are better
suited for space-constrained spaces such as rooftops in the residential and commercial
rooftop markets.
Figure 31: SunPower Company Timeline
Source: Company data, Credit Suisse estimates
Figure 32: SunPower Competes in Crystalline Silicon Production Process
Source: Credit Suisse.
Powered NASA Pathfinder aircraft with high efficiency solar cells Fab 2 came online in the Phillippines
Initial funding from VC and an R&D contract from EPRI/DOE Acquired PowerLight, a solar systems provider
SunPower officially incorporated SPWR IPO Began production of record breaking high efficiency (22.4%) solar cell
1985 1990 1997 2001 2002 2003 2004 2005 2007 2008 2010
Cypress Semiconductor invested $8M Announced record breaking mono-silicon cell efficiency (23.4%)
Tom Werner joined as CEO Announced record cell efficiency record (24.2%)
First manufacturing facility (Fab 1) came online in the Phillippines JV with AU Optronics for Fab 3 in Malaysia
First utility-scale power plant came online in Bavaria
Partnered with Sunverge to offer solar+storage Announced restructuring program
Acquired SolarBridge Technologies Acquired AUO's stake in 800MW Fab 3 JV in Malaysia
Announced 160MW manufacturing facility in South Africa Won 500MW solar PPA in Mexico
Acquired Greenbotics, a robotics solar panel cleaning products and services company Announced SunPower Equinox system
2011 2012 2013 2014 2015 2016
Total SA acquired a 60% majority interest in SPWR Formed 8point3 joint yieldco with FSLR
Launched C7 Tracker achieveing record LCOE for utility-scale power plants Began construction on 102MW Henrietta solar plant in CA
Acquired French solar provider, Tenesol SA Signed 20-year PPA with NV Energy for 100MW solar plant
Acquired 1.5GW US solar power plant development pipeline from Infigen Energy
12 February 2018
SunPower (SPWR) 20
Figure 33: Research Cell Efficiency—Multi-Si 22.3%, Mono-Si 25.8%
Source: NREL (https://www.nrel.gov/pv/assets/images/efficiency-chart.png).
Technology Summary
SunPower manufacturers two types of solar modules:
Interdigitated Back Contact (IBC): This type essentially deploys busbars on solar cells
behind the call instead of competitors putting busbars on the sun-facing side. This results in a
higher cell and module level efficiency compared with peers. The company's latest X-Series
module using this technology has already achieved 25% average cell conversion efficiency in
production, one of the highest in the world, and better than previous generation E-Series cells,
which had a 20%+ efficiency. SunPower produces the X-Series at its 350 MW production line
in the Philippines (fab 4, ramping up) and 800 MW Malaysia line (fab 3, upgrading).
P-Series: SunPower acquired P-Series technology through its acquisition of Cogenra in
August 2015. P-series cells are essentially overlapping strips of conventional c-si cells.
Busbars, the wires on cells that carry electricity generated, are located between the overlapped
areas in P-series, which helps in maximizing surface area generating electricity on each
module. The company claims that P-Series module efficiency is 7% higher and energy
production is 17% higher. The company is producing P-Series in Mexico (400 MW capacity).
SolarBridge: SunPower bought micro-inverter manufacturer SolarBridge in November 2014.
Micro-inverters are small inverters that are directly attached on the back of each module in the
factory and avoid the need to install a separate inverter on premises. Apart from reducing
installation costs of an extra inverter, the micro-inverters also help improve system
performance, as poor performance in one module (due to shading or any defect) doesn't affect
the performance of other modules (which generally happens in traditional central inverters).
Enphase is the main micro-inverter competitor, which costs ~$0.35-0.40/W.
Subsidiaries—8Point3 YieldCo (CAFD)
In June 2015, FSLR and SunPower (SPWR) formed their joint yieldco, 8point3 Energy
Partners (CAFD). CAFD was formed to own, operate, and acquire solar energy assets.
FSLR and SPWR both contribute solar projects (dropdown) into CAFD in exchange for
cash as well as equity stakes.
The YieldCo was put on sale in mid-2017 after both the sponsors decided to exit the JV.
Capital Dynamics has offered to acquire the YieldCo for cash, and the deal is likely to be
closed by August 2018.
12 February 2018
SunPower (SPWR) 21
Cash Flow Focus—Simplify Business and Grow DG
■ Restructuring: SunPower laid outs its restructuring plan in December 2016 to
prioritize near-term cash flow over earnings. Core tenants of the restructuring plan
included (1) a shutdown of the 700MW Fab 2 facility, (2) the elimination of certain
senior management positions, (3) a 2017 OpEx target of $340M vs then
expectations of $350M and our $404M 2016 est, and (4) inventory liquidation and
working capital management to support operating cash flow generation.
■ DG Focus: SunPower's power plant business had historically benefited from legacy
solar projects that delivered >20% gross margin. However, the power plant business
has turned less profitable due to strong competition for large-scale projects globally.
As a result, the company has decided to invest in residential- and commercial-scale
solar projects. We forecast that the share of residential and commercial deployments
will grow from <50% in 2017 to >60% by 2020. We also estimate residential projects
will earn a 20% gross margin, commercial – 15%, and power plant – 10%.
Figure 34: Shift to Residential and Commercial
Deployments…
Figure 35: …Driven by Higher Margins in Distributed
Generation
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
■ Monetizing Non-Core Assets: Management has expressed its desire to exit or
monetize all non-core operations under the restructuring plan.
■ 8point3 Sale – $357m: The company, along with JV partner FSLR, had announced
in 2017 plans to sell their ownership in the YieldCo. Capital Dynamics announced
on February 5, 2018, it would acquire 8point3 in cash for equity value of $977m, or
$12.35/sh. SunPower's equity ownership (36.5%) is worth $357m. Apart from
proceeds from the ownership sale in the YieldCo, SunPower also benefits by
freeing up ~400 MW solar projects from 8point3's ROFO list and could potentially
monetize them ahead of completion.
■ Lease Asset Financing – >$500m: The company could potentially securitize the
rest of the leasing assets through a solar ABS. The market for solar ABS has
increased >3x in 2017 and represents just 0.34% of the total US ABS market.
Securitizing the rest of the solar leases booked, 412-MW, at average proceeds of
~$1.36/W, in-line with recent issuances, could help raise ~$500m (adjusted for
$54m lease asset financing in 3Q17).
341 292 321 480 520 600
193 305 347
480
700 800
592
743 714
740
780
775
-
500
1,000
1,500
2,000
2,500
2015A 2016A 2017E 2018E 2019E 2020E
Dep
loym
ents
-M
W
Residential Commercial Power Plant
18.1%
21.0%
23.3%
21.7%
19.5% 20.0% 20.0% 20.0%
3.2%
13.1%
11.2%
7.8%
10.9%
14.0%15.0% 15.0%
25.3%
20.5%
16.6%
13.6%
6.2%
10.0% 10.0% 10.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E
Residential Commercial Power Plant
12 February 2018
SunPower (SPWR) 22
Figure 36: Solar ABS Issuances Jumped 3x in 2017
Source: Company data, Credit Suisse estimates.
$ 54
$ 272 $ 235
$ 326
$ 1,427
2013 2014 2015 2016 2017
Dividend
Sunnova
Mosaic
Spruce
Sunrun
SolarCity
0.02%
0.07% 0.07%
0.10%
0.34%
2013 2014 2015 2016 2017
Solar ABS issuanceas % of total US ABS
$ -
$ 200
$ 400
$ 600
$ 800
$ 1,000
$ 1,200
$ 1,400
$ 1,600
2013 2014 2015 2016 2017
Leases
Loans
12 February 2018
SunPower (SPWR) 23
Drivers and Financials Business Segments
SunPower reports business segments based on the type of end customer – Residential,
Commercial, and Power Plants. The company sells solar modules and kits that include
mounting frames, trackers for commercial, microinverters for residential business, and
complete solutions through authorized sales partners. The company's complete residential
solution is called Equinox, while its commercial solution is called Helix.
■ Power Plant: This segment includes solar modules and kits supplied to third-party
customers and also SunPower's in-house project development. The company’s
current power plant portfolio includes ~500 MW Mexico solar projects won
competitively in 2016. Gross margins have been declining in the business due to
growing competition for solar projects globally and a declining cost of solar modules
in the industry, which is pressuring prices. Management hopes to arrest the decline
in Power Plant gross margins by deploying a low-cost P-Series module that can
compete on cost with traditional crystalline silicon modules. We expect the company
will be able to maintain 10% gross margins going forward while system ASP
continues to decline ~10% per year.
Figure 37: SPWR Power Plant Business—Historical and Credit Suisse Estimates
Source: Company data, Credit Suisse estimates.
■ Commercial Solar Projects: The commercial business is the fastest business
segment for SunPower. While commercial solar projects are sold globally, US
commercial solar market alone installed 1.6 GW in 2016 and we forecast 1.8 GW/yr
of installations in 2017 (up 15% y/y), growing to 3.3 GW/yr by 2020 (21% CAGR
2017-2020). In comparison, we expect SunPower's commercial deployment will
grow at a 32% CAGR from 347 MW in 2017 to 800 MW in 2020. Apart from a fast-
growing market, interest is also driven by SunPower's integrated product (Helix).
Helix is a complete commercial solar offering that combines SunPower's high-
efficiency solar modules with purpose-built mounting structures, wires, and
inverters. The complete solution makes SunPower a one-stop shop for any project
developer and reduces installation time. Historically commercial sola projects were
based on E-Series and X-Series modules, but we expect P-Series could be used for
non-rooftop applications where it competes with traditional c-Si modules. The
company had guided 2017 deployments to grow 15-20% y/y.
592
743 714 740 780 775
-
100
200
300
400
500
600
700
800
900
2015A 2016A 2017E 2018E 2019E 2020E
Power Plant Deployment, MW
25.3%
20.5%
16.6%
13.6%
5.4%
10.0% 10.0% 10.0%
0%
5%
10%
15%
20%
25%
30%
2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E
Power Plant Non-GAAP Gross Margins
$ 3.41
$ 2.18 $ 1.90
$ 2.02
$ 1.16 $ 1.10 $ 1.00 $ 0.90
$ -
$ 0.50
$ 1.00
$ 1.50
$ 2.00
$ 2.50
$ 3.00
$ 3.50
$ 4.00
2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E
Power Plant ASP, $/W
12 February 2018
SunPower (SPWR) 24
Figure 38: SPWR Commercial Business—Historical and Credit Suisse Estimates
Source: Company data, Credit Suisse estimates.
■ Growing Residential Market: SunPower sells solar module and kits, which include
microinverters and mounting systems, to residential customers in major markets
such as the US, Europe, and Japan. The company's high-efficiency products are
suitable for residential roofs with limited surface areas. Unlike vertically integrated
US residential developers (such as RUN, VSLR, and SolarCity), SunPower relies on
a dealer network for customer acquisition and installation but provides solar system
kits and helps finance leases if needed. The flexible business model means that the
company could reach a wider network of customers through dealers and with
minimal upfront capital investment to set up a sales network. The US residential
market has been growing at a fast pace for SunPower, and the company is even
gaining module market share in California's residential market. Cash and loan sales
represented 63% of US residential shipments in 3Q17, while 37% were leased (vs
65%/35% in 2Q17 and 61%/29% in 1Q17). The company has also deployed 380
MW solar leases, primarily in the US. Attachment rates for SunPower's integrated
residential solar system offering (Equinox) was >80% in 1Q17, >85% in 2Q17, and
~90% of bookings in 3Q17. Higher Equinox attachment rates in the future could
present upside to our residential ASP assumptions. We forecast residential
deployments increase from 321 MW to 600 MW by 2020, gross margins of ~20%,
and ASPs decline from $2.95/W to $2.30/W in 2020.
Figure 39: SPWR Residential Business—Historical and Credit Suisse Estimates
Source: Company data, Credit Suisse estimates.
■ Storage Attachment Rates Are Growing: SunPower has a $60m solar+storage
pipeline for next year, mostly for power plant projects. In addition, management
expects half of commercial projects will have storage in 2018, and attachment rates
are only growing, a trend confirmed by residential solar developer SunRun. We
expect a higher margin on storage adders, as solar+storage is still a niche market.
193 305 347
480
700 800
-
100
200
300
400
500
600
700
800
900
2015A 2016A 2017E 2018E 2019E 2020E
Commercial Deployment, MW
3.2%
13.1%
11.2%
7.8%
10.9%
14.0%15.0% 15.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E
Commercial Non-GAAP Gross Margins, %
$ 1.86
$ 2.09
$ 1.75
$ 2.18
$ 1.78 $ 1.70
$ 1.60 $ 1.50
$ 1.00
$ 1.20
$ 1.40
$ 1.60
$ 1.80
$ 2.00
$ 2.20
$ 2.40
2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E
Commercial ASP, $/W
341 292 321
480 520 600
-
100
200
300
400
500
600
700
2015A 2016A 2017E 2018E 2019E 2020E
Residential Deployments, MW
18.1%
21.0%
23.3%
21.7%
19.5%20.0% 20.0% 20.0%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E
Residential Non-GAAP Gross Margins
$ 1.82 $ 1.88
$ 2.24
$ 3.62
$ 2.95
$ 2.60 $ 2.40
$ 2.30
$ 1.00
$ 1.50
$ 2.00
$ 2.50
$ 3.00
$ 3.50
$ 4.00
2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E
Residential ASP, $/W
12 February 2018
SunPower (SPWR) 25
■ Bookings: The company announced total solar bookings of ~500 MW in 2017 as of
3Q17, which includes 300 MW French solar tenders. The company's pipeline of
early-late stage commercial projects exceeds $2.5B.
Cash and Balance Sheet
The company has $1.125B of convertible debt on its balance sheet, while the rest of the
debt mainly pertains to long-term loans for residential leases ($353m) and credit facilities
for projects (Boulder I - $28m, El Pelicano - $177m). In addition, the company also
secured a $100m revolver with majority holder Total.
The $300m 2018 convertible debt is due on June 2018. A $24.95 conversion price implies
SunPower would have to pay note holders in cash. TOT owns $200m of the debt and
could likely participate in refinancing. Nevertheless, SunPower could refinance the $300m
convert with 8point3 sale proceeds ($357m, or $2.48/sh), potential future assets sales, or
lease asset securitization.
Management plans to exit 2017 with >$350m in cash.
Figure 40: Debt Schedule—$300m Convert Due in 2018
Source: Company data, Credit Suisse estimates.
Above Market Polysilicon in Contracts
SunPower had entered into fixed-price polysilicon supply agreements for multiple years at
a time when polysilicon cost was >$100/kg. However, the cost of polysilicon has declined
significantly to ~$15-20/kg last year. Starting 1Q17, management has started excluding
the impact of higher-cost polysilicon from its non-GAAP segment gross margins. The
company still has purchase obligations worth $199.1m related to take-or-pay, non-
cancellable polysilicon contracts. The cost of above market polysilicon was $99m, or
$0.07/W of MWs produced in 2015, increasing to $148m, or $0.12/W of MWs produced in
2016. The cost includes polysilicon sale to third-party customers at a loss to improve
working capital and reduce inventory.
200 250
100
100
150 325
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
4Q17 2018 2019 2020 2021 >2021
Convert, owned by TOTAL Convert - others Non-recourse, other
Non-recourse - Residential Non-recourse - El Pelicano
12 February 2018
SunPower (SPWR) 26
Figure 41: Quarterly Cost of Above-Market Polysilicon
Source: Company data, Credit Suisse estimates.
$15 $13 $14 $56 $13 $16 $27 $92 $30 $22 $33
$ 0.05 $ 0.04 $ 0.04
$ 0.16
$ 0.04 $ 0.04
$ 0.08
$ 0.32
$ 0.11
$ 0.08
$ 0.11
$ -
$ 0.05
$ 0.10
$ 0.15
$ 0.20
$ 0.25
$ 0.30
$ 0.35
$ -
$ 10
$ 20
$ 30
$ 40
$ 50
$ 60
$ 70
$ 80
$ 90
$ 100
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Cost of above-market polysilicon, $m $/watt produced (RHS)
12 February 2018
SunPower (SPWR) 27
Financial Models
Figure 42: SPWR Earnings Model
Source: Company data, Credit Suisse estimates.
Income Statement 2015A 2016A 1Q17A 2Q17A 3Q17A 4Q17E 2017E 2018E 2019E 2020ERevenues $ 2,613 $ 2,703 $ 429 $ 341 $ 534 $ 704 $ 2,009 $ 2,846 $ 3,035 $ 3,085
(-) COGS $ 1,987 $ 2,459 $ 402 $ 300 $ 465 $ 601 $ 1,768 $ 2,506 $ 2,647 $ 2,655
Gross Profits $ 625.3 $ 243.5 $ 27.9 $ 41.7 $ 68.2 $ 102.9 $ 240.6 $ 339.9 $ 388.6 $ 429.2
Gross Margin % 23.9% 9.0% 6.5% 12.2% 12.8% 14.6% 12.0% 11.9% 12.8% 13.9%
(-) R&D $ 87.4 $ 102.0 $ 19.0 $ 17.5 $ 19.0 $ 19.0 $ 74.6 $ 76.0 $ 80.0 $ 80.0
(-) SG&A (excl restructuring) $ 296.2 $ 292.8 $ 62.1 $ 61.9 $ 63.3 $ 67.0 $ 254.3 $ 280.0 $ 288.0 $ 300.0
Operating Expenses $ 383.6 $ 394.9 $ 81.1 $ 79.4 $ 82.3 $ 86.0 $ 328.9 $ 356.0 $ 368.0 $ 380.0
Operating Income $ 241.7 $ (151.3) $ (53.3) $ (37.7) $ (14.1) $ 16.8 $ (88.2) $ (16.1) $ 20.6 $ 49.2
Op Margin % 9.3% (5.6)% (12.4)% (11.1)% (2.6)% 2.4% (4.4)% (0.6)% 0.7% 1.6%
(+) Other Income (excluding non-cash interest expense)$ 21.8 $ (0.1) $ (13.8) $ (34.0) $ (21.2) $ (19.9) $ (89.0) $ (72.1) $ (75.6) $ (88.6)
Pretax Income $ 263.4 $ (151.4) $ (67.1) $ (71.8) $ (35.3) $ (3.1) $ (177.3) $ (88.2) $ (55.0) $ (39.4)
(-) Taxes on Earnings $ 47.7 $ 12.6 $ 1.5 $ 2.0 $ (24.9) $ (0.6) $ (22.0) $ (17.6) $ (11.0) $ (7.9)
tax rate % 18.1% (8.3)% (2.3)% (2.8)% 70.4% 20.0% 12.4% 20.0% 20.0% 20.0%
(+) minority / Equity income $ 9.6 $ 28.1 $ 1.1 $ 5.4 $ 15.3 $ 8.1 $ 29.9 $ 33.8 $ 35.7 $ 37.3
Net Income $ 225.3 $ (136.0) $ (67.5) $ (68.3) $ 4.9 $ 5.6 $ (125.4) $ (36.8) $ (8.4) $ 5.7
(+) Net loss attributable to NCI (attributable to installations on tax-equity deals)$ 112 $ 73 $ 17 $ 19 $ 25 $ 5 $ 66 $ 17 $ 17 $ 17
Net income attributable to stockholders $ 337.8 $ (63.2) $ (50.4) $ (49.3) $ 29.5 $ 10.6 $ (59.6) $ (19.8) $ 8.6 $ 22.7
Non-GAAP EPS $ 2.16 $ (0.48) $ (0.36) $ (0.35) $ 0.21 $ 0.08 $ (0.43) $ (0.14) $ 0.06 $ 0.16
Diluted Shares 156.7 132.7 138.9 139.4 139.5 140.0 138.9 141.4 143.3 145.2
EBITDA $ 556.5 $ 163.6 $ 8.6 $ 13.5 $ 67.3 $ 77.4 $ 166.8 $ 206.9 $ 230.5 $ 270.8
EBITDA guidance $185-$210m ($20)-($45)m($25)-$0m $0-$20m $75-$100m$165-$190m
Key Drivers
Deployments, MW 1,126 1,340 177 363 407 435 1,382 1,700 2,000 2,175
Sales, MW 968 1,299 230 226 379 410 1,245 1,723 1,955 2,070
Operating Cash Flow $ (726.2) $ (313.5) $ (126.9) $ (161.8) $ (26.6) $ 135.5 $ (179.8) $ 137.3 $ 143.8 $ 170.4
Capex $ 230.1 $ 187.1 $ 27.9 $ 17.2 $ 12.5 $ 55.0 $ 112.6 $ 100.0 $ 80.0 $ 80.0
FCF $ (956.3) $ (500.6) $ (154.8) $ (179.0) $ (39.1) $ 80.5 $ (292.4) $ 37.3 $ 63.8 $ 90.4
12 February 2018
SunPower (SPWR) 28
Figure 43: SPWR Balance Sheet & Cash Flow Statement
Source: Company data, Credit Suisse estimates.
Balance Sheet 2015A 2016A 1Q17A 2Q17A 3Q17A 4Q17E 2017E 2018E 2019E 2020E
AssetsCash and cash equivalents $ 955 $ 425 $ 387 $ 327 $ 275 $ 346 $ 346 $ 415 $ 453 $ 613 Accounts receivable, net $ 190 $ 220 $ 168 $ 196 $ 186 $ 246 $ 246 $ 214 $ 245 $ 240 Inventory $ 382 $ 402 $ 428 $ 445 $ 408 $ 310 $ 310 $ 188 $ 214 $ 206
Total Current Assets $ 2,515 $ 1,915 $ 1,650 $ 1,664 $ 1,505 $ 1,537 $ 1,537 $ 1,453 $ 1,548 $ 1,695
Net PP&E $ 1,263 $ 1,648 $ 1,719 $ 1,727 $ 1,760 $ 1,801 $ 1,801 $ 1,619 $ 1,627 $ 1,642
Project Assets - net of current portion $ 5 $ 34 $ 35 $ 41 $ 42 $ 42 $ 42 $ 42 $ 42 $ 42
Intangible assets, net $ 120 $ 44 $ 41 $ 37 $ 34 $ 34 $ 34 $ 34 $ 34 $ 34
Total Assets $ 4,857 $ 4,567 $ 4,326 $ 4,357 $ 4,309 $ 4,381 $ 4,381 $ 4,115 $ 4,219 $ 4,380
Liabilities
Accounts payable $ 515 $ 540 $ 438 $ 426 $ 408 $ 528 $ 528 $ 375 $ 427 $ 412
Current portion long-term debt $ 21 $ 71 $ 80 $ 427 $ 357 $ 357 $ 357 $ 357 $ 357 $ 357
Total Current Liabilities $ 999 $ 1,090 $ 815 $ 1,149 $ 1,070 $ 1,189 $ 1,189 $ 1,037 $ 1,089 $ 1,074
Long-term debt $ 1,590 $ 1,565 $ 1,615 $ 1,366 $ 1,417 $ 1,440 $ 1,440 $ 1,363 $ 1,423 $ 1,595
Other long term liabilities $ 565 $ 721 $ 775 $ 786 $ 796 $ 796 $ 796 $ 796 $ 796 $ 796
Total Liabilities $ 3,279 $ 3,376 $ 3,287 $ 3,375 $ 3,355 $ 3,497 $ 3,497 $ 3,268 $ 3,380 $ 3,536
Total Shareholders Equity $ 1,578 $ 1,191 $ 1,039 $ 981 $ 954 $ 884 $ 884 $ 847 $ 838 $ 844
Total Liabilities & Equity $ 4,857 $ 4,567 $ 4,326 $ 4,357 $ 4,309 $ 4,381 $ 4,381 $ 4,115 $ 4,219 $ 4,380
Cash Flow Statement 2015A 2016A 1Q17A 2Q17A 3Q17A 4Q17E 2017E 2018E 2019E 2020E
Cash Flows from operating activities
Net income (loss) $ (299.4) $ (543.8) $ (151.6) $ (112.8) $ (78.9) $ 5.6 $ (337.7) $ (37.4) $ (8.5) $ 5.7
Depreciation $ 138.0 $ 174.2 $ 42.1 $ 45.3 $ 46.2 $ 47.5 $ 181.1 $ 172.2 $ 157.2 $ 167.3
Changes in operating assets and liabilities: $ (619.3) $ (179.3) $ (38.8) $ (118.6) $ (1.8) $ 157.4 $ (1.8) $ 1.8 $ (5.0) $ (2.6)
Net cash provided by (used in) operating activities$ (726.2) $ (313.5) $ (126.9) $ (161.8) $ (26.6) $ 135.5 $ (179.8) $ 136.6 $ 143.7 $ 170.4
Cash flows from investing activities:
Increase in restricted cash $ (23.7) $ (22.7) $ - $ - $ - $ - $ - $ - $ -
Purchase of property, plant and equipment $ (230.1) $ (187.1) $ (27.9) $ (17.2) $ (12.5) $ (55.0) $ (112.6) $ (100.0) $ (80.0) $ (80.0)
Other long-term assets
Net cash used in investing activities $ 109.4 $ (377.5) $ (60.8) $ (44.9) $ (71.9) $ (88.0) $ (265.6) $ 9.9 $ (165.9) $ (181.8)
Cash flows from financing activities:
Net cash provided by financing activities $ 620.0 $ 161.0 $ 135.1 $ 53.0 $ (7.9) $ 23.1 $ 203.2 $ (76.9) $ 60.1 $ 171.2 Effect of Exchange rate change on Cash $ (4.8) $ 0.7 $ 0.8 $ 0.4 $ 0.1 $ 1.3 $ - $ - $ -
Net increase (decrease) in cash and cash equivalents$ (2) $ (529) $ (52) $ (153) $ (106) $ 71 $ (241) $ 70 $ 38 $ 160
Cash and cash equivalents at beginning of period $ 956 $ 955 $ 514 $ 462 $ 309 $ 203 $ 514 $ 273 $ 343 $ 381
Cash and cash equivalents at end of period $ 954 $ 425 $ 462 $ 309 $ 203 $ 273 $ 273 $ 343 $ 381 $ 541
FCF $ (956.3) $ (500.6) $ (154.8) $ (179.0) $ (39.1) $ 80.5 $ (292.4) $ 36.6 $ 63.7 $ 90.4
12 February 2018
SunPower (SPWR) 29
Key Debates and Catalysts
P-Series—Taking Advantage of China Oversupply
■ Capital Light Expansion: P-Series equipment capex is <$0.05/W (per
management's December 2016 update call), which screens much lower than
$0.40/W for traditional mono/multi silicon wafer-module capex. SunPower is
building a 5 GW P-Series manufacturing capacity in China. A third of products are
destined for the US markets if no tariffs are imposed, a third for international
projects, and a third for China.
■ Technology Advantage: SunPower acquired P-Series technology through its
acquisition of Cogenra in August 2015. P-series cells are essentially overlapping
strips of conventional c-si cells. Busbars, the wires on cells that carry electricity
generated, are located between the overlapped areas in P-series, which helps in
maximizing surface area generating electricity on each module. The company claims
that P-Series module efficiency is 7% higher and energy production is 17% higher.
Figure 44: P-Series—Up to 17% Higher Energy Production over Life of Asset
Source: Company data, Credit Suisse estimates.
Figure 45: Converting Regular c-Si Cells to P-Series
Figure 46: P-Series Produces 5-6% More Yield and
$0.03-0.04/W in Incremental NPV
Source: Company data. Source: Company data.
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12 February 2018
SunPower (SPWR) 30
■ Higher ASP Driven by Higher Energy Generation: Assuming a 15% energy
advantage, a P-Series ASP can command up to ~$0.05-0.10/W price premium
above high-efficiency silicon modules that trade at $0.40/W on the spot market. The
price premium due to the energy advantage alone implies a one- to two-year
payback period.
■ IP Protection: SunPower's has patent rights over the cell technology issued in
2014. A JV in China for P-Series production could force the company to share its IP
with Chinese manufacturers. Meanwhile, China-based Seraphim Energy also
manufactures a similar product called Seraphim Eclipse, which has overlapping
cells. The product was launched in 2016 and offers a 15% higher yield. Seraphim
also claims that its patent is pending approval.
Competition with Low-Cost c-Si Industry
■ Keeping with the Crystallines: SunPower's high-efficiency IBC modules compete
with a vast ecosystem of crystalline silicon (c-Si) module manufacturers.
SunPower's limited disclosure on module cost and pricing structure makes it difficult
to compare it with c-Si peers. However, SunPower's gross margins were in-line with
module manufactures, implying the company is facing the same margin pressures
due to declining prices and higher raw material costs (poly and wafer). SunPower's
gross margins were also affected by weaker performance by commercial and power
plant businesses.
Figure 47: Gross margin—SunPower and c-Si
Module Manufacturers Lag Upstream
Figure 48: EBITDA Margin—SunPower vs c-Si
Manufacturers
Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.
■ Mono Is the New Multi: SunPower's products are increasingly competing against
higher-efficiency mono c-Si modules, as most of the manufacturers are switching
from multi to mono and especially mono PERC technology. Mono-PERC module
conversion efficiencies are 200-300 bps above multi c-Si modules and cost the
same to manufacture, as higher production costs are offset by lower polysilicon
usage. Based on our supply demand, we tabulate that the mix of mono wafer
capacity is increasing from 21% in 2016 to 34% in 2017 to 45% in 2018.
■ Maintaining Efficiency Lead: Despite Mono-PERC's growing presence,
SunPower's products will still be able to maintain an efficiency lead. P-Series
technology will use the same mono-PERC cells and improve them for a higher
-10%
0%
10%
20%
30%
40%
50%
1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17
FSLR SPWR JKS JASO
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30%
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50%
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1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17
FSLR SPWR JKS JASO
TSL LONGi DQ CSIQ
12 February 2018
SunPower (SPWR) 31
efficiency, while IBC technology modules (X-Series) are already at a higher module
efficiency, and management expects it will maintain the lead in modules based on
next-generation technologies.
Figure 49: SPWR IBC Modules—Industry-Leading Module Efficiency
Source: Company data, EnergySage.
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12 February 2018
SunPower (SPWR) 32
Knight in French Armor
Total owns a majority ownership in SunPower (equity and debt). Total hasn't indicated
whether it wants to acquire rest of the stake, but we believe that any decision to do so
would depend on SunPower's ability to maintain profitability and potential synergies from
having an integrated solar+storage offering. Nevertheless, we do see near-term
opportunities for SunPower to expand market reach using Total's business network.
■ Total as Majority Owner: Total acquired 60% ownership in SunPower in June
2011 for ~$1.4B ($23.25/sh then). Subsequently, in December 2011, Total
increased its holding to 66% by acquiring 18.6m shares at $8.80/sh. Total's
ownership in SunPower stands at 59% (including warrants). Total also owns
$550m, or 48.9%, of SunPower's convertible debt. As a result, the majority five of
nine directors on SunPower's board are from Total.
■ Total as a Customer: In 2016, SunPower announced an agreement with Total for
up to 200 MW spread over four years to deploy panels globally at Total properties.
The deal includes 150 MW to be installed over 5,000 gas service stations (~30kW
per gas station) and 50 MW on commercial properties. The deal run rate seems
small (50MW/yr), but we like the deal, as it marked the start of a formal solar
deployment relationship with majority owner Total. We see upside from the deal if
Total decided to deploy more solar on its gas stations and other properties. Total
had a network of 16,000 stations in over 66 countries (additional 330 MW
opportunity at 30kW per station) and gross acreage of 211m acres under its oil and
gas business.
■ More Solar Projects with Total: Since 2016, Total and SunPower have also
collaborated on building solar projects globally, including 75 MW in South Africa in
2016 and 27 MW in Japan in 2017. Total's solar development arm, Total Solar, and
SunPower have also won projects in French solar tenders.
■ Total as Backstop: SunPower announced in 2017 Total's intention to backstop
$100m of SunPower's revolving credit facility. Total continues to provide a reliable
liquidity backstop and may have to be called on again to address the 2018 converts.
Total owns two-thirds of the convertible debt, or $200m, of the total $300m. Total
also owns $250m of the $400m 2021 convertible debt and $100m of the $450m
2023 convert. Cumulatively, Total owns 48.9% of SunPower's convertible debt.
■ Total's Growing Renewable Ambitions Could Accelerate SunPower: Total
reorganized its renewable business under the Gas, Renewables & Power business
in 2016. Since then, the company has acquired a Lithium-ion battery manufacturer
(SAFT in 2016 for $1B), a stake in distributed wind turbine manufacturer (United
Wind in July 2016), a 23% interest in a solar project developer (EREN Renewable
Energy in September 2017 for $285m), and an energy efficiency company (Grenflex
in September 2017). Total also started its solar project development business, Total
Solar, in 2017.
12 February 2018
SunPower (SPWR) 33
US Import Duty Priced In—Upside to Exemption
■ Tariffs Penalize SunPower: SunPower and crystalline silicon cell and module
manufacturers would have to pay a 30% tariff on solar cells and modules imported
in the US starting February 7, 2018. The tariff would be in effect through February
2022 but declines to 25%/20%/15% in 2019/20/21, respectively, at every
anniversary. The tariff implies c-Si module prices would settle in at ~$0.45/W in the
US, or in-line with prices seen in 2H16.
■ Cell Quota Doesn't Benefit SunPower: President Trump has allowed 2.5 GW of
cells to be imported every year sans tariffs. However, SunPower doesn't benefit from
the quota as it doesn't manufacture solar modules in the US (except for a pilot line for
testing new technologies). We believe that building a new module assembly factory in
the US could be feasible only if they get access to tariff free cells under the 2.5 GW
quota. However, we calculate that 4+ GW of module capacity (old+new announced) is
already competing for the 2.5 GW quota, leaving little room for certainty for a new
manufacturer. In addition, the tariffs fade away after four years implying that a module
factory would have to economical compared to Asian peers in the future.
■ Base Case—$0.12/W Tariff in Year One: Since SunPower would have to import
modules from Mexico, Philippines, or Malaysia, the company would be liable to pay a
30% tariff in year one on the cost of modules. While we assume c-Si peers pay $0.10/W
in the first year, we estimate that SPWR likely pays a slightly higher tariff ($0.12/W)
because its higher-efficiency modules cost more than conventional modules. We
estimate that the tariff on SunPower's modules declines to $0.10/W in 2019 and
$0.07/W in 2020, driven by a 5% decline in tariffs every year and also lower module
costs. We assume the tariff impacts 70% of revenue and COGS, which is lower than
historical US share of revenues (76%-85% 2014-2016) as the company expands
international operations. Moreover, we assume that the company is able to pass 50% of
the tariffs to end customers as demand for its differentiated high efficiency products
remains high. The higher costs on US modules reduces 2018 EBITDA by $72m, or
$0.51/sh, and reduces 2019 EBITDA by $66m, or $0.46/sh. The tariffs reduce equity
value by $4.5/sh, assuming 10x multiple on 2019 EBITDA reduction of $66m and
discounting back at 10% (in-line with our valuation methodology).
■ Management Still Hopeful of Exemption: SunPower has argued to the
government that it should receive an exemption since (1) its high-efficiency modules
are unique in the industry and separate from rest of the industry that is dependent
primarily on lower efficiency multi-crystalline modules, (2) the company is US based
and the underlying IBC technology was developed in the US, and (3) its
manufacturing facilities in Mexico, the Philippines, and Malaysia have not received
the same subsidies or government support as Chinese manufacturers have.
■ International Projects & Business Not Affected by The Tariffs: SunPower is
building 516 MW of projects in Mexico (399 MW Ticul Solar, and 117 MW Guajiro Solar)
that will be completed in 2018, has a 200-MW E-Series supply agreement with Total
spread over four years (2017-2020), won 505 MW in France's CRE solar tenders that
would be built over the next two to three years, and has significant commercial and
utility-scale business in Japan, Europe, and other developed markets.
Links to our prior research reports on US Section 201 trade case and import tariffs on
solar cell and modules:
1/22/18: 30% Tariff - In line – No Surprises
11/1/17: USITC: A Weaker Tariff Saves Jobs
9/22/17: USITC Finds Injury, In line with Expectations
12 February 2018
SunPower (SPWR) 34
Figure 50: US Import Tariffs and Impact on c-Si Module Prices
Source: Company data, Credit Suisse estimates.
Yr 1 Yr 2 Yr 3 Yr 4
2018 2019 2020 2021
President Trump's Final Decision - announed 1/22/18
Cell quota - MW 2,500 2,500 2,500 2,500
Cell import tariff above quota 30.0% 25.0% 20.0% 15.0%
Module import tariff 30.0% 25.0% 20.0% 15.0%
Imported module cost, $/W $ 0.45 $ 0.38 $ 0.34 $ 0.31
US made module ASP, below quota (using imported cell) $ 0.42 $ 0.38 $ 0.36 $ 0.34
US made module ASP, above quota (using imported cell) $ 0.48 $ 0.43 $ 0.40 $ 0.37
CS module cost assumptions
Global average module price, $/W $ 0.32 $ 0.28 $ 0.26 $ 0.24
Freight & warranty + transfer cost $ 0.03 $ 0.03 $ 0.03 $ 0.03
Global avg cell price, $/W $ 0.20 $ 0.18 $ 0.17 $ 0.16
Module conversion cost in Asia, $/W $ 0.12 $ 0.11 $ 0.10 $ 0.09
Extra manufacturing cost in the US, $/W $ 0.03 $ 0.03 $ 0.03 $ 0.03
Manufacturer gross margin 10.0% 10.0% 10.0% 10.0%
Cell tariff 30.0% 25.0% 20.0% 15.0%
Cost of US made module $ 0.48 $ 0.43 $ 0.40 $ 0.37
12 February 2018
SunPower (SPWR) 35
8point3 Sale
■ 8Point3 YieldCo to Be Acquired by Capital Dynamics: On Feb 5, 2018, 8point3
announced that Capital Dynamics would acquire the company for cash at $12.35/sh
(adjusted for dividend distributions until deal close), representing a 10.7% discount
to the prior close. The acquisition implies a lower-than-expected yield: an 11.5%
cash yield based on 2017 cash available for distribution (CAFD) and a 14.4x
multiple on 2017 EBITDA. Both the sponsors, FSLR and SPWR, will forego any
value associated with the IDRs. We calculate SPWR's 28.9m shares in 8point3 are
worth ~$357m, or ~$2.48/sh, for SPWR shareholders.
■ 8point3 Next Steps and Additional Acquisition Details: 8point3 management
expects the deal to close in FQ2 (ending May 2018) or FQ3 (ending August 2018),
and the final price paid would include dividends paid on a pro-rata basis until the
deal closes. The acquisition is predicated on majority approval of independent
Class A shareholders (not including sponsors) and regulatory approvals (FERc,
HSR, CFIUS). 8point3 will not solicit any other offers, likely since Capital Dynamics
was selected after a detailed review of >130 inbound inquiries.
■ Termination Fees: 8point3 is liable to pay a termination fee of $25m to Capital
Dynamics if the company selects an alternative offer, or liable to pay $8m expense
reimbursement if 8point3 fails to approve the deal by Aug 6, 2018 (extendable to
Nov 5, 2018) except for any regulatory delays. Capital Dynamics is liable to pay a
termination fee of $54m if it does not respond to a closing failure notice, or a $6m
expense reimbursement if the deal does not receive CFIUS approval.
Figure 51: CAFD's Sector High Dividend Yield Is Indicative of Limited Dropdown
Visibility Despite Guidance of 12% Dividend Growth
Source: Thomson Reuters, I/B/E/S.
■ 8Point3 YieldCo History: In June 2015, FSLR and SunPower (SPWR) formed
their joint yieldco, 8point3 Energy Partners (CAFD). CAFD was formed to own,
operate, and acquire solar energy assets. FSLR and SPWR contributed solar
projects (dropdown) into CAFD in exchange for cash as well as equity stakes. As of
4Q17, FSLR owned a 50% interest in the partnership and a 28% economic and
voting interest in the operating company (OpCo) entity, and SPWR owned a 50%
interest in the partnership and a 36.5% economic and voting interest in the OpCo
entity. CAFD’s CEO, Chuck Boynton, is the CFO at SPWR and CAFD’s CFO, Bryan
Schumaker, is the SVP and Chief Accounting Officer of FSLR.
0%
2%
4%
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8%
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12%
14%
Jul-1
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-14
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-14
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-16
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-17
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-17
Jul-1
7
Sep
-17
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-17
YieldCo dividend yield range Wt Avg NEP CAFD
12 February 2018
SunPower (SPWR) 36
Valuation Our target price of $7.20 is based on a 10x multiple to our 2019 adjusted EBITDA estimate
(excludes 8point3 distributions), net of debt, discounted back at 10%, and including
SPWR's share in 8point3. The multiple is in-line with its prior-year average since 2013
(8.7-12.4x average). The multiple represents a slight premium to FSLR's 9x, reflecting the
company's higher-margin sales opportunity in the growing residential and commercial
solar markets. The stock currently trades at 10.6x our 2019 adjusted EBITDA estimate.
Figure 52: Valuation Summary—Base Case
Source: Company data, Credit Suisse estimates.
Figure 53: Valuation Bridge – Note TP $7.20/Sh Is Based on 10x Forward
Multiple on 2019 EBITDA
Source: Company data, Credit Suisse estimates.
Base case valuation Per share
2019 adj EBITDA (ex 8point3 distributions) $ 195
Multiple 10.0x
EV on corp $ 1,948 $ 13.5
(-) net debt (starting 2019) $ (1,196) $ (8.3)
Equity value $ 752 $ 5.2
Discount rate 10.0%
(+) SPWR share in CAFD $ 357 $ 2.5
PV of equity value $ 1,041 $ 7.2
Diluted share count, m 144.0
Ownership in YieldCo
memo: 8point3 current price $ 12.29
8point3 current offer price (by Capital Dynamics) $ 12.35
+ Dividends accrued in Q1 (assuming Q2 close) $ 0.28
8point3 sale price end of Q1 $ 12.63
PV at 10% discount rate (for SPWR) $ 12.32
SPWR's current share ownership, m shares 28.9
8point3 sale proceeds for SPWR, $m $ 357
8point3 sale proceeds for SPWR, $/sh $ 2.48
$ 8.3
$ 4.8
$ 3.4
$ 2.4
$ 2.5
$ 7.2
$ 9.7
$ 4.5
$0
$5
$10
$15
$20
$25
Resi C&I Power Plant Net debt Tariffs
HoldCo DevCo value implied CAFD Less Equity value
12 February 2018
SunPower (SPWR) 37
Blue and Grey Sky Scenarios
Under a blue sky scenario, we assume the company is exempted from the US import
tariffs. We value blue sky 2019 EBITDA at a 10x forward multiple, net of debt, discounted
back at 10% and including SPWR's share in 8point3 at $2.50/sh.
Under a grey sky scenario, we assume the company is not exempted under the trade case
and absorbs 100% of the incremental costs because of pricing pressure from Asian
suppliers. We value grey sky 2019 EBITDA at a 10x forward multiple, net of debt,
discounted back at 10% and including SPWR's share in 8point3 at $2.50/sh.
Figure 54: Equity Value/Sh Sensitivity to US Import Tariff in Yr 1 (i.e., 2018) and
Relative Valuation Multiples
Source: Company data, Credit Suisse estimates.
Equity value $/sh Tariff pass through ASP
$ 7.2 - 10.0% 20.0% 30.0% 40.0% 50.0%
Tariff/w in yr 1 $ - $ 11.7 $ 11.7 $ 11.7 $ 11.7 $ 11.7 $ 11.7 Blue sky
$ 0.05 $ 9.1 $ 9.4 $ 9.7 $ 9.9 $ 10.2 $ 10.4
$ 0.10 $ 4.5 $ 5.3 $ 6.0 $ 6.7 $ 7.4 $ 8.1
Grey sky $ 0.12 $ 2.7 $ 3.6 $ 4.5 $ 5.4 $ 6.3 $ 7.2 Base case
$ 0.15 $ (0.0) $ 1.1 $ 2.3 $ 3.5 $ 4.7 $ 5.8
12 February 2018
SunPower (SPWR) 38
Investment Risks
■ Tax Equity Supply Shortage Under BEAT Tax: Tax equity is an important
financing vehicle for solar projects in the US. Of a project's cost, 40-50% is financed
by tax equity investors in return for the 30% solar tax credit and annual cash
payments. The tax reform bill signed by President Trump in 2017 included a
provision called The Base Erosion Anti-Abuse Tax (BEAT) would set a 10%
minimum tax on adjustable income including cross-border exemptions, but exempts
only 80% of renewable tax credits in a year. Uncertainty around the eligibility to take
advantage of up to 20% of renewable tax credits could potentially squeeze tax
equity supply for solar projects and result in lower demand. Based on our channel
checks, we expect minimum impact to tax equity supply for solar and wind ITCs,
which don’t need extensive tax visibility beyond the first few years.
■ US Tariff Case Resolution: SunPower is seeking exemption from US import tariffs.
We believe the White House could announce a decision on exempted
companies/countries in 1H18, but timing is uncertain, as the president is not bound
by any deadline. We expect up to $4.5/sh potential upside potential to our TP if
SunPower receives the exemption. While our TP assumes a partial impact of the
tariffs, we expect up to $4.5/sh potential downside if the company can't pass down
tariffs to customers and has to absorb the impact.
■ Achieving Cost Reduction Targets: Delay in capacity expansion and associated
cost reduction measures could put the company in the penalty box and force it to
revalidate the value proposition of its technology. The stock current trades at 3x net
asset value of solar projects, adjusted for ownership in CAFD and net of debt,
implying the market assigns significant value to the module production and system
development business.
■ Polysilicon and c-Si Module Oversupply and Cost Declines: Solar module price
declines could potentially accelerate in late 2018 and 2019 due to capacity
additions across the supply chain. SunPower's P-Series technology is directly
dependent on upstream poly, wafer, and cell supply, as it plans to procure solar
cells made in China. Peers with higher upstream poly/wafer capacity have benefited
in 2H17 from higher demand in China/US and lower supply in China. However,
based on our supply/demand analysis, we believe SPWR stands to benefit from
growing oversupply in late 2018 through 2019.
■ Trade/Renewable Policy Changes: Positive or negative surprises in demand for
solar due to policy changes in major markets could also disrupt the supply/demand
balance and cause module prices to fall if demand declines and vice a versa.
12 February 2018
SunPower (SPWR) 39
Historical Valuation Multiples and Comps
Figure 55: SPWR Historical Relative Valuation Multiples
Source: Company data, Credit Suisse estimates.
0.0x
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10.0x
15.0x
20.0x
25.0x
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
EV/EBITDA (NTM)
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Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Price/Sales (NTM)
12 February 2018
SunPower (SPWR) 40
Figure 56: Solar Value Chain Comps Sheet
Source: Company data, Credit Suisse estimates. Thomson Reuters, I/B/E/S consensus
Price Currency Mkt. Cap Consensus dividend Yield Consensus EV/EBITDA CS Rating/TP
2/9/2018 (USD$m) 2017 2018 2019 2017 2018 2019 Rating, Target, Analyst
YieldCos
Atlantica Yield (AY) 19.69 USD 1,973 5.7% 7.7% 8.8% 9.6x 9.1x 8.3x
8point3 Energy Partners (CAFD) 12.33 USD 975 8.6% 9.1% 9.0% 14.1x 14.5x 14.6x
Hannon Armstrong (HASI) 20.5 USD 1,088 6.5% 7.0% 7.6% 23.9x 19.8x 17.5x
NextEra Energy Partners (NEP) 38.71 USD 6,067 3.9% 4.5% 5.2% 13.8x 10.8x 9.3x O 46.00 Michael Weinstein, Maheep Mandloi
NRG Yield (NYLD) 16.8 USD 3,090 6.6% 7.5% 8.3% 9.3x 8.8x 8.1x
Pattern Energy (PEGI) 18.41 USD 1,802 9.1% 9.4% 9.7% 11.3x 9.2x 8.4x
Terraform Power (TERP) 11.04 USD 1,636 3.2% 7.0% 7.4% 10.7x 9.9x 8.1x
Mean 6.2% 7.5% 8.0% 13.2x 11.7x 10.6x
Median 6.5% 7.5% 8.3% 11.3x 9.9x 8.4x
Solar Comps Price Currency Mkt. Cap Consensus P/E Consensus EV/EBITDA CS Rating/TP
2/9/2018 (USD$m) 2017 2018 2019 2017 2018 2019 Rating, Target, Analyst
Downstream solar project developers
Azure Power (AZRE) 16.525 USD 429 41.0x 13.4x 11.7x 7.8x 5.7x O 22.00 Maheep Mandloi, Michael Weinstein
Singyes Solar (0750.HK) 2.92 HKD 311 6.7x 5.9x 5.2x 0.8x 0.8x 0.9x
First Solar (FSLR) 60.69 USD 6,338 24.4x 40.5x 18.2x 14.3x 12.5x 7.3x U 55.00 Michael Weinstein, Maheep Mandloi
SunPower (SPWR) 6.79 USD 948 22.1x 16.1x 11.8x 9.6x N 7.20 Michael Weinstein, Maheep Mandloi
Sunrun (RUN) 5.33 USD 569 4.8x 3.4x 2.9x 14.4x O 15.00 Michael Weinstein, Maheep Mandloi
Vivint Solar (VSLR) 2.9 USD 333
Mean 12.0x 22.7x 12.4x 10.7x 8.2x 7.6x
Median 6.7x 23.2x 13.4x 13.0x 9.8x 7.3x
Upstream solar cell, module manufactures 15.5x 17.6x 11.6x 6.1x 7.2x 6.1x
Comtec Solar (0712.HK) 0.26 HKD 70 9.0x 5.7x 1.2x 0.8x 0.6x
Canadian Solar (CSIQ) 15.15 USD 876 10.3x 8.5x 9.6x 9.7x 10.2x 10.1x
Jinko Solar (JKS) 17.26 USD 562 23.1x 11.5x 7.7x 16.9x 14.8x 12.8x N 22.00 Maheep Mandloi, Michael Weinstein
LONGi (601012.SS) 31.05 CNY 9,793 20.1x 16.1x 13.2x 2.2x 1.7x 1.4x N 37.00 Gary Zhou, Dave Dai
JA Solar (JASO.OQ) 7.59 USD 361 10.7x 14.8x 13.0x 4.6x 3.9x 3.7x N 7.55 Maheep Mandloi, Michael Weinstein
ReneSola (SOL) 2.41 USD 92 nm 30.1x 8.0x 23.3x 12.9x
Gintech Energy Corp (3514.TW) 15.05 TWD 267 nm nm nm 0.5x 0.4x 0.3x
Motech Industries (6244.TWO) 20.1 TWD 369 nm nm nm 1.8x
Hanwha Q Cells (HQCL.OQ) 7.38 USD 617 13.4x 33.5x 23.8x 8.0x 7.8x 7.1x
Mean 15.5x 17.6x 11.6x 6.1x 7.2x 6.1x
Median 13.4x 14.8x 9.6x 4.6x 3.9x 5.4x
Upstream solar polysilicon manufactures 18.2x 13.1x 11.3x 3.1x 2.1x 1.4x
OCI (010060.KS) 153500 KRW 3,338 16.9x 14.7x 14.9x
REC Silicon (REC.OL) 1.066 NOK 315 nm nm nm 14.0x 6.9x 2.4x
SAS (5483.TWO) 89 TWD 1,791 19.3x 11.5x
Shin-etsu Chemical (4063.T) 11220 JPY 44,586 22.2x 18.5x 16.6x 0.1x 0.1x 0.1x
Sumco (3436.T) 2669 JPY 7,199 30.6x 14.3x 11.5x 0.1x 0.1x 0.1x O 4,000.0 Yoshiyasu Takemura
Tokuyama Corporation (4043.T) 2928 JPY 1,883 12.3x 9.2x 8.1x 0.0x 0.0x 0.0x
Wacker Chemie (WCHG.DE) 139.05 EUR 8,931 28.7x 19.9x 16.7x N 112.0 Mathew Hampshire-Waugh
GCL poly (3800.HK) 1.16 HKD 2,757 9.0x 8.1x 7.5x 0.8x 0.7x 0.7x O 1.66 Gary Zhou, Dave Dai
Daqo (DQ) 49.02 USD 527 5.9x 6.8x 5.3x 4.7x 5.7x 5.4x
Tongwei (600438.SS) 8.85 CNY 5,435 18.8x 14.7x 10.2x 1.8x 1.4x 1.1x
Mean 18.2x 13.1x 11.3x 3.1x 2.1x 1.4x
Median 18.8x 14.3x 10.9x 0.8x 0.7x 0.7x
Solar inverter manufacturers 25.3x 40.3x 21.1x 1.5x 11.4x 8.5x
AEIS (AEIS.OQ) 62.4 USD 2,475 13.3x 12.0x 11.5x
Enphase (ENPH) 2.28 USD 195 nm 81.4x 17.9x (8.6)x 13.1x 8.3x
SolarEdge (SEDG.OQ) 32.25 USD 1,387 14.4x 15.2x 16.2x 11.6x 9.6x 8.8x
SMA Solar (S92G.DE) 42.4 EUR 1,864 48.3x 52.4x 38.8x
Mean 25.3x 40.3x 21.1x 1.5x 11.4x 8.5x
Median 14.4x 33.8x 17.0x 1.5x 11.4x 8.5x
Solar equipment manufacturers 13.7x 17.7x 13.2x 63.1x 12.3x 10.0x
Applied Materials (AMAT.OQ) 45.75 USD 48,199 13.7x 11.2x 10.2x 10.6x 8.9x 8.5x O 72.00 Farhan Ahmad
Meyer Burger Technologies (MBTN.S)1.6 CHF 1,098 nm 24.2x 16.2x 115.6x 15.7x 11.6x N 1.60 Patrick Laager
PV Crystalox Solar AG (PVCS.L) 20.3 GBp 45
Mean 13.7x 17.7x 13.2x 63.1x 12.3x 10.0x
Median 13.7x 17.7x 13.2x 63.1x 12.3x 10.0x
12 February 2018
SunPower (SPWR) 41
Figure 57: Solar Manufacturers Stock Performance Since 4/1/17
SPWR's challenge against FSLR (US tariff beneficiary) and LONGi (low-cost mono silicon upstream)
Source: Thomson Reuters.
50
100
150
200
250
300
Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
CSIQ JKS JASO HQCL LONGi GCL FSLR SPWR RUN
12 February 2018
SunPower (SPWR) 42
Management, Compensation, & Governance
■ Thomas H. Werner, President, CEO, and Chairman: Mr. Werner has served as
chairman since May 2011 and as CEO since June 2003. He previously served as
the CEO of Silicon Light Machines (optical solutions company), a subsidiary of
Cypress Semiconductor Corporation, from 2001 to 2003 and as a VP and GM at
3Com Corp. (network solutions company). He holds a B.S. in industrial engineering
from University of Wisconsin – Madison, a B.S. electrical engineering from
Marquette University, and an M.B.A. from George Washington University.
■ Charles D. Boynton, EVP and CFO: Mr. Boynton has served as EVP and CFO
since March 2012 and as the VP of finance and corporate development from June
2010 to March 2012. He previously served as CFO for ServiceSource (IT
management company) from April 2008 to June 2010 and as CFO for Intelliden
(software solutions company) from March 2004 to April 2008. He holds a B.S. in
business from Indiana University and an M.B.A. from Northwestern University.
■ Dr. Bill Mulligan, EVP of Global Operations: Dr. Mulligan has served as EVP of
global operations since February 2017 and, prior to that, as VP of upstream
strategy since November 2014. He has worked at SunPower for more than 12 years
since 1998 as VP of R&D and briefly left the company in 2010 to serve as CEO and
president of SolarBridge, a micro-inverter manufacturer, which was acquired by
SunPower in 2014.
■ Douglas J. Richards, EVP Administration: Mr. Richards has served as EVP of
administration since November 2011, as EVP of HR and corporate services from
April 2010 to October 2011, and as VP of HR and corporate services from
September 2007 to March 2010. He previously served as VP of HR and
administration for SelectBuild (construction services company) from 2006 to 2007
and as SVP of HR and administration for BlueArc (network storage system
manufacturer). He holds a B.A. in public administration from California State
University – Chico.
Figure 58: Management Compensation Summary
Source: Company filings (2017 Proxy).
Name and Position Year Salary Bonus Stock Awards Non-Equity
Incentive Plan
Compensation
All Other
Compensation
Total
Thomas H. Werner 2016 $347,959 - $6,773,488 - $24,436 $7,145,883
President, CEO, Chairman 2015 $600,000 - $6,751,062 $1,265,722 $28,181 $8,644,965
2014 $600,000 - $2,985,000 $1,375,948 $25,666 $4,986,614
Charles D. Boynton 2016 $465,077 - $949,592 $90,097 $30,949 $1,535,715
EVP, CFO 2015 $443,077 - $1,125,309 $435,231 $30,949 $2,034,566
2014 $425,000 - $1,014,900 $445,951 $29,139 $1,914,990
Douglas J. Richards 2016 $370,000 - $656,400 $63,714 $22,088 $1,112,202
EVP, Administration 2015 $367,231 - $835,605 $328,522 $28,032 $1,559,390
2014 $357,269 - $799,980 $335,520 $26,583 $1,519,352
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Corporate Governance and Compensation Structure
We note that only three of nine directors are independent. Given the 2011 acquisition of
SunPower by French multinational integrated oil and gas conglomerate Total S.A., the
majority five of nine directors are from Total.
Figure 59: Board Composition
Source: Company Filings (2017 Proxy).
Name Independent? Experience Audit Compensation Finance Nominating and
Corpoate
Governance
Tenure
Thomas H. Werner No Chairman & CEO, SunPower 2003
François Badoual No President & CEO, Total New Energies Venture x 2017
Antoine Larenaudie No Treasurer, Total Group x 2017
Catherine A. Lesjak Yes EVP & CFO, HP Inc. x x 2013
Helle Kristoffersen No SVP Strategy & Corporate Affairs, Total S.A. x x 2016
Thomas R. McDaniel Yes Former: EVP, CFO & Treasurer, Edison International C x C x 2009
Ladislas Paszkiewicz No SVP M&A, Total S.A. x 2016
Julien Pouget No SVP Renewables, Total S.A. x 2017
Pat Wood III Yes Principal of Wood3 Resources x C C 2005
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Companies Mentioned (Price as of 09-Feb-2018) 8Point3 Energy Partners (CAFD.OQ, $12.35) Advanced Energy Industries Inc. (AEIS.OQ, $64.5) Applied Materials Inc. (AMAT.OQ, $48.08) Atlantica Yield (AY.OQ, $19.75) Azure Power Global Limited (AZRE.N, $16.53) Canadian Solar (CSIQ.OQ, $14.89) China Singyes Solar Technologies Holdings Limited (0750.HK, HK$2.92) Comtec Solar (0712.HK, HK$0.26) Daqo New Energy (DQ.N, $49.73) Enphase Energy (ENPH.OQ, $2.29) First Solar (FSLR.OQ, $61.22) GCL-Poly Energy Holdings Ltd (3800.HK, HK$1.16) Gintech Energy Corporation (3514.TW, NT$15.05) Hannon Armstrong (HASI.N, $20.7) Hanwha Q Cells (HQCL.OQ, $7.06) JA Solar Holdings (JASO.OQ, $7.45) Jinko Solar (JKS.N, $17.18) LONGi Green Energy Technology (601012.SS, Rmb31.05) Meyer Burger (MBTN.S, SFr1.6) Motech Industries (6244.TWO, NT$20.1) NRG Yield (NYLDa.N, $16.64) NRG Yield (NYLD.N, $16.85) NextEra Energy Partners (NEP.N, $37.76) OCI Company Ltd (010060.KS, W153,500) PV Crystalox (PVCS.L, 20.3p) Pattern Energy (PEGI.OQ, $18.74) ReneSola Ltd (SOL.N, $2.34) Renewable Energy (REC.OL, Nkr1.066) SUMCO (3436.T, ¥2,669) Sino-American Silicon Products (5483.TWO, NT$89.0) Solaredge Tech (SEDG.OQ, $32.2) Solargiga Energy (0757.HK, HK$0.222) SunPower (SPWR.OQ, $6.85, NEUTRAL[V], TP $7.2) Sunrun (RUN.OQ, $5.37) TerraForm Power (TERP.OQ, $11.18) Tesla Motors Inc. (TSLA.OQ, $310.42) Tokuyama (4043.T, ¥2,928) Tongwei (600438.SS, Rmb8.85) Total (TOTF.PA, €44.7) Wacker Chemie (WCHG.DE, €139.05) Yingli Green Energy Holding (YGE.N, $1.49)
Disclosure Appendix
Analyst Certification Michael Weinstein, ERP, and Maheep Mandloi each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for SunPower (SPWR.OQ)
SPWR.OQ Closing Price Target Price
Date (US$) (US$) Rating
24-Feb-15 32.80 35.00 O
28-Jul-15 25.66 32.00
10-Aug-16 10.31 12.00 N
10-Nov-16 6.32 9.00
14-Nov-16 6.88 9.00 *
16-Feb-17 6.76 8.00
19-Jun-17 7.79 NC
* Asterisk signifies initiation or assumption of coverage.
Effective July 3, 2016, NC denotes termination of coverage.
O U T PERFO RM
N EU T RA L
N O T CO V ERED
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th Decembe r 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
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Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all compan ies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and Asia stocks (excluding Japan and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regio nal benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s abso lute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stoc ks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform wh ere an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
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Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 46% (64% banking clients) Neutral/Hold* 38% (61% banking clients) Underperform/Sell* 13% (54% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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Target Price and Rating Valuation Methodology and Risks: (12 months) for SunPower (SPWR.OQ)
Method: Our $7.2 Target Price and Neutral rating is based on a sum of the parts valuation analysis. We value the core business at a 10x mulitple to 2019 EBITDA, net of debt, and discounted at 10%. We value SunPower's ownership in 8point3 at Capital Dynamic's offer price.
Risk: The key risks for our $7.2 price target and Neutral rating for Sunpower include (i) regulatory and policy changes that adversely impact solar demand and supply,(ii) timely execution of projects, (iii) technology risk, (iv) building oversupply in the industry, and (v) intense competition for panel supply and project development.
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Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): SPWR.OQ, TOTF.PA, JKS.N, 601012.SS, JASO.OQ, FSLR.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, WCHG.DE, 3800.HK, AMAT.OQ Credit Suisse provided investment banking services to the subject company (SPWR.OQ, TOTF.PA, JKS.N, JASO.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, WCHG.DE, 3800.HK, AMAT.OQ) within the past 12 months. Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, securities-related: SPWR.OQ, TOTF.PA, JKS.N, NEP.N, AZRE.N, RUN.OQ, 3800.HK Credit Suisse has managed or co-managed a public offering of securities for the subject company (JKS.N, NEP.N, AZRE.N, WCHG.DE, 3800.HK, AMAT.OQ) within the past 12 months. Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): SPWR.OQ, TOTF.PA, JKS.N, JASO.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, WCHG.DE, 3800.HK, AMAT.OQ Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (SPWR.OQ, TOTF.PA, JKS.N, 601012.SS, JASO.OQ, FSLR.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, WCHG.DE, 3800.HK, AMAT.OQ) within the next 3 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): SPWR.OQ, TOTF.PA, JKS.N, NEP.N, AZRE.N, RUN.OQ, 3800.HK Credit Suisse makes a market in the securities of the following subject issuer(s): (FSLR.OQ). Credit Suisse acts as a market maker in the shares, depositary receipts, interests or units issued by, and/or any warrants or options on these shares, depositary receipts, interests or units of the following subject issuer(s): 3800.HK. Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): AEIS.OQ, AMAT.OQ, AZRE.N, FSLR.OQ, 3800.HK, JASO.OQ, JKS.N, 601012.SS, MBTN.S, NYLD.N, NEP.N, 3436.T, SPWR.OQ, RUN.OQ, TOTF.PA, WCHG.DE A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (SPWR.OQ, TOTF.PA, JKS.N, 601012.SS, JASO.OQ, FSLR.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, 3436.T, WCHG.DE, 3800.HK, AEIS.OQ, AMAT.OQ, MBTN.S) within the past 12 months. As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (RUN.OQ, 3436.T). As of the end of the preceding month, Credit Suisse beneficially owned between 3% and 5% of the equity and related equity derivatives of (MBTN.S). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (RUN.OQ).
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No information or communication provided herein or otherwise is intended to be, or should be construed as, a recommendation within the meaning of the US Department of Labor’s final regulation defining "investment advice" for purposes of the Employee Retirement Income Security Act of 1974, as amended and Section 4975 of the Internal Revenue Code of 1986, as amended, and the information provided herein is intended to be general information, and should not be construed as, providing investment advice (impartial or otherwise).
Copyright © 2018 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
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