sector head: bryan connelly & jesse hou sr. analyst: ben smith jr. analysts:
DESCRIPTION
SECTOR: Energy COMPANY: GT Solar International Inc. Sector Head: Bryan Connelly & Jesse Hou Sr. Analyst: Ben Smith Jr. Analysts:. INVESTMENT RECOMMENDATION. Company. NYSE: SOLR. Lead supplier in Solar Manufacturing equipment Poly-silicon Production (Reactors) - PowerPoint PPT PresentationTRANSCRIPT
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SECTOR HEAD: BRYAN CONNELLY & JESSE HOUSR. ANALYST: BEN SMITHJR. ANALYSTS:
SECTOR: EnergyCOMPANY: GT Solar International Inc.
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INVESTMENT RECOMMENDATION
GT Solar International Inc.Recommendati
on BUY
Current Price $10.001 Yr Target
Price $14.96
% Upside 49.6%
Vv As of April 11, 2011ccc
Beta 1.33Market Cap 1.3 Billion
1-Aug-08 1-Nov-08 1-Feb-09 1-May-09 1-Aug-09 1-Nov-09 1-Feb-10 1-May-10 1-Aug-10 1-Nov-10 1-Feb-11-40
-30
-20
-10
0
10
20
3 Yr GT Solar Returns
SOLR S&P 600
Retu
rn
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COMPANY
NYSE: SOLR• Lead supplier in Solar
Manufacturing equipment
• Poly-silicon Production (Reactors)
• Solar Wafer Production (Furnaces)
• Sapphire Production*(Furnaces)
Photovoltaic (CDV Reactors)
27%
Polysilicon (DSS Furnaces)
24%
Sapphire9%
Corporate Services40%
Newly acquired
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INDUSTRY SNAPSHOT
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BUSINESSTwo Segments
Forms Solar WafersCreates Polysilcon
Directional Solidification System
(DSS) Furnaces
Chemical Vapor Deposition (CVD)
Reactors
Photovoltaic SegmentPolysilicon Segment
* Excludes Sapphire Segment
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WHY SOLAR?• Growing solar EOR (enhanced oil
recovering) facilities• In 2010 67% increase in revenues
and 20.5% decrease in costs, making it fasting growing industry in energy sector
• Decrease need of incentives in the future, due to continuous price drops.
• Market based incentives like Solar Renewable Energy Credits (SRECs)
– Cap and trade credit granted to firms with installed solar capacity that can be sold on spot markets
• U.S DOE “SunShot Initiative” -$112.M over 5 years to support development of advanced PV related manufacturing
– Aims to reduce total cost of PV systems to $1 per watt by 2020 (75% reduction) enabling competition with other form of energy
– Intended to lay groundwork to create a world-leading industry
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WHY GT SOLAR?
• Participates in multiple growth Industries
• Market leader in critical equipment for solar industry
• Diversification through high involvement in both the semiconductor, solar manufacturing and LED industries– Sapphire materials used
in LED applications, defense, medical, research and aerospace industries
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5 YEAR TREND
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RISKS• International Business Nature – 81%
Revenue from Asia• Few Products offered – 91% of Sales• Few Customers – 62% revenue from
four customers• Government budgetary concerns could
decrease subsidies/incentives for solar.– Renewable Energy budget is decreasing, was at $6B in
2009 and has been cut down to $2.5B.
Source: WSJ, Businessweek, EERE
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FUNDAMENTALS
(in millions) 2006 2007 2008 2009 2010
Revenue - 60.1 244.1 541 544.2
Rev Growth 60.5% 28.4% 306.2% 121.6% 0.6%
Gross Margin 39.5% 39.6% 37.9% 39.7% 40.2%
EBITDA Margin -30.6% 9.2% 24.8% 30.5% 31%
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FUNDAMENTAL FORECASTS
(in millions) 2011(e) 2012(e) 2013(e) 2014(e) 2015(e)
Revenue 1,006.8 2,114.2 4,439.9 8,435.7 14,340.7
Rev Growth 85% 120% 120% 90% 70%
Gross Margin 41% 41% 41% 41% 41%
EBITDA Margin 32.5% 32.5% 32.5% 32.5% 32.5%
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RISKS & SENSITIVITIESInternational Business
Few Customers
Limited Number Products
All Occuring Worst Case
$5.00 $7.00 $9.00 $11.00 $13.00 $15.00 $17.00
$14.61
$13.74
$13.39
$11.48
Price per Share
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VALUATION
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Year 2011(e) 2012(e) 2013(e) 2014(e) 2015(e)
FCF ($MM) $(88.47) $69.06 $(78.17) $225.24 $172.06
WACC 8.15%
Growth Rate 2.5%
DCF Value $196.34
1yr Target Price $17.60
DCF – 50% Comps – 50%
EV/EBITDA 6.2x1yr Target Price $10.06
P/AFFO 22.4x1yr Target Price $13.30
1yr Target Price$14.96+49.6%
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RECOMMENDATION
Solar Ahead:• Massive increases in total installations and
revenue• Greater concern for climate change• Mandatory targets for renewable energy
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Digital Realty Trust Inc.Recommendatio
n BUY
Current Price $10.001 Year Target
Price $14.96
% Upside 49.6%
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QUESTIONS?
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EXHIBITS
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COMPARABLES
Company Net Income Multiple I Multiple II
EV/EBITDA P/E
GT Solar 156.1 4.0x 9.0x
Trina Solar Limited 311.5 3.4x 6x
MEMC Electronic Materials Inc. 34.4 15.2x 87x
Sunpower Corp. 166.6 5.3x 9x
Suntech Power Holdings 85.6 6.2x 19x
ReneSola Ltd. 169.0 3.3x 5x
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CLIENTS
Customers % Total Revenue
LDK Solar Co., Ltd 20%
OCI Company Ltd 17%
Yingli New Energy Resources Co., Ltd. 14%
Glor Silicon Energy Co., Ltd. 11%
Sum Total 62%
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Products
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DSS Photovoltaic Furnace CVD Polysilicon Reactor