$SUNPOWER GROUP LTD.(5GD.SI)$Extract from UOB Kayhian research report on 09. April 21.

Following the record PATMI achieved in 2020, 2021 will be a year of transformation for

Sunpower. In the midst of disposing of its order-driven M&S segment, Sunpower’s

focus will turn towards achieving scale as an industrial steam-power producer in China.

With enhanced cash flow generation ability and long-term revenue visibility, valuations

should improve going forward, in our view. Re-iterate BUY with a slightly higher target

price of S$1.11.

• Awaiting approval for M&S disposal. Sunpower Group (Sunpower) will be holding a special general meeting on 16 Apr 21, to seek shareholders’ approval for the proposed disposal of the manufacturing and services (M&S) business. The manufacturing-based business will be sold to a special purpose vehicle owned by a consortium of China funds (64%), the group’s two largest shareholders, Guo Hong Xin and Ma Ming, and certain employees of the M&S segment (36%).

• Attractive deal price raises probability of sale. The sale price for the M&S business of Rmb2.29b translates to 9.5x 2020 PE and a 27% premium over two independent valuers. Furthermore, net proceeds per share of approximately S$0.3617 translate to 42% of Sunpower’s current market cap, to be unlocked in cash. Overall, we deem the deal as attractive, at a valuation more than twice the 5-7x typically ascribed by the street.

• Transformation towards highly scalable GI business. After the disposal of the M&S business, management will switch its focus towards the remaining green investment (GI) business. It is a stable asset-based business where Sunpower owns and operates industrial infrastructure projects which generate recurring income and cash flow through typically exclusive long-term concessions of 30 years. This provides relatively superior revenue visibility and certainty over the M&S segment, which is an inherently cyclical, orderbook- driven business that requires high working capital. Management sees many business opportunities in the anti-smog sector in China, due to regulatory mandated closure of high- emission polluting boilers and the structural shift to low emission centralised steam and electricity facilities.