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QuestionsCategory: Valuation QuadrantSunPower Group Ltd Valuation
Willie Ng asked 3 years ago

Hi Fifth Person,
I was reading the 2017 Annual Report computing the Financial ratios on Sunpower Group Ltd using the IQ Financial template provided and have some questions below
1. For Total Debts, we should just add up the Borrowing items under Current Liabilities and Non Current Liabilities. Should “Convertible Bonds” under Non Current Liabilities be added in the calculation of Total Debt?
2. Number of Shares (Share Capital): Noticed that there is a item “Effect of dilutive potential ordinary shares from
share options and convertible bonds” of about 307 million units. Should these 307 million potential shares be added to the compute the total number of ordinary shares?
3.Extraordinary items: There is a item “Fair value changes on Convertible Bonds”. Is this considered one time extraordinary item that needs to be deducted??
4.For Capital Expenditure, do we only include expense on Property, Plant and equipment? Do we need to include items like “Intangible Assets”, “Land Use Rights” and Depreciation and Amortization expense??
Please advise
Thanks!

3 Answers
Victor Chng answered 3 years ago

Hi Willie,
 

  1. Yes, convertible bonds are debt too so have to include them in.
  2. If you want to be conservative you can include the potential dilutive shares.
  3. Yes it is a one time item.
  4. You can just use property plant and equipment for capex.

On a side note, you may want to find out why the company keep issuing convertible bonds. I looked at their financial, they seem to do that quite often and if they maintain it. It will be quite dilutive to shareholder investing in it.

Willie Ng replied 3 years ago

Hi Victor,

Thanks for your fast response

I will look deeper into Sunpower Group.

I actually found out this company while reading The Edge magazine. It seems to have new growth drivers with their Green Investment business segment and they have “good economic moats” in terms of patent which enables them to deliver steam energy with minimal heat loss compared to their peers

But their Financial number recently need further deep diving: too much debt and too little cash flows

Thanks!

Victor Chng replied 3 years ago

As for growth driver, do ensure that their new segment to be at least contributing more than 10% of the total revenue and growing to be account as growth driver.

Mun seng Lee answered 3 years ago

I also happen to be watching this stock. From what I understand, the company keeps issuing convertible bonds because they need to assess to capital to grow its GI business. This new business, though sounds lucrative, needs huge capital investment upfront. Sunpower intends to ramp this new business rapidly to capitalise on its first mover advantage. Fortunately the convertible bonds are issued to DCP (DCP is a leading private equity firm focused on Greater China) and CDH (CDH is one of the leading private equity companies that focuses on growth capital and middle market buyout investments in Greater China). Whether it has a bright future, a lot will depend on their project implementation and execution. I think its more of a concept play now since China is focusing a lot of pollution controls and environmental issues.

Victor Chng answered 3 years ago

Thanks for sharing Mun Seng.
 
I think the key is whether their implementation is able to work out. As an investor, I will wait and monitor them instead on immediately taking any actions.

Mun seng Lee replied 3 years ago

Yes..Victor I agree with you.

Willie Ng replied 3 years ago

Hi Victor and Mun Seng,

Thanks for all the comments and advise

I will track Sunpower and monitor their new GI segment as well as other fundamentals before making a decision

In the meantime, I will do a check on their financials and valuation based on their past ARs

Thanks