UBS Analyst Stephen Chin (price targe $10) on Oct 21:
Taiwan’s 3Q13 solar poly demand up +40% q/q; prices remained flat
Checks found Taiwan’s solar polysilicon demand in 3Q13 was a record high 7.2K
metric ton (MT), at an average price of $19/kg. We believe this is reflective of
strong 4Q demand as we estimate it takes about 2-3 months from poly shipments to
module installation. We estimate 4Q solar demand to be up 15% q/q to 10 GW.
Taiwan demand for both the U.S and Korean-made poly up big in 3Q
Our checks found demand for U.S.-made poly was up 81% q/q to 2.5K MT, likely
due to lower shipments to China due to a 50%+ import duty with average prices
down 14% q/q to $24/kg suggesting higher mix of solar poly. Korean-made solar
poly demand was up +39% q/q to 3.7K MT at a flat price of $19/kg while Germanmade
poly demand was up 24% q/q to 1.7K MT at $27/kg (up +7% q/q).
Expect cost declines and capex plans in 2014 to be a focus at SPI next week
With strong demand in 2013 and 2014 as a backdrop, we expect the focus at SPI
trade show next week to be around the supply dynamic in 2014 and diminishing
cost declines. We estimate 2014 demand to grow 13% y/y to 41GW and estimate
solar module costs to decline 10% to $0.50/W in 2014. We expect capacity
increase in the solar supply chain to be muted in 2014, but could see significant
capacity upgrade spend to which should benefit GT Advanced Technology.
Expect details on solar quota/financing to drive the stocks in near term
We believe initial details on the allocation of the proposed Chinese module sales
quota of 7GW to the EU in the coming weeks could be a catalyst for the Chinese
solar stocks. In the US, new solar financing vehicles could be a near term catalyst.
and on Sept 19:
Estimate mobile sapphire demand to grow at +60% CAGR over 2014-16
Our checks find use of sapphire by the major Tier-1 mobile consumer electronics companies is now viewed as a key part of their differentiation strategy. We believe there is a significant increase in the % of sapphire content in the recently launched mobile products such as Samsung’s smartwatch and Apple’s iPhone 5S. We expect this trend to accelerate as shown in a recently published patent on new ways to incorporate sapphire on display covers by Apple. GT is the largest sapphire equipment supplier and likely beneficiary of this inflection point in mobile devices. Sapphire furnace market for mobile covers is large; likely 1H14 loaded
Our own industry checks last week in Asia found a first ever Tier-1 customer is now set to ramp its sapphire content significantly in 1H14 with 500 furnaces from GT which we believe is for a phase 1 cover screen build out. We increase our 2014 mobile sapphire sales and EPS by $150M (assume 300 furnaces at $500K each)
and $0.30 respectively assuming a gross margin of 40%.
New Silicon Carbide and Gallium Nitride products are future EPS upside
We raise our FY14 and FY15 EPS estimates to $0.67 and $0.75 which are above consensus at $0.34 and $0.62. GT’s new product lines in SiC and GaN which are expected to be launched in 2H14 will address new markets, such as power electronics; we conservatively estimate $50M in new product sales in 2014.
Valuation: Raising price target to $10.00 Our 12-month price target is based on 15x our FY14 EPS estimate of $0.67. We estimate upside valuation of $15 and downside valuation of $4 (see details on page 2).
-Eyes and ears open on the Sic market which, like Solar, led and Sapphire, can be huge in the future. First ever silicon carbide trains being tested and run in Asia. GT will have a complete monopoly on this market with the new furnaces being made to drive down cost. Every railway system worldwide could change over to this in the years to come.
-Silicon carbide power modules in auxiliary power supply systems is able to reduce power loss by 30% and cut transformer noise by 4dB due to a 35% improvement in the distortion rate of output voltage waveforms.
-Compared with using silicon, silicon carbide enables the auxiliary power supply system to be 20% smaller and 15% lighter. The main specifications of the new system are a rated voltage of 600V dc, a two-level voltage-type pulse-width modulation (PWM) inverter, an output voltage of 140kVA, and natural air cooling.
-Zero competition in this market, Zero. GT will own it if its products deliver and live up to its claims.