Broker's take: DBS says worst appears to be over for Sunpower, upgrades to 'buy'

DBS Group Research has upgraded Sunpower Group to "buy" from "hold with a raised target price of S$0.69 from S$0.49. DBS said the worst appears to be over for Sunpower, as China's economic activities resume.

"Sunpower's green investments growth could be back on track given that the textile sector has seen domestic sales return to pre-Covid-19 levels," said DBS analyst Ling Lee Keng in a research note on Friday.

The textile sector, which uses steam from Sunpower's green-investment plants for printing and dyeing purposes, contribute 40 per cent to 50 per cent of the group's green investments revenue.

Shares of Sunpower were trading up 4.3 per cent or 2.5 Singapore cents to 60.5 cents as at 2.47pm on Friday.

DBS revised its forecast for FY2020 adjusted profit after tax and minority interests (Patmi) by about 6 per cent on the back of record performance from Sunpower's manufacturing and services (M&S) segment.

The adjusted Patmi forecast for FY2021 was also raised by about 9 per cent, led by a higher order book assumption as Sunpower "has proven its ability to sustain" a 2.8 billion yuan (S$553.2 million) order book.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

DBS expects Sunpower to meet its convertible bond targets of 370 million yuan and 460 million yuan for FY2020 and FY2021 respectively. Hence, DBS has removed the dilution effect caused by potential additional shares to be issued from missing the convertible bond targets.

Ms Ling said going forward, the M&S segment will likely perform better in the second half of 2020 compared with the first. M&S sales typically peak in the fourth quarter of every year due to seasonal factors, she added.

Similarly, the group's green investments performance is expected to pick up in the second half due to higher heating demand driven by the colder climate in mainland China towards year end.

"Altogether, as the economic recovery continues, green investments performance should see at least a slight improvement from last year," Ms Ling said.