2010611 0750 興業太陽能申萬icg

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Construction& Decoration

June 10, 2010 兴业天阳能 (750 HK)

——太阳能光电建筑一体化先锋

Buy

Financial summary and valuation: Coverage Initiation

2008 2009 2010E 2011E 2012ERevenue (RMB million) 903 1,247 1,663 2,273 3,138

Market Data: June 10 YoY (%) 49.4 38.1 33.3 36.7 38.0 Closing Price (HK$) 3.40 Net income (RMB million) 104 151 206 280 390 Price Target (HK$) 5.25 YoY (%) 47.2 46.0 36.1 35.9 39.6 HSCEI 11178 EPS (RMB) 0.28 0.33 0.42 0.53 0.74 HSCCI 3643 Diluted EPS (RMB) 0.28 0.33 0.42 0.53 0.74 52-week High/Low (HK$) 5.23/2.81 ROE (%) 28.95 23.66 21.75 23.45 25.68 Market Cap (HK$ million) 1669 Net debt/equity (%) 25.24 34.21 33.65 31.99 30.52 Shares Outstanding (million) 491 Dividend Yield (%) 0.00 0.71 1.10 1.40 1.95Exchange Rate (RMB/HK$) 0.88 P/E (x) 10.8 9.1 7.3 5.7 4.1 P/B (x) 2.5 1.6 1.4 1.2 0.9 Price Performance Chart: EV/EBITDA (x) 11.4 7.1 5.1 3.7 2.7

Note: Diluted EPS is calculated as if all outstanding convertible securities, such as convertible preferred shares, convertible debentures, stock options and warrants were exercised. P/E is calculated as closing price divided by the respective year’s EPS.

投资要点：

Source: Bloomberg

Related Research:

Titus Wu

Equity Analyst [email protected]

Contact Nicole Yao

(8621) 23297317 [email protected]

面对新兴的太阳能光电建筑一体化（“BIPV”）市场的形成，作为国内唯一一个国家级“太阳能光电建筑一体化应用示范企业”，兴业太阳能将会成为的最大受益者。根据发改委能源研究所的观点，受益于政府的政策刺激，中国的太阳能光电建筑一体化市场的占比在 2020 年将达到 70%；这意味着，太阳能光电建筑一体化市场的 2008-2020 年复合增长率高达 77%。

政府的补贴将使太阳能光电建筑一体化项目更具有吸引力。如果太阳能光电建筑一体化项目成本保持下降的趋势，以及政府的政策刺激，对于下游的客户如建筑承建商来说，太阳能光电建筑一体化项目就会更具有吸引力。以目前的政府补贴每瓦 17 元人民币为例，如果考虑到政府的补贴，太阳能光电建筑一体化项目与低辐射（LOW-E）玻璃幕墙项目的价格差距会缩小大约 50%。相应的太阳能光电建筑一体化项目的价格溢价回收期会缩短到15.6 年。此外，因为太阳能光电建筑一体化项目具有售电收入，电价的上涨也会使太阳能光电建筑一体化项目更具有吸引力。

兴业太阳能具备先发优势。2010 年 3 月，中国住房和城乡建设部评选出 86项目个为优先推广项目，兴业太阳能的光伏建筑一体化技术项目就成功入选。兴业太阳能也是唯一一个入选的 BIPV 项目承建商和国家级“太阳能光电建筑一体化应用示范企业”。我们认为太阳能业务将是公司未来收入增长的重要来源。兴业太阳能在光伏建筑一体化技术和太阳能电站业务的 2009年收入比重达到了 24.9%，比 2008 年的 14.1%增加了 10.8%；此项业务的净利占比达到了 39.4%，比 2008 年的 25.2%增加了 14.2%。

我们预计兴业太阳能的 2010-2012 年的收入分别达到 16.6 亿人民币，22.7亿人民币，和 31.4 亿人民币，三年复合增长率达到 36.0%。相应地，我们预计兴业太阳能的 2010-2012 年的净利润分别达到 2.06 亿人民币，2.80 亿人民币，和 3.90 亿人民币，三年复合增长率达到 37.2%。给予 2010 年 11倍的市盈率，我们认为兴业太阳能的目标价为港币 5.25 元，在我们的首次覆盖中给予买入评级。

The company or its affiliate may have equities of the listed corporation reviewed authorized by law. The company may also provide investment banking and consulting service to the listed corporation. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact [email protected] for the relevant disclosure materials. The clients shall have a comprehensive understanding of the disclosure in the last page.


June 2010 Company In-depth

Please refer to the last page for important disclosures Page1

Investment Highlights:

As the only company operating nationwide that has demonstrated the ability to utilize building-integrated photovoltaics (BIPV) technology, Singyes will be the largest beneficiary of developments in the BIPV market. We agree

with the NDRC’s Energy Research Institute, that due to

government stimulus policies, by 2020 BIPV will account for 70%

of the solar market in China. This represents a CAGR of 77% from

2008 to 2020.

Government subsidies make BIPV more attractive. If costs

continue to decline and government stimulus policies are

maintained, BIPV will become more attractive to downstream

clients, such as contractors. Given the government subsidy of

RMB17/W, the price difference between BIPV and Low-E curtain

walls will narrow by ~50%. Subsequently, the BIPV payback

period will fall to 15.6 years. An increase in electricity prices will

make BIPV even more attractive, due to the corresponding

increase in revenue from power generation.

Singyes benefits from a first-mover advantage. The Ministry of

Housing and Urban-Rural Development selected 86 key

nationwide projects in March 2010 and many of Singyes’s BIPV

projects were chosen. Singyes is the only company operating

nationwide that has demonstrated the ability to utilize BIPV

technology. Revenue from its solar energy operations will be

increasingly important for the company going forward. Revenue

from BIPV and solar power station operations increased by 10.8%,

from 14.1% (in 2008) to ~24.9% of total revenue. Gross profit from

BIPV and solar power station operations increased by 14.2%,

from 25.2% (in 2008) to ~39.4%.

We estimate revenue in 2010/11/12 will amount to RMB1.66B,

RMB2.27B, and RMB3.14B, respectively, representing a CAGR of

36.0% over the next three years. Accordingly, we estimate profit in

2010/11/12 will total RMB205.7M, RMB279.5M, and RMB390.3M,

respectively, representing a CAGR of 37.2% over the same period.

We initiate our coverage with a Buy rating and a target price of

HK$5.25.




Investment Case Valuation and Target Price

We estimate Singyes Solar’s revenue in 2010/11/12 will amount to RMB1.66B,

RMB2.27B, and RMB3.14B, respectively, representing a CAGR of 36.0% over the

next three years. Accordingly, we estimate profit in 2010/11/12 will reach

RMB205.7M, RMB279.5M, and RMB390.3M, respectively, representing a CAGR of

37.2% over the same period. The company’s gross margin will rise through

improvements in its product mix, mainly resulting from an increased proportion of

BIPV sales, which yield a higher gross margin.

As very few listed companies are engaged in BIPV operations, we have chosen to

analyze peers that are primarily involved in the infrastructure and solar energy

industries. Peers involved in infrastructure are trading at an average of 10.7x 10E P/E

and 8.8x 11E P/E. Peers in solar energy are trading at an average of 10.7x 10E P/E

and 8.7x 11E P/E. Considering that Singyes is the first mover in this new market, it

would be reasonable to add a premium when calculating its value. However, we have

decided to remain conservative, and not add this premium. The company is currently

trading at 11x 10E P/E. We initiate our coverage with a Buy rating and a target price

of HK$5.25.

Key Assumptions

The government will focus on developing renewable energy and energy-saving

technologies in order to reach its goal of having non-fossil fuel power contribute 15%

of the country's total energy consumption by 2020. More funding will be put into R&D

and the industrialization of energy-saving and energy-efficient technologies.

How we differ from consensus

BIPV are a major application in the solar photovoltaic power market for developed

countries. There are two forms of BIPV integrated systems: PV-Roof and PV-Wall.

Among the 16GW of global installed capacity in 2008, 85% of solar PV systems were

connected to the grid, and 90% of these on-grid solar power systems were installed

on rooftops as this is the area that receives the most sunlight and enables easier

installation. In China, however, BIPV projects accounted for only 5.6% of the 145MW

installed capacity in 2008. We agree with the NDRC’s Energy Research Institute, that

due to government stimulus policies, by 2020 BIPV will account for 70% of the solar

market in China. This represents a CAGR of 77% from 2008 to 2020.

As the only company operating nationwide that has demonstrated the ability to utilize

BIPV technology, Singyes will be the largest beneficiary of developments in the BIPV

market.

Catalysts for share price performance

1) Further supportive policies for BIPV; 2) orders for BIPV projects surpass

expectations; 3) increased electricity prices; 4) potential M&A activity.

Risks in central scenario

1) Tightened subsidy policies and credit controls; 2) decline in gross margin;

3) large amount of trade receivables.




Rapidly Growing Energy-Saving Curtain Wall Market·············5 Government Continues Subsidizing Solar Photoelectric Integration Applications··································································································5 New Niche Market: BIPV ·············································································6 BIPV Feasibility Analysis ·························································8 Curtain Walls Account for 14% of Total Project Costs ··································8 The Cost of BIPV will Continue to Decline ···················································8 Government Subsidies Make BIPV More Attractive ·····································9 Scenario Analysis of the CAGR of Electricity Prices ··································10 Discount Rate Scenario Analysis ······························································· 11 Path to Success: First-Mover Advantage, Blue Ocean Strategy ·················································································· 13 BIPV is a Cross-Disciplinary Science·························································13 Singyes Benefits from First-Mover Advantage ···········································13 BIPV Contributed 40% of Gross Profit In 2009 ··········································14 Earnings Forecast and Valuation ··········································16 Top Line CAGR of 36.0% over the Next Three Years ································16 Bottom Line CAGR of 37.2% over the Next Three Years ···························16 Target Price: HK$5.25················································································17 Investment Recommendation: Buy ····························································17 Investment Risks····································································18 Tightened Subsidy Policies and Credit Controls ········································18 Decline in Gross Margin·············································································18 Large Amount of Trade Receivables ··························································18 Appendix················································································· 19

Contents




Charts & Tables Chart 1: Energy Consumed by Buildings is 28% Of Total Consumption.................5 Chart 2: 80% Of New Buildings Are Energy-Intensive...............................................5 Chart 3: Subsidies for BIPV and BAPV.......................................................................5 Chart 4: Subsidies 50% of Total Cost of Solar Modules* ..........................................5 Chart 5: World Cumulative PV Power Installed by Region .......................................6 Chart 6: Regional Breakdown Of Available Sunlight.................................................7 Chart 7: CAGR of BIPV from 2008 to 2020 will be 77% .............................................8 Chart 8: Breakdowm Of A Commercial Building Project ..........................................8 Chart 9: Breakdowm Of Decoration Items..................................................................8 Chart 10: Historical Price Of High Purity Silicane .....................................................9 Chart 11: Cost Breakdowm Of A Sample BIPV Project .............................................9 Chart 12: Price Change Forecast for BIPV .................................................................9 Chart 13: BIPV Stimulus ............................................................................................10 Chart 14: Scenario Analysis of the CAGR of Electricity Prices Without a

Government Subsidy .................................................................................................11 Chart 15: Scenario Analysis of the CAGR of Electricity Prices With a

Government Subsidy .................................................................................................11 Chart 16: Scenario Analysis of Discount Rate Without a Government

Subsidy .......................................................................................................................12 Chart 17: Scenario Analysis of Discount Rate With a Government Subsidy ........12 Chart 18: BIPV is a Cross-Disciplinary Science ......................................................13 Chart 19: BIPV Contributed 25% of Revenue In 2009..............................................15 Chart 20: BIPV Contributed 40% of Gross Profit In 2009 ........................................15 Chart 21: Top Line CAGR of 36.0% over the Next Three Years ..............................16 Chart 22: Bottom Line CAGR of 37.2% over the Next Three Years ........................16 Chart 23: Margin Levels set to Gradually Increase..................................................16 Chart 24: Valuation of Peers......................................................................................17 Chart 25: Historical P/E Performance .......................................................................17 Chart 26: Historical P/B Performance.......................................................................17 Chart 27: AR Breakdown in 2008 ..............................................................................18 Chart 28: AR Breakdown in 2009 ..............................................................................18

Table 1: Consolidated Income Statement of Singyes..............................................19 Table 2: Consolidated Cash Flow Statement of Singyes ........................................19 Table 3: Consolidated Balance Sheet of Singyes ....................................................20 Table 4: Key Financial Ratios of Singyes .................................................................20




Rapidly Growing Energy-Saving Curtain Wall Market

Government Continues Subsidizing Solar Photoelectric Integration Applications

Currently, buildings account for 28% of all energy consumed in China, ranking third, behind industry and transportation. Furthermore, new housing in China this year reached ~2B sq.m, according to the Ministry of Construction (MOC), 80% of which are energy-intensive buildings. In light of this, the government is focusing more on energy-saving applications for buildings, as part of its policies designed to promote energy-savings and emissions reductions.

Chart 1: Energy Consumed by Buildings is 28% Of Total Consumption

Chart 2: 80% Of New Buildings Are Energy-Intensive

Source：SWS Research Source：SWS Research

The Ministry of Finance (MOF) and the Ministry of Housing and Urban-Rural Development (MOHURD) released two documents in March 2009 aimed at supporting the development of solar photoelectric integration applications. According to these policies, the government will offer subsidies for solar photoelectric integration projects which meet certain energy-saving conditions. These policies have continued in 2010, and include more detailed standards for subsidy provisions.

Chart 3: Subsidies for BIPV and BAPV Chart 4: Subsidies 50% of Total Cost of Solar Modules*

Source：MOF, MOHURD, SWS Research Source：SWS Research * This includes the cost of solar modules and related installation costs.

Industry30%

Transportation29%

Others13%

Building28%

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80%

Energy-savingbuildings

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We believe that these subsidy policies will greatly boost development of solar photoelectric integration applications in China. In 2009, the government subsidy standard was RMB20/W for solar photoelectric integration projects. In 2010, more detailed standards were released: an RMB17/W subsidy will be applied to Building Integrated Photovoltaics (BIPV) projects, and an RMB13/W subsidy will be applied to Building Applied Photovoltaics (BAPV) projects.

These subsidy levels have now reached 35-40% of the total cost of solar modules, including related installation costs. The cost of solar modules has declined to RMB20-30/W, as a result of improved technology, and economies of scale in the thin film solar cell industry. The average installation cost is RMB20/W, depending on variations in design, construction, and on-grid connections. Therefore, the average total cost of solar modules applied in BIPV projects is RMB40-50/W, and the average total cost for BAPV projects is RMB35/W.

Aside from the central government, in 2009 the Shandong province released additional support policies for solar photoelectric integration projects. Shanghai, Guangzhou, Shenzhen, the Jiangsu province, and the Hainan province, have also released similar policies.

New Niche Market: BIPV

Solar power has always been regarded as a truly unlimited source of electricity. Europe has led the way, having installed capacity of nearly 16GW of capacity by 2009. This figure represents ~70% of the world’s cumulative PV power capacity installed at the end of 2009. China has become one of the top ten PV markets globally, and is expected to continue solidifying its role as a major player.

Chart 5: World Cumulative PV Power Installed by Region

Source：EPIA, SWS Research

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China 19 30 45 55 64 68 80 100 145 305

US 139 168 212 275 365 479 624 831 1173 1650

ROW 763 825 913 1000 1044 1051 1235 1422 1870 2347

Japan 318 452 637 860 1132 1422 1708 1919 2149 2633

EU 189 286 422 633 1319 2303 3282 5088 10340 15958

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009




China has ~40B sq.m of building area, over 4B sq.m of roof-top area, and 5B sq.m of south-facing area available for solar panel installation. We believe that China is taking steps to rebalance its solar industry, and there is a large potential for growth in domestic demand. We expect that the target for cumulative solar power capacity by 2020 will be at least 20GW, representing 11x the previous target of 1.8GW.

Chart 6: Regional Breakdown Of Available Sunlight

Resource ZoneAnnual Raditation Quantity

(MJ/square meters)Annual Raditation Quantity

(Kwh/square meters)Average Daily Radition

(MJ/square meters)Most Abundant I ≥ 6300 ≥ 1750 ≥ 4.8Very Abundant II 5040 – 6300 1400 – 1750 3.8 – 4.8 Fairly Abundant III 3780 – 5040 1050 – 1400 2.9 – 3.8 Average IV < 3780 < 1050 < 2.9

Source：ERI of NDRC, SWS Research

BIPV are a major application in the solar photovoltaic power market for developed countries. There are two forms of BIPV integrated systems: PV-Roof and PV-Wall. Among the 16GW of global installed capacity in 2008, 85% of solar PV systems were connected to the grid, and 90% of these on-grid solar systems were installed on rooftops as this is the area that receives the most sunlight and enables easier installation. In China, however, BIPV projects accounted for only 5.6% of the 145MW installed capacity in 2008.

We agree with the NDRC’s Energy Research Institute, that due to government stimulus policies, by 2020 BIPV will account for 70% of the solar market in China. This represents a CAGR of 77% from 2008 to 2020.




Chart 7: CAGR of BIPV from 2008 to 2020 will be 77%

Source：SWS Research

BIPV Feasibility Analysis

Curtain Walls Account for 14% of Total Project Costs

In commercial construction projects, in general, building construction is 30% of total costs, installation is 32% of total costs, and decoration is 33% of total costs. On average, traditional curtain walls account for 43% of decoration costs. Therefore, traditional curtain wall costs account for ~14% of total project costs.

Chart 8: Breakdowm Of A Commercial Building Project

Chart 9: Breakdowm Of Decoration Items


The Cost of BIPV will Continue to Decline

In a sample BIPV project the cost breakdown is as follows: façade (15%), module (37%), support structures (16%), sealant (4%), installation (10%), inverter (11%), and BOS (7%).

Since 2H08, the price of upstream polysilicon and thin film products sharply declined. Subsequently, the cost of solar panels used in BIPV projects also declined. We believe that the price of solar panels can

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

MV

A CAGR of 2014-2020:25%

A CAGR of 2008-2014:178%

Measure4%

Decoration33%

Others1%Installation

32%

Construction30%

Floors13%

Ceilings18%

Others4% Curtain walls

43%

Walls and Pillars16%

Doors and windows6%




maintain its current level, suitable for unprecedented production capacity expansion in China.

Chart 10: Historical Price Of High Purity Silicane

Chart 11: Cost Breakdowm Of A Sample BIPV Project

Source：ERI of NDRC, SWS Research Source：Company Data, SWS Research

In 2009-2015, we believe that the cost of BIPV will maintain its downward trend with a CAGR of -6.8%. The cost decreases in BIPV projects will mainly result from economies of scale in module production, sealant, installation and balance of system, and localized inverter production.

Chart 12: Price Change Forecast for BIPV

Source：Company Data, SWS Research

Government Subsidies Make BIPV More Attractive

For downstream clients, such as contractors, BIPV will become more attractive if costs continue to decrease and the government continues its stimulus policies. As shown in the following table, one can calculate that annual power generation per square meter in 2010 is 87.6kWh, assuming 7.3% thin film efficiency, and an annual generation of 1200 hours. Given that the price of electricity is RMB1/kWh in 2010, the annual revenue for BIPV is RMB87.6/sq.m. Given the RMB2603.2 price difference between a BIPV system and a Low-E curtain wall, the current BIPV payback period stands at 29.7 years – not yet an appealing option.

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Module37%Support structure

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RMB/W

Façade Module Support StructureSealant Installation InverterBOS Margin

A CAGR of 2009-2015: -6.8%




Chart 13: BIPV Stimulus

Source: SWS Research

However, government subsidies change this situation. Considering the government subsidy of RMB17/W, the price difference between BIPV and Low-E curtain walls is RMB1362.3, the BIPV payback period is shortened to 15.6 years.

Scenario Analysis of the CAGR of Electricity Prices

We believe it is very likely that electricity prices will rise in the future. If are assumptions are correct, we believe a CAGR of 5% to be standard. We then test whether the NPV of a 20-year BIPV project with a discount rate of 8% is able to bridge the price gap between BIPV and Low-E curtain wall.

We conclude that, under normal circumstances and without a government subsidy, the NPV of a 20-year BIPV project will be sufficient to account for the price difference by 2014/15. With a government subsidy, the timescale is shorter, and could be achieved by 2010/11.

2009 2010E 2011E 2012E 2013E 2014E 2015EAssumptionEfficiency (%) 7.0% 7.3% 7.6% 7.9% 8.3% 8.6% 9.0%Annual Generation Hours 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0Power Generation KWH/Year 84.0 87.6 91.3 95.2 99.3 103.6 108.0Electricity Price /KWH 1.0 1.0 1.0 1.0 1.0 1.0 1.0Government Subsidy /W 20.0 17.0 16.0 14.9 13.9 13.0 12.2Without Government SubsidyBIPV Price/m2 4127.0 3868.3 3749.0 3641.1 3490.0 3352.7 3227.9Curtain Wall Price/m2 1312.5 1265.1 1265.1 1265.1 1257.5 1250.0 1242.6Price difference/m2 2814.5 2603.2 2484.0 2376.1 2232.5 2102.7 1985.3Annual Revenue of BIPV/m2 84.0 87.6 91.3 95.2 99.3 103.6 108.0BIPV Payback Period (Years) 33.5 29.7 27.2 24.9 22.5 20.3 18.4With Government SubsidyBIPV Price/m2 2727.0 2627.4 2530.6 2457.7 2338.3 2229.5 2130.4Curtain Wall Price/m2 1312.5 1265.1 1265.1 1265.1 1257.5 1250.0 1242.6Price difference/m2 1414.5 1362.3 1265.5 1192.7 1080.8 979.5 887.8Annual Revenue of BIPV/m2 84.0 87.6 91.3 95.2 99.3 103.6 108.0BIPV Payback Period (Years) 16.8 15.6 13.9 12.5 10.9 9.5 8.2




Chart 14: Scenario Analysis of the CAGR of Electricity Prices Without a Government Subsidy


Chart 15: Scenario Analysis of the CAGR of Electricity Prices With a Government Subsidy


Discount Rate Scenario Analysis

If our assumptions are correct, we estimate a normal discount rate of 8%. We then test whether the NPV of a 20-year BIPV project with an electricity price CAGR of 5% is able to bridge the price gap between BIPV and Low-E curtain wall.

We conclude that, under normal circumstances and without a government subsidy, the NPV of a 20-year BIPV project will be sufficient to account for the price difference by 2014/15. With a government subsidy, the timescale is shorter, and could be achieved by 2010/11.

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2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015EBIPV Price/m2 Price difference/m2 4%5% 6% 7%




Chart 16: Scenario Analysis of Discount Rate Without a Government Subsidy


Chart 17: Scenario Analysis of Discount Rate With a Government Subsidy


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2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015EBIPV Price/m2 Price difference/m2 6%7% 8% 9%10%




Path to Success: First-Mover Advantage, Blue Ocean Strategy

BIPV is a Cross-Disciplinary Science

Curtain walls and ceilings with BIPV features differ significantly from traditional ones. The industry for curtain walls and ceilings for BIPV projects has high barriers to entry. Aside from considering safety, protection, and decoration, companies must effectively manage integration of solar power, circuit integration, design of solar panels, as well as power transmission, and connections with the local grid. The gross margin level for BIPV businesses is ~35%, significantly higher than the 13-18% of traditional businesses.

Chart 18: BIPV is a Cross-Disciplinary Science


Singyes Benefits from First-Mover Advantage

The Ministry of Housing and Urban-Rural Development selected 86 key nationwide projects in March 2010 – many of Singyes’s BIPV projects were chosen.

Singyes is the only BIPV project contractor.

Singyes is becoming the only company operating nationwide that has demonstrated the ability to utilize BIPV technology.

Singyes has obtained both Level 1 contracting for construction, and

The technologyof powertransmissionandtransformation

The functionsof safety,protectionanddecoration

System integration ofsolar power, circuitintegration and designof solar panel

BIPV




Class A project design.

In 2009, Singyes acquired an additional 20% equity stake in Weihei China, one of its major thin-film PV panel suppliers. This allows Singyes to further tighten cooperation between the companies.

As a contractor recommended for BIPV projects by the Ministry of Housing and Urban-Rural Development, Singyes has undertaken many policy-supported demonstration projects. These include a PV skylight for the Beijing National Olympic Sports Centre Stadium, the Qingdao Railway Station and the Weihai Citizen Plaza, and a BAPV roofing project for Shenzhen Vanke Property Holding Company.

The PV skylight at Weihai Citizen Plaza is currently the largest PV building in world.

The BAPV roofing project for Shenzhen Vanke Property Holding Company has received LEED certification from the US Green Building Council.

Singyes plans to further strengthen its BIPV business by undertaking more projects in this area.

Singyes can tap into its established network of customers and subcontractors in the conventional curtain wall industry, to promote its BIPV business.

Singyes benefits from its proven track record, expertise, strategic cooperation with the Railway Enterprise Management Association, technical capabilities, and experience in the curtain wall industry.

Singyes has entered into technology research agreements with Wuhan University of Technology, Zhongshan University, and Hunan University.

BIPV Contributed 40% of Gross Profit In 2009

We believe that solar energy will become one of Singyes’ most important revenue sources in the future.

Revenue contribution from BIPV and solar power station operations increased by 10.8% from 14.1% (in 2008) to ~24.9%.

Gross profit contribution from BIPV and solar power station operations increased by 14.2% from 25.2% (in 2008) to ~39.4%.




Chart 19: BIPV Contributed 25% of Revenue In 2009


Chart 20: BIPV Contributed 40% of Gross Profit In 2009


82.5% 77.0%61.4%

5.3% 14.1%24.9%

12.0% 8.8% 13.7%0.2% 0.2% 0.0%

0%10%20%30%40%50%60%70%80%90%

100%

2007 2008 2009

Conventional curtain walls BIPV and solar power stationSale of goods Rendering of design services

75.3%64.8%

44.4%

10.9% 25.2%

39.4%

12.9% 9.2% 16.1%0.9% 0.8% 0.1%

0%10%20%30%40%50%60%70%80%90%

100%

2007 2008 2009

Conventional curtain walls BIPV and solar power stationSale of goods Rendering of design services




Earnings Forecast and Valuation

Top Line CAGR of 36.0% over the Next Three Years

We estimate the company’s revenue in 2010/11/12 will amount to RMB1.66B, RMB2.27B, and RMB3.14B, respectively, representing a CAGR of 36.0% over the next three years. This growth will mainly be driven by abundant BIPV orders. We estimate the company’s revenue from its BIPV business in 2010/11/12 will total RMB0.50B, RMB0.82B, and RMB1.34B, respectively, representing a CAGR of 62.7% over the same period.

Chart 21: Top Line CAGR of 36.0% over the Next Three Years


Bottom Line CAGR of 37.2% over the Next Three Years

Accordingly, we estimate the company’s profits in 2010/11/12 will amount to RMB205.7M, RMB279.5M, and RMB390.3M, respectively, representing a CAGR of 37.2% over the next three years.

Gross margin will rise through improvements in the company’s product mix, mainly resulting from an increased proportion of BIPV sales, which yield a higher gross margin.

Chart 22: Bottom Line CAGR of 37.2% over the Next Three Years

Chart 23: Margin Levels set to Gradually Increase


2008 2009 2010E 2011E 2012ERevenue (Rmb'm)Conventional curtain walls 695.3 766.0 899.4 1,056.5 1,241.6 – Public work 380.4 396.3 455.7 524.1 602.7 – Commercial and industrial buildings 298.0 286.9 344.3 413.1 495.8 – High-end residential buildings 16.9 82.8 99.4 119.2 143.1 BIPV and solar power station 127.2 310.4 501.1 815.4 1,338.0 – Public work 113.4 158.5 237.8 356.6 534.9 – Commercial and industrial buildings 13.8 118.2 212.8 383.0 689.3 – High-end residential buildings - 33.7 50.6 75.8 113.7 Total Construction Contracts 822.5 1,076.4 1,400.4 1,871.9 2,579.6 – Curtain wall materials 74.6 98.9 118.7 142.4 170.9 – Solar related goods 4.7 71.6 143.2 257.8 386.6 Total sale of goods 79.3 170.5 261.9 400.2 557.5 Rendering of design services 1.5 0.5 0.6 0.7 0.9 Total revenue 903.3 1,247.4 1,662.9 2,272.8 3,138.0

0%

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15%

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25%

30%

2008 2009 2010E 2011E 2012E

Gross profit margin Net profit margin

0

50

100

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250

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450

2008 2009 2010E 2011E 2012E

Rmb'm

0%5%10%15%20%25%30%35%40%45%50%

Profit for the year YoY growth




Target Price: HK$5.25

As very few listed companies are engaged in BIPV operations, we have chosen to analyze peers that are primarily involved in the infrastructure and solar energy industries. Peers in infrastructure are trading at an average of 10.7x 10E P/E and 8.8x 11E P/E. Peers in solar energy are trading at an average of 10.7x 10E P/E and 8.7x 11E P/E. Considering that Singyes is the first-mover in this new market, it would be reasonable to add a premium when calculating its value. However, we have decided to remain conservative, and not add this premium. The company is currently trading at 11x 10E P/E. We initiate our coverage with a Buy rating and a target price of HK$5.25.

Chart 24: Valuation of Peers

Source: Bloomberg, SWS Research

Chart 25: Historical P/E Performance Chart 26: Historical P/B Performance

Source：Bloomberg, SWS Research Source：Bloomberg, SWS Research

Investment Recommendation: Buy

Our target price of HK$5.25 implies 52% upside potential to the latest trading price of HK$3.45. We therefore initiate our coverage with a Buy rating.

0

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Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10

PE_RATIO Average Median

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5

Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10

PB_RATIO Average Median

Company 09E 10E 11E 12E 09E 10E 11E 12ESINGYES SOLAR 750.HK

Infrastructure PeersCHINA RAILWAY GROUP LTD-H 390 HK 15.1 11.3 9.3 8.4 1.6 1.4 1.2 1.1CHINA RAILWAY CONSTRUCTION-H 1186 HK 18.7 12.8 10.5 10.0 2.0 1.7 1.5 1.4CHINA COMMUNICATIONS CONST-H 1800 HK 12.6 10.2 8.6 7.5 1.9 1.4 1.3 1.1METALLURGICAL CORP OF CHIN-H 1618 HK 13.2 10.2 8.0 6.5 1.6 1.4 1.2 1.1CHINA STATE CONSTRUCTION INT 3311 HK 11.0 9.1 7.4 6.9 1.7 1.4 1.2 1.2 Average 14.1 10.7 8.8 7.9 1.8 1.5 1.3 1.2 Median 13.2 10.2 8.6 7.5 1.7 1.4 1.2 1.1

Solar Energy PeersSOLARGIGA ENERGY HOLDINGS LT 757 HK - 16.3 9.5 8.8 1.7 1.2 1.1 1.0GCL POLY ENERGY HOLDINGS LTD 3800 HK - 10.9 8.2 7.3 1.5 1.6 1.4 1.2YINGLI GREEN ENERGY HOLD-ADR YGE US 231.8 9.3 8.4 7.5 1.3 1.1 1.0 0.9TRINA SOLAR LTD-SPON ADR TSL US 11.1 7.5 7.1 6.3 1.4 1.1 0.9 0.8SUNTECH POWER HOLDINGS-ADR STP US 25.7 13.5 10.3 9.7 1.1 0.9 0.8 0.8CANADIAN SOLAR INC CSIQ US 6.2 7.0 5.4 4.0 0.9 0.8 0.7 0.5JA SOLAR HOLDINGS CO LTD-ADR JASO US - 6.2 6.8 6.8 1.1 0.9 0.8 0.7FIRST SOLAR INC FSLR US 15.5 14.9 13.6 10.9 4.0 2.8 2.3 1.8 Average 58.1 10.7 8.7 7.7 1.6 1.3 1.1 1.0 Median 15.5 10.1 8.3 7.4 1.3 1.1 1.0 0.8

TickerP/E (X) P/B (X)




Investment Risks

Tightened Subsidy Policies and Credit Controls

The government’s current subsidy policy is crucial for the development of the BIPV industry. A reduction of subsidies would lead to a delay in BPIV industrialization. Recent government measures to tighten fixed investments and control credit in banking and other sectors may adversely affect Singyes’ suppliers and end-users within China.

Decline in Gross Margin

Singyes may experience a decline in its gross margin from BIPV operations as a result of new entrants. The high gross margin that the company current enjoys in its BIPV business should attract many new peers in the infrastructure and solar energy industries.

Large Amount of Trade Receivables

In 2009, the company’s trade receivables increased by 77.5% from RMB315.6M in 2008 to RMB560.2M. Trade receivables turnover reached 128 days in 2009, similar to the 120 in 2008. However, the structure of trade receivables revealed a longer credit period.

Chart 27: AR Breakdown in 2008 Chart 28: AR Breakdown in 2009


Retention money receivables for construction projects are usually received between one and three years after completion. The company’s retention money receivables increased by 75.8% from RMB39.9M in 2008 to RMB70.1 in 2009. We estimate that retention money receivables will grow rapidly, along with the coming expansion of BIPV operations.

Within 3 months 72.39%

3 to 6 months16.68%

1 to 2 years5.36%

6 to 12 months 5.15%

2 to 3 years0.42% Over 3 years

0.00%

Within 3 months 61.22%

Over 3 years0.02%

2 to 3 years0.29%

6 to 12 months 13.25%

1 to 2 years3.47%

3 to 6 months21.74%




Appendix

Table 1: Consolidated Income Statement of Singyes Million RMB 2008 2009 2010E 2011E 2012E

Revenue 903.3 1,247.4 1,662.9 2,272.8 3,138.0

Cost of Sales (716.3) (953.9) (1,257.2) (1,694.9) (2,306.9)

Gross Profit 187.0 293.4 405.7 577.9 831.1

Other Income 1.6 6.2 8.3 11.4 15.7

Distribution expenses (11.0) (19.2) (28.3) (45.5) (78.4)

Administrative expenses (37.1) (86.0) (116.4) (170.5) (251.0)

EBITDA 122 196 275 379 523

EBIT 118.0 189.7 264.4 363.4 502.3

Finance Costs (0.9) (8.2) (13.5) (13.9) (14.3)

Profit before tax 117.1 181.5 250.9 349.5 488.0

Income tax expense (13.5) (30.3) (45.2) (69.9) (97.6)

Minority interests 0.1 0.1 0.1 0.1 0.1

Profit for the year 103.5 151.1 205.7 279.5 390.3


Table 2: Consolidated Cash Flow Statement of Singyes

Million RMB 2008 2009 2010E 2011E 2012E

Profit before taxation 117.1 181.5 250.9 349.5 488.0

Plus：Depr. and amortization 4.0 6.6 10.5 15.3 20.6

Finance cost 0.9 8.2 13.5 13.9 14.3

Losses from investments 0 0 0 0 0

Change in working capital (84.9) (179.7) (205.7) (197.0) (294.8)

Others (9.9) (23.7) (45.2) (69.9) (97.6)

CF from operating activities 48.8 13.0 24.0 111.8 130.5

Capex (19.8) (62.3) (79.8) (81.8) (65.9)

Other CF from investing activities 19.8 (17.2) 0 0 0

CF from investing activities 0.0 (79.5) (79.8) (81.8) (65.9)

Equity financing 0 244.4 0 0 0

Net change in liabilities (8.0) 122.6 4.0 4.2 4.4

Dividend and interest paid 0 (9.8) (16.5) (22.4) (31.2)

Other CF from financing activities (11.1) (24.5) 0 0 0

CF from financing activities (19.1) 332.6 (12.5) (18.2) (26.8)

Net change of cash flow 29.7 266.1 (68.3) 11.8 37.7





Table 3: Consolidated Balance Sheet of Singyes Million RMB 2008 2009 2010E 2011E 2012E

Current Assets 482.7 989.8 1,205.8 1,482.9 1,917.4

Bank balances and cash 71.4 337.2 268.9 280.7 318.4

Trade and other receivables 315.6 560.2 800.3 1,023.3 1,352.7

Inventories 0.9 8.7 11.1 22.1 40.0

Other current assets 94.7 83.8 125.5 156.7 206.3

Long-term investment 8.9 21.2 20.0 20.0 20.0

PP&E 56.5 110.8 180.1 246.6 291.9

Intangible and other assets 0.8 4.0 4.2 4.2 4.2

Total Assets 549.0 1,125.8 1,410.1 1,753.7 2,233.6

Current Liabilities 110.6 226.2 291.8 360.8 457.1

Borrowings 10.0 79.4 83.4 87.5 91.9

Trade and other payables 36.4 73.8 110.6 147.6 200.1

Other current liabilities 64.2 73.1 97.9 125.7 165.1

Long-term liabilities 53.2 53.2 53.2 53.2 53.2

Total Liabilities 110.6 286.9 355.0 425.0 522.3

Share Capital 0.1 33.6 33.6 33.6 33.6

Reserves 432.1 775.2 964.4 1,221.6 1,580.7

Minority interests 6.1 15.3 40.6 51.1 65.8

Total Liabilities and equity 549.0 1,125.8 1,410.1 1,753.7 2,233.6

Source: SWS Research Table 4: Key Financial Ratios of Singyes

2008 2009 2010E 2011E 2012E

Ratios per share (RMB)

Earnings per share 0.28 0.33 0.42 0.53 0.74

Operating CF per share 0.13 0.03 0.05 0.21 0.25

Dividend per share 0.00 0.02 0.03 0.04 0.06

Net assets per share 1.19 1.85 2.14 2.52 3.25

Key Operating Ratios (%)

ROA 21.3 18.0 16.2 17.7 19.6

ROE 29.0 23.7 21.7 23.5 25.7

Gross profit margin 20.71 23.52 24.40 25.43 26.5

EBITDA Margin 13.51 15.73 16.53 16.66 16.66

EBIT Margin 12.97 14.55 15.09 15.38 15.55

Growth rate of Revenue (YoY) 49.38 38.09 33.32 36.67 38.07

Growth rate of Profit (YoY) 47.22 45.97 36.14 35.91 39.64

Debt-to-asset ratio 0.20 0.25 0.25 0.24 0.23

Turnover rate of net assets 2.06 1.49 1.58 1.71 1.83

Turnover rate of total assets 1.65 1.11 1.18 1.30 1.40

Effective tax rate (%) 11.6 16.7 18.0 20.0 20.0

Dividend yield (%) 0.0 0.7 1.1 1.4 1.9





Information Disclosure： The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). A group company(ies) of the Company confirm that they, whether individually or as a group (i) are not involved in any market making activities for any of the listed corporation reviewed; or (ii) do not have any individual employed by or associated with any group company(ies) of the Company serving as an officer of any of the listed corporation reviewed; or (iii) do not have any financial interest in relation to the listed corporation reviewed or (iv) do not, presently or within the last 12 months, have any investment banking relationship with the listed corporation reviewed. Undertakings of the Analyst Titus Wu: Equity Analyst I am conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China or have equivalent professional competence. I issue this report independently and objectively with due diligence. This report distinctly and accurately reflects my research opinions. I have never been, am not, and will not be compensated directly or indirectly in any form for the specific recommendations or opinions herein. Information Disclosure with respect to the Company The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact [email protected] for the relevant disclosure materials. Introduction of Share Investment Rating Security Investment Rating： When measuring the difference between the markup of the security and that of the market’s benchmark within six months after the release of this report, we define the terms as follows: Buy： with a markup more than 20% better than that of the market； Outperform：With a markup 5% to 20% better than that of the market； Neutral： with a markup less than 5% better or worse than that of the market； Underperform： with a markup more than 5% worse than that of the market. Industry Investment Rating: When measuring the difference between the markup of the industry index and that of the market’s benchmark within six months after the release of the report, we define the terms as follows: Overweight：Industry performs better than that of the whole market； Neutral： Industry performs about the same as that of the whole market； Underweight：Industry performs worse than that of the whole market. We would like to remind you that different security research institutions adopt different rating terminologies and rating standards. We adopt the relative rating method to recommend the relative weightings of investment. The clients’ decisions to buy or sell securities shall be based on their actual situation, such as their portfolio structures and other necessary factors. The clients shall read through the whole report so as to obtain the complete opinions and information and shall not rely solely on the investment ratings to reach a conclusion. The Company employs its own industry classification system. The industry classification is available at our sales personnel if you are interested. Triple-C Index is the benchmark employed in this report.

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