Sunpower operates two main business segments: Green Investments and Manufacturing & Services.

The Green Investments segment invests, develops and operates centralized steam, heat and electricity generation plants. While the Manufacturing & Services segment, engages in businesses of high-end environmental protection manufacturing and services to provide a variety of customized products and solutions for diverse industries.

Performance Drivers (Positive Factors)

• Green Investments Segment

Sunpower’s Green Investments segment experienced a 384.4% year-on-year jump in FY 2018 revenue to RMB 736.8 million, while EBITDA surged by 303.7% to RMB 276.3 million. In FY 2018, this segment accounted for 22.6% of the company’s overall revenue; 45.1% of Sunpower’s total year-on-year revenue increase; as well 55.7% of the total EBITDA. In addition, Green Investments projects registered robust operating cash flows of RMB 211.7 million in FY 2018, on the back of strong tariff collection due to the ability to obtain prepayments from customers.

As of 31 December 2018, Sunpower has invested and committed a total of RMB 1.3 billion of equity in ongoing Green Investments projects, and is on track to invest a total of RMB 2.5 billion in equity by 2021.

• Manufacturing & Services Segment

Sunpower’s Manufacturing & Services segment achieved a 39% year-on-year increase in revenue to a record figure of RMB 2.5 billion in FY 2018. The company managed to sustain its margins and positive cash flow despite the mixed macroeconomic environment. Further, orders on hand grew from the RMB 1.9 billion as of February 2018 to RMB 2.5 billion as of February 2019.

• Strong long-term growth in China

Sunpower sees vast potential in the China as the country moves to reduce air pollution through targeted policies that eliminate decentralized pollutive coal-fired boilers, in favour of centralized environmentally-friendly solutions. On top of that, Sunpower already holds an established market reputation in this sector with recognized track record, advanced integrated technology and strong capital support. Consequently, the company expects to enjoy a first-mover advantage there.

In addition, local Chinese governments are mandating for more factories to be built in/relocated to industrial parks – and the Sunpower forecasts the further expansion of these industrial parks. Meanwhile, the company holds the exclusive rights to supply steam to industrial customers within selected industrial parks, where it holds typical 30-year concession agreements with the first right to renew such concessions. As such, Sunpower has projected strong long-term growth in this area.

Performance Drivers (Negative Factors)

• Substantial increase in financial costs

Sunpower has maintained healthy cash flows over the past few years, but it remains that this is a capital intensive field and massive funds are required to support the development of new projects. In particular, the company has targeted to grow its current gross annualized steam capacity by 3.5 times to 30 million tons, as well as current gross annualized electricity generation capacity by more than 5 times to 3.5 million megawatt hours. Sunpower intends to fund these by the issuance of convertible bonds and internal funds. As a result, there was a substantial jump in the company’s interest expense on bank loans and on convertible bonds from FY 2017 to FY 2018. While not a negative factor per se, it is important to monitor these costs and the ability of the company to repay those loans.