Carnegie Investment Bank
Gigasun
Date Title Alternative
2024-02-26 Stable quarter with capital structure review Download | Show Close
2023-11-17 Refinancing largely completed Show Close
2023-08-24 Unique exposure to China’s green transition Show Close
Research | 24 Aug 2023 | Gigasun

Unique exposure to China’s green transition

 

Appealing exposure to renewable energy generation

China is undergoing a shift towards renewable energy sources, with the aim of reducing greenhouse gases and
decrease its dependency on fossil fuels, and solar power is a central component of this. At the same time, electricity demand will continue to increase structurally as electrification accelerates. China is already the world’s largest photovoltaic market, and Advanced Soltech Sweden AB (ASAB) offers a unique exposure to this.

Acceleration in installed capacity in the coming years

Thanks to new financing, there is room for capacity expansion to take off in the coming years. The aim is to expand installed capacity to 1,000 MW by the end of 2026, from 252 MW as of H1 2023. ASAB’s model is scalable and not tied to a specific technology, but the entry barriers remain high on account of its particularly capital-intensive business model. Fixed tariffs on electricity spell stable revenues, while the capital-intensive nature of the business implies high margins, and long-term cash flow generation is thus both high and offers decent visibility.

 

We initiate with a fair value of SEK 14–15

We consider ASAB a power producer and thus compare it with a group of international power producers. Given a justified EV/EBIT of 18x – which stems from comparing the total of EBIT growth and EBIT margin with the peer group – we arrive at a fair value of SEK 14–15. We apply a discount to the peer group to account for ASAB being in the midst of raising capital, as well as for its size, and its dependence on a single market. Once the new financing is secured and as capacity expansion continues to accelerate, we expect the discount to narrow. We consider our estimates conservative and, given its new financial structure, the company should be able to secure local financing at attractive levels, prompting a significant increase in the investment level, and thus its growth, relative to our estimates.

 

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