Presented by:Ang Kian YongAnkur Mangla

Beatrix Judika EvelynaEunice Peh

Zhang Yinmeng

Introduction to Renewable Energy Industry and Solar PV Market

Solar PV Market

Company Overview • Renewable Energy Equipment & Services Industry.• U.S based PV solar energy solutions. • FS operates through two segments: • Component:

• Design, manufacture & sale of solar modules. • System – provide system solutions:

• Project development• Engineering, Procurement & Constructions (EPC)• O&M services • Project Finance

Company Overview (cont’d)• Top revenue streams for FS:• Project development• Sale of PV modules to third party• Electricity Sales from own project (via Power Purchase

Agreement – PPA)

• Top competitors: • SolarCity Corp (U.S)• Hanwha Q Cells Co Ltd (South Korea)• Trina Solar Ltd (China)• Canadian Solar Inc (Canada)• SunPower Corp (U.S)

Accounting Analysis Internal

Financing Activities – Debt VS Equity

• FS’ capital structure is heavily relying on equity instead of debts. In addition, it can be seen that there is an increasing trend of equity financing throughout the years. One possible reason of this behavior could be explained by the business nature of Solar PV industry which has a rather high risk.

Financial Ratio Analysis1. Profitability2. Liquidity 3. Asset utilization / activity4. Leverage / solvency

Comparison of Ratios Over Time

Ratios with significant changes over years:1. Current ratio2. Financial leverage ratio3. Interest cover4. Receivables turnover5. Cash turnover

Comparison of Ratios Over Time (cont’d)

Ratios with significant changes over years:6. Gross margin7. ROA8. ROIC9. ROE

Liquidity Ratios – Current Ratio

2012 2013 2014$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

Mill

ions

($)

• It can be seen that throughout the years, current assets and current liabilities have linear relationship (i.e. current assets increase, current liabilities will also increase).

• It can be interpreted from this ratio that FS is financially healthy and able to pay off its debts using its (current) assets. 2.57 2.39 3.19Current Ratio

Solvency Ratios – Interest Cover

2012 2013 2014$100,000

$0

$100,000

$200,000

$300,000

$400,000

$500,000

EBIT

2012 2013 2014$0

$2,000$4,000$6,000$8,000

$10,000$12,000$14,000$16,000

Interest Expense*

*Interest expense, net of amounts capitalized, decreased during 2013 compared with 2012 primarily as a result of $4.7 million in expense during

2012 associated with the repayment of a German credit facility agreement.

2.70 195.61 214.01Interest Cover

Activity Ratios

2012 2013 20140

20

40

60

80

100

120

104

73

23

Receivable Turnover (days) • For FS case, the increase in receivable turnover is greatly influenced by a great decrease in A/R (especially retainage) over smaller increase in net sales.

• It can be assumed that from 2013 to 2014 First Solar has completed many of its contract, which shows by smaller number of account receivable, unbilled and retainage; its customer is able to pay its debt directly / quickly.

Profitability Ratios – Gross Profit Margin

It can be seen that First Solar’s gross profit margin decreased by 2% in 2014, compared to 2013. One possible reason is because of the increasing cost from system segment that causes the overall COGS to increase by almost 5% from $2.45 billion in 2013 to $2.56 billion in 2014.

Profitability Ratios - ROA

2012 2013 2014$1,000,000

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

0.26% 5.13% 5.97%ROA

Profitability Ratios - ROEROE Decomposition:

(Net Margin) x (Assets Turnover) x (Leverage)

ROE Decomposition 2014 = (11.70%) x (0.50) x (1.34) = 7.89%ROE Decomposition 2013 = (10.67%) x (0.48) x (1.53) = 7.84%ROE Decomposition 2012 = (-2.86%) x (0.53) x (1.76) = -2.67%

The increase in ROE is mainly caused by increase in net margin.

Profitability Ratios – ROE (cont’d)• Net margin shows a company operating efficiency and

it is affected by two factors – net income & sales. • Looking at negative net margin in 2012, it can be

concluded that First Solar did not operate efficiently during that period of time. • From 2012 to 2013, there is around 450% increase in

net income, which caused by:• Incurred loss due to competition from Chinese

manufacturer in 2012 and operating inefficiency. • Restructuring and asset impairment strategy that First

Solar conducted in 2013, which results in decrease in cost.

Peer Group Comparisons

Economic Analysis External or Industry Analysis

Long-term Outlook

A huge potential for solar electricity.

Five Forces Supplier Power- Critical suppliers + many small suppliers

Buyer Power- First Solar’s products: cost/watt efficiency- However, the company relies on a limited number

of customers

Competitive Rivalry- Highly competitive- Only in US, thousands competitors in the industry

Porter’s Five

Forces

Supplier Power:

Medium

Buyer Power: Medium

Competitive Rivalry: High

Threat of Substitution:

High

Threat of New Entry:

Medium

Threat of Substitution- First Solar faces intense competition from manufacturers of crystalline

silicon solar modules, thin-film solar modules, and solar thermal and concentrated PV systems.

- Competition will be worse with the increasing popularity of other renewable generation technologies

Threat of New Entry: - Several entry barriers, such as R&D, high cost,etc.

Financial Analysis Shareholders

Valuation Ratios1. P/E 2. P/S3. P/B4. AVERAGE INDUSTRY ROE

Peer Group Comparisons on Valuation Ratios Ratios First Solar SolarCity

CorpHanwha Q Cells Corp

Trina Solar

Limited

Sun Power

CanadianSolar

Renewable

Energy Group

ROE* 8.33 -8.22 -38.09 6.61 18.56 43.26 -P/E 16.41 - - 13.81 25.8 4.71 9.34

P/B 1.01 5.08 0.71 0.93 2.14 1.49 0.46P/S 1.5 14.96 1.83 0.43 1.13 0.39 0.25

Beta 2.0 - 2.8 2.49 3.25 3.06 2.06

EPS 3.07 -0.3 -12.04 0.77 0.97 4.39 0.81

*on average

Fair Value IS THE STOCK OVER VALUED OR

UNDER VALUED?

Fair Value = EPS * Industrial P/E FV of First Solar ： $28.6738MV of First Solar: $ 50.57

FV<MV, OVERVALUED

Conclusions • First Solar is financially healthy, because:• High liquidity ratios• Higher ROE compared to its benchmark

• However, the management does not perform well throughout the years, which can be seen from:• A much higher ROA ratio compared to its benchmark,

showing inefficient investment in assets. • Too low Debt-to-Equity ratio showing that they do not

fully take advantage of financial leverage and equity financing is more expensive than debt financing.

Thank YouAny Questions?