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Production too far out to capitalize on current polysilicon super profit

We downgrade our recommendation to Sell from Neutral and reduce our target price to NOK14. By owning RECSI, you bet on a potential super profit period in 2025, which is possible but highly unlikely. Indeed, polysilicon capacity will increase by 70% in 2023 compared to 2022 and continue high growth after that, suggesting a capacity far exceeding demand and prices that will converge towards the marginal cost.

US polysilicon can likely get some premium price, but a significant price dispersion is only possible through some artificial market intervention. Therefore, REC Silicon will sell its polysilicon at an offtake discount to prices that are likely to be significantly lower than current prices and the prices incorporated into the current
share price level (trades in line with peers assuming a normalized polysilicon price of USD23/kg).

We believe that the re-opening of Moses Lake will be profitable but not as profitable as the current share price level suggests. We expect normalized USD64m in EBITDA from ML, suggesting consolidated EBITDA of USD76m and a 2025 EV/EBITDA of 13.5x (versus peers in the 3-5x range and 7x historically), assuming a USD14/sh polysilicon price, USD10/kg in cash cost at full production and 95% normalized utilization. Triggers align with polysilicon prices that likely will
decrease significantly in 2023, lower demand for silicon gas products in Butte into 2023, and a potential equity issue of >USD100m, assuming that the USD110m bond is refinanced.