SB1M er ute med en Summer update på blant annet REC. De skriver blant annet følgende:

Summer update – Challenging polysilicon market and financial situation

Conclusion
Our scenario for a sharp polysilicon price drop has played out during the summer. After China cut subsidies to solar power on June 1st 2018, prices are down 26% and the high grade (9N) spot price now stands at USD10.9/kg. As a response, REC has reduced production at Moses Lake to 25% of capacity, down from 50%, which resulted in increased cash cost to USD15.2-15.9/kg for the remaining of 2018. The company’s cash position was reduced to USD42m at the end of Q2 2018, down from USD50m at the end of Q1 2018. Our investment case remains intact and we believe it is a significant risk for the need of external financing and potential shut down of Moses Lake. We reiterate our Sell recommendation and target price of NOK0.7 per share.

Our analysis:
Polysilicon prices reaching the USD10/kg mark as feared
Our scenario for a sharp polysilicon price drop has played out during the summer. After China cut subsidies to solar power on June 1st 2018, prices are down 26% and the high grade (9N) spot price now stands at USD10.9/kg (keep in mind that REC sold its FBR polysilicon at a 28% discount to the spot price in 2017). REC reported only one shipment of polysilicon following June 1 and the market remains challenging. The price reduction continues, although at a lower reduction rate, and we argue that a combination of 15% supply growth and 6% demand reduction on our estimates does not look good for polysilicon producers. The main implication for REC is that the company should shut down Moses Lake to reduce the cash drain from operations, a decision that may be made in the coming months.

Production reduction resulting in weaker guidance
One month after China cut subsidies to the solar power industry, on July 1 2018 REC decided to reduce the production at Moses Lake to 25% of capacity, down from 50%. The reduced capacity results in higher cash cost and in its Q2 2018 report REC guided at a cash cost of USD15.9/kg and USD15.2/kg for Q3 and Q4 2018 respectively, significantly above the previously guided USD11.7/kg for 2018. RECs cash position was reduced to USD42m at the end of Q2 2018, and with potential payments of USD31m for a tax claim, USD25m for an indemnity loan, USD8.3m Yulin fees and a potential reversal of working capital, we believe there is a significant need for external financing within the next 12 months.

Investment case remains intact
The share price has come down 50% since peak in January 2018, but we still remain cautious towards the financing situation. The value of Moses Lake represents an option in the current market, but it comes at a significant cost which drains the cash generation in the company. The silane gas business at Butte represents the majority of valuation in our view, but we question the durability of the current very lucrative EBITDA margins of c.70% on our estimates. The total silane gas market is approximately 5,250MT and the sale from Butte of 3,675MT represents 70% of the total market. Yulin will have a production capacity of c.22,000MT and a loading capacity of 500MT. At 70% EBITDA margin, we argue that it may only be a matter of time before Yulin decides to increase the loading capacity of silane gas and create a significant supply shock in the market. This, a 6.0X EV/EBITDA multiple at Butte may be too lofty.

Best regards,

Jonas Meyer
Equity Analyst