Introduction of the company

Comtec Solar is a manufacturer in China dealing with the production of solar silicon rob, silicon ingot and silicon slice. Currently, the company has reached international leading level in the aspect of monocrystalline silicon technology, and the average conversion ratio of its "super monocrystalline silicon slice" can reach 23%. It was listed in The Stock Exchange of Hong Kong Ltd. on October 30, 2009.

Summary

-The company realized the revenue of 243 million RMB in the third quarter of 2013 with the net profit of 17.30 million yuan. The rate of margin reached 7.1%, and it declined to some extent compared with the first half year. The net profit of the third quarter declined greatly with the annual loss of 7.635 million yuan in 2013, while the profit in the same period of 2012 reached 14.816 million yuan. Although the company showed signs of a rise in the first half year, the performance of the third quarter was barely satisfactory, thus the share price declined by a big margin.

-Currently, the price of polycrystalline silicon slice has been going up, while the price margin with monocrystalline silicon slice reaches 25%; however, this difference was 34% at the beginning of 2013, during the process of price margin narrowing, the cost performance advantage possessed by polycrystalline silicon slice has been weakened, which will benefit the marketing of monocrystalline silicon slice.

-The price of raw materials of polycrystalline silicon has increased to 18.79 dollars/kilogram from 17.45 dollars/kilogram within the recent month, with the growth of 7.7%, while the price of monocrystalline silicon makes little improvement. Therefore, the rising possibility of the price of raw materials will not move downstream in the short term, which will further compress the profit margin of the company.

-On December 27, 2013, the company signed a supply contract with American solar cell manufacturer, Mission Solar Energy with the term of 3 years, then the company shall supply N-type monocrystalline silicon slice of 500 MW in total from June, 2014 to July, 2017. In the first half year of 2013, the sales volume of monocrystalline silicon slice reached 180 MW, therefore, the sales volume increased annually of this contract will match that of the half year currently.

-The current capacity of the company can reach 600 MW, and the monocrystalline silicon project established at the end of 2013 in Malaysia has brought an extra capacity of 300 MW. Due to the preferential policy of free of duty offered by Malaysia government and low cost of local labor force, it is predicted that the Malaysian project will increase the profit margin of the company in the future after normal operation and help to raise the business performance.

-The distributive photovoltaic will expand greatly in China this year. The State Bureau of Energy has set the target of newly increased photovoltaic assembling units as 12 GW, including distributive type of 8GW. In the late national energy conference, the State Bureau of Energy has increased the target to 14 GW once again, including distributive type of 8.4 GW. Our country offers the allowance of 0.42 yuan/kilowatt-hour to distributive photovoltaic, meanwhile, every place will publish policies to encourage the development of distributive photovoltaic. By the end of 2013, there are 6 provinces and cities publishing the detailed rules and regulations of local allowance.

-It is estimated that the profit margin of the company will witness a stable growth in the following two years, besides, the project in Malaysia will further increase the competitive power and market share of the company. Above all, we give the target price of 1.64 HKD to the company, which is equal to 35 times and 16.6 times of PE ratio in 2014 and 2015 respectively, 18.8% higher than the current price, thus we set an `accumulate` rating

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