SunSi achieves 2 milestones in 2 weeks - Zacks raises price target - Analyst Blog

Steven Ralston, CFA

SunSi achieves 2 milestones in 2 weeks – Zacks raises price target

SunSi Energies (SSIE) reached two milestones in the span of two weeks with the announcements that the company's first-phase capacity expansion of its Wendeng TCS production facility is substantially complete and that Russia-based Nitol Solar has purchased 117 metric tons of TCS from the Wendeng facility in China. These two significant events compel us to raise our price target to $4.75.

SunSi has expanded the capacity of the Wendeng trichlorosilane facility by 50% from 20,000 metric tons (MT) to 30,000 MT. The company is currently performing quality control tests and fine-tuning procedures; however, when the incremental capacity becomes fully operational in late October, the new facilities are expected to run at 100% capacity due to high demand from two large polysilicon producers in China and now also from Nitol Solar in Russia. The Wendeng facility is a scalable facility, and management plans to initiate a second expansion phase in order to bring total capacity to 75,000 MT when funding is secured. SunSi Energies owns a 60% interest in the Wendeng trichlorosilane production facility.

In addition, SunSi announced that Nitol Solar, one of the world's largest polysilicon producers, has placed an initial order for 117 metric tons of trichlorosilane from Wendeng. This order not only represents SunSi's first customer outside of China, but also begins to fulfill management's vision of supplying the polysilicon solar marketplace internationally. Ultimately, management expects to provide TCS to North American and European markets. The company is already in discussions with companies based in the U.S., Europe and Taiwan.

Also, the large size of this initial order validates management's view that major polysilicon producers will outsource TCS production to specialty chemical manufacturers in order to focus on the manufacture of polysilicon and side-step the required capital to build new in-house TCS capacity.

Based upon these two significant milestones being achieved, we now expected SunSi's stock to trade at the top-end of our expected valuation range. Using a valuation methodology based on price-to-sales due the character of SunSi's enterprise (namely a small-capitalization company with current negative profitability, but with a sales profile that should grow through acquisitions and capacity additions), we expect a price-to-sales valuation range between 1.1 and 3.2.

We reiterate our Outperform rating and raise our price target to $4.75.
 

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