So, loss is inevitable.
I have never invested in Tek Seng before even though I was interested to do so, as it was hard for me to predict how much Tek Seng can earn from this solar cells venture.
The net profit margin for solar division stays stable at 13+% for the last 2 profitable quarters.
Anyway, is 2x increase in TSS's net profit after full expansion in capacity too conservative? I think we should assume that the capacity will not be fully utilized.
Anyway, US only makes up a small part of the world's solar energy consumption. Asia especially China, Japan and may be the upcoming India are still the main market and I think solar energy should get more and more common in other emerging countries.
Even though TS Solartech is said to be the first "made-in-Malaysia" solar cells/modules manufacturing company, it has Taiwan's Solartech as its strategic partner & shareholder.
I'm not sure whether EU's latest anti-dumping duties will affect TS Solartech. TS Solartech does export its products to Eastern Europe though I think the volume should not be too significant.
The linked article above mentions that there are some companies exempted from the duties. Is TS Solartech part of it?
Furthermore, TS Solarch manufactures solar cells & modules, and seems does not assemble them to solar panel. Will it still be related to the anti-dumping duty by EU?
US also has its own solar products anti-dumping duty on China & Taiwan. Will TS Solartech ever get affected?
Tek Seng manage to achieve positive operating cash flow in FY15 but spent as much as RM162.5mil for PPE purchase (capex).
Its has a debt/equity ratio of 0.6x and will continue its expansion plan in FY16.
Upcoming private placement will help to ease its financial burden but it will dilute its earning of course.
I think it should not have much capex after 2016 and should be able to enjoy good operating cash flow after that if the sales of its solar cells can grow along with its expansion.
However, in its website TS Solartech says this:
It seems like TS Solartech is not satisfied being only a manufacturer of solar cells & modules...
It's almost certain that Tek Seng's FY16 financial result will be better than FY15, and FY17 will be better than FY16. However, is it worth to invest in Tek Seng at current share price of RM1.18?
Decision is yours.