HOKU (Nasdaq:HOKU) Lands Another Supply Deal - Backlog Up to $2.3 Billion

Sep 18, 2008
Author: SCP Editor

 September 18, 2008 – HOKU Scientific’s (Nasdaq:HOKU) announced  $227 million add-on deal with Tianwei this week is another catalyst, in our opinion which should drive the stock to higher levels. Its total deals announced with Tianwei now total $511 million over ten years, and it has amassed enough prepayments ($306 million) on deals in the past couple months ($306 million from Suntech (NYSE:STP), Solarfun (Nasdaq:SOLF), Kinko Energy and Solargiga) to enable it to boast total project funding of about $353 million. Its planned 3,500 metric ton polysilicon facility will cost about $390 million.

Since the end of July, HOKU has announced $1.2 billion in contracts:

·         September 16 – 10-year, $227 million add-on deal with Tianwei

·         September 4 – 10-year $455 million deal with Solargiga

·         August 5 – 10-year $284 million deal with Tianwei

·         July 30 – 10-year $298 million deal with Kinko EnergyAdd its contracts signed with Solarfun and Suntech, and its total value of contracts signed is $2.326 billion.

The stock is currently trading at $5.65, holding a $115 million market cap. As we have written before, the market cap is much more reflective of the company’s trailing twelve month performance than the company’s outlook, which is buttressed by a solid backlog of business. Management has previously reported that its planned polysilicon manufacturing facility is oversubscribed at its designed 3,500 metric ton annual production level.

In July, when we began writing about HOKU, it still looked like the company was going to need to raise capital to fund its plant, and we figured that the additional dilution would weigh on the then, current price of $5.04. Since then, the company has amassed enough prepayment fund commitments to avoid any need for equity financing, and it has logged another $1.2 billion in contracts. We believe that these developments are nowhere close to being factored into the stock price, and we stand by our most recent assessment, on September 5, where we wrote:

“….if we just carve out 8% of the total $2.1 billion in orders (this was written before the most recent contract announcement), and multiply that by a multiple of 2x P/S, we would arrive at an implied market cap of $343 million, and a stock price of $17.33. We aren’t certain as to when, exactly in FY 2009, HOKU’s revenue will begin ramping, but when it does, we think that it will support this analysis.”

Here’s what the analysts are saying

·         September 17 – Upgraded by Broadpoint to BUY (last December, Broadpoint had put on $15 target on the stock)

Important Disclosure: SCPEditor is LONG HOKU in the Aspire Clean Tech Portfolio. The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.