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COMTEC: Thin wafers, thick margins
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Written by Andrew Vanburen (in Hong Kong)
Wednesday, 18 November 2009 04:14
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Comtec CFO Keith Chau (left), and Mark Lee of Aries Consulting. Photo by Andrew Vanburen

COMTEC SOLAR Systems Group Ltd (HK: 712), which only listed on Oct. 30, sees a bright future for China’s solar energy industry.

More specifically, it anticipates sustained strong demand from downstream China-based solar panel and module makers, many of whom have chosen to sell shares on either the Nasdaq or the NYSE.

"We used to make silicon wafers for semiconductors but now only make them for solar wafers. Most of us at the firm started in the semiconductor industry. But currently, most of our clients are New York-listed Chinese solar panel firms,” said Comtec CFO and Executive Director Mr. Keith Chau.

In a recent interview with NextInsight, Aries Consulting and Greater China fund managers on the eve of the company’s Hong Kong listing, Mr. Chau said Comtec was always striving to move up the value-added chain in the high-precision monocrystalline solar ingot and wafer business.

“As one of the pioneers in the manufacture of semiconductor wafers in China since 2000, we started to manufacture ingots and wafers for solar uses from 2004. Since then, our main focus has shifted to the solar industry to cater to the increasing demand for our top-quality products,” he said.

And even in a soft global economy, capacity utilization never slipped below 50%. In fact, in the first half of this year, it was 80-90%.

"Our strength is our resilience and experience as we started in a tough operating environment and grew stronger with the challenges. We focus on thinner wafers than our competition. Thinner is better. We will continue to focus on high efficiency, hi tech wafers,” he said.

  


COMTEC’S STORY:

* Founded as semiconductor ingot and wafer maker in 1999.

* Began solar ingot and wafer ops in 2004 and 2005, respectively.

* Targets 160 micron wafers next month (from 170 microns now)

* Headquartered in Nanhui Industrial Zone, Shanghai.

RISING SUN: Capacity will be boosted from 55 MW currently to 504 MW by Q2 2010.

 

  
The transition from making wafers destined for solar modules from an original focus on semiconductors was a relatively seamless one for Comtec.

"We have also taken advantage of the advanced technology, knowledge base and manufacturing experience we developed and accumulated during the manufacture of semiconductor wafers. The successful transfer of know-how allows us to provide our customers with top-quality solar products.”

The driving factor behind thinning out individual wafers was to fatten margins.

"Our first half profit margins were 10.1% and second half margins should be higher. For our solar wafers, we are in line with global industry and quality standards and we see 15-20% margins as reasonable and attainable,” Mr. Chau said.

And the thinner the wafers, the thicker the margins.

"We are one of the first such manufacturers in China to be able to mass produce 156mm x 156mm monocrystalline solar wafers with a thickness of approximately 170 microns.”

Sector forecast: Mostly sunny skies

Strong demand for efficient high-quality solar wafers from Chinese module makers as well as potential foreign clients allowed Mr. Chau to be very sunny on both China’s solar sector and the anticipated order rush going forward.

Additionally, global energy consumption is still minimally reliant on solar power, so increased awareness of the deleterious byproducts of overreliance on non-renewable inputs such as coal was raising the understanding of the beneficial aspects to using sunbeams to power our homes and industries.

"Only 0.3% of global energy is from solar power,” he said.

This augured very auspicious top-line predictions for the year to come.

"Our FY2009 solar product sales revenue growth should top 40%. We focus on branding and quality upgrades for growth.”

  
Comtec SolarH1 2009H1 2008% change
Solar sales (MW)25.818.241.8%
Net profit (RMB)4.4 mln128.4 mln(-96.6%)
Avg wafer price (RMB/watt)6.718.0(-62.8%)

“There was a general drop in the average unit price for wafers caused by the financial crisis. But unlike many of our peers, we remained profitable,” CFO Keith Chau.

  

He said the company’s books were in good order, with a respectable debt-to-equity ratio of 20% -- not bad for a newly-listed capital intensive firm intent on expanding capacity.

This was part and parcel of their attitude toward openness and integrity, a mindset now codified in bourse regulations stipulated following their mainboard listing in Hong Kong on Oct. 30.

"We are transparent.”

He added that Suntech and JA Solar were two of its biggest domestic module makers, and that Comtec much preferred panel makers ordered based on volume and not price – a practice which allowed them to adjust selling prices in line with silicon cost movement.

"For our silicon supplies, we mainly buy from Germany and South Korea.”

And one of their largest suppliers was also an occasional wafer rival.

"German chemical companies also excel at the solar wafer business because they are somewhat related industries,” he said.

He added that one of its major German suppliers also produced wafers in the past but they exited the wafer business this year since they could not control production costs effectively due to their location in Europe.

And although once installed and brought online, solar power can boast about producing zero emissions, silicon (Si) is rarely recycled from used IT and energy apparatus.

"When recycling is attempted, Si content is very much compromised, rendering it virtually unusable.”

Mr. Chau said Comtec would continue to move up value chain, aiming to be the first choice for solar module makers, both at home and abroad.

"As our first priority, we have, therefore, been able to fully exploit our original role and concentrate our resources on the enhancement of product quality, as well as the development of new and innovative solar wafers.

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Comtec's wafers ready to harness sun's power. Photo: www.comnet.com

"Our research and development capabilities, together with our manufacturing experience, have resulted in proprietary ingot-growing and slicing process technology with improved energy consumption efficiency.”

Comtec, which is in the coverage universes of research houses including Macquarie and ICBC, has nearly two-thirds of its post-IPO shares held by Chairman and CEO Mr. John Zhang.

"We are a relatively low profile listco. Our chairman and CEO believes it’s more important to treat shareholders and customers well,” Mr. Chau added.

Comtec’s Shanghai-based production facilities are looking to move beyond a near exclusive focus on domestic clients.

With the imminent completion of the expansion of our manufacturing capacity, we aim to broaden our customer base worldwide.”
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