the current price is NOT the reality down the road………BUY APWR MONDAY with both hands wide open!!!!
I am not sure a lot of people realize just how significant a player APWR can become in the wind turbine business if it can execute its’ game plan. Let’s say that APWR right now was operating at full capacity at its’ Shenyang facility (without the 30% planned expansion) as well as operating at full capacity at the Bayan City facility (still to be completed). If all that capacity was on line now, which it is not, APWR would be producing 1800 MW of wind turbine output. In 2007, Vestas, the world’s largest wind turbine seller, supplied 4503 MW of wind turbine power. Those 4503 MWs amounted to 23% of the world market share. GE was in second place with 3283 MW, Gamesa supplied 3047, Enercon 2769, and Suzlon was in fifth place with 2082 MW. If APWR was delivering the 1800 MW it plans to produce, it would have been the sixth largest wind turbine producer in the world in 2007.
To put all this in another context, the current APWR plant in Shenyang has the capacity by itself, to produce 1125 MW of wind turbine power. In 2007, the largest China turbine manufacturer, Goldwin, produced 830 MW. Goldwin is not only the largest turbine builder in China, but it is also the 8th largest worldwide.
Let’s try to convert the numbers above into dollar flow. APWR says they expect the first two plants (Shenyang and Bayan) to be operating at full capacity in 2010 and producing 1800 MWs of the large wind turbines. Full capacity is often hard to achieve so let’s say that the two plants will produce 1260 MWs (70 % of 1800) of the large 2.7 MW turbines and a small amount of the smaller turbines which we won’t even consider here. In my earlier post I suggested that turbines of the 2.7 MW size will sell for $1.5 million per MW (in 2010) so the 1260 MWs will generate $1.890 Billion dollars in revenue. If the DPG business adds another $1 Billion in 2010 (which should not be too tough since the current backlog is $789 million without the Thai contract), then total 2010 revenue is $2.890 Billion. If we then use a very conservative 8% net margin, we earn $231 million or $6.42 per share on 36 million shares. By 2010 we hopefully will be back to more normal PEs and I will let you apply whatever PE you think applicable. But a 15x PE puts the stock price at $96.
At this point you should keep a few things in mind. First, the 2010 big turbine actual production could be well above 1260 KWs since I used just 70% of expected production and did not include any of the production capacity of the Phase 2 expansion at Shenyang. Second, I did not include any small turbine (750 KW) production in my projections at all, but there surely will be a bunch. And finally, the 8% net margin is unrealistically low because the DPG business is already operating at net margins higher than that, and the company has said the net margin for the wind turbines will be in the 10 – 12% range as they begin to get components from China sources. If you replace the 8% margin with a 10% margin, the 2010 EPS becomes $8.03 instead of $6.42, and a 15x PE now puts the stock price at $120.