The sharp drop in Sunpower Group shares amid news its substantial shareholders may have seen share transfers related to a loan deal appears to be overdone, UOB KayHian said in a note on Thursday.
The brokerage said the concerns were overblown as the total exposure was only 3.8 percent of the issued shares, and only a small portion of the total stakes of the two shareholders.
In November, Sunpower had issued a statement that two substantial shareholders — Guo Hongxin, executive chairman of Sunpower, and Ma Ming, executive director — had placed 14 million Sunpower shares each, or around 1.89 percent of the company’s total issued shares, as collateral to a depository broker designated by the lender, America 2030 Capital. Guo and Ma’s loans, which were not disbursed, were for their personal use, Sunpower has said previously. The company said the two shareholders told the company on 3 November the shares were no longer in the depository broker account.
America 2030 Capital said that the borrowers had failed to comply with the terms of the loans and that it retained control of the collateral, in accordance with the executed contracts.
In December, Sunpower said the shareholders obtained an interim injunction to halt lender America 2030 from selling or otherwise dealing in the collateral shares and that the two had lodged a report with the Commercial Affairs Department (CAD) of the Singapore Police Force.
UOB KayHian noted that even in a worst-case scenario for the two shareholders, the shares shouldn’t be sold into the market even if they lose their case.
Addtionally, the company has begun share buybacks, which may indicate the stock is undervalued, it said.
Sunpower’s core businesses also remain robust, the brokerage said, adding it expected a seasonally strong fourth quarter after third quarter revenue and net profit rose 87.5 percent and 276.7 percent on-year respectively.
It forecast results would be boosted by a continued ramp-up of green investment (GI) projects, which started in late 2017, the newly acquired Yongxin plant in the third quarter and seasonally higher deliveries of manufacturing and services projects in the fourth quarter in time for year-end deadlines.
It rates the stock at Buy with a S$0.76 target price. The stock was up 3.90 percent at S$0.40 at 2:22 P.M. SGT.