18 NOVEMBER 2013 - 漢能薄膜發電集團

PREPARED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (TAIWAN) LTD THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 34

Wait on the sidelines

n Downstream business is still too small to move the needle

The 1H results were a surprise, with sales and profit growing 86%

and 165% h-h. Momentum is likely to persist in 2H13 thanks to a

stable equipment business. However, concerns lie in the fact that

parent company Hanergy Group (not listed, 63% stake) is also the

sole customer. High reliance on the parent is a double-edged sword:

Hanergy Solar receives both technical and financial support, but

does not have total control over its business strategy. Expansion into

downstream solar farms is a way out, as it could diversify the

customer base, yet at 7% of projected sales in 2014, it is still too

small to move the needle.

n Environment friendly for TF, but cost-competitiveness unproven

We think the environment is favourable for Thin-Film (TF) given its

exemption from Europe’s price undertaking agreement, and lower

conversion requirement for distributed PV subsidies in China. Recent

IP acquisitions from global TF leaders MiaSolé and Solibro could

hasten CIGS-type TF’s commercialisation, however, its cost-

competitiveness remains to be seen.

n Initiate with a HOLD and a TP of HKD1.34

We initiate coverage with a HOLD, our HKD1.34 TP is based on 9.5x

2014E EV/EBITDA. We like the company’s smooth expansion into

downstream and decent 2014 and 2015 ROE of 17% and 16%, but

are cautious on its single-customer dependence. We suggest waiting

on the sidelines for now. Faster ramp-up on solar farm projects would

be a positive sign, as it implies a more diversified customer base.

Hanergy Solar’s sales mix: Moving into downstream solar farms

Sources: Hanergy Solar; BNP Paribas estimates

0

20

40

60

80

100

1H12 2H12 1H13E 2H13E 1H14E 2H14E 1H15E 2H15E

(%) Equipment Downstream

18 NOVEMBER 2013

INITIATION 34TAIWANHONG KONG / ALTERNATIVE ENERGY/TECHNOLOGY

HANERGY SOLAR 566 HK

HOLD

TARGET PRICE HKD1.34

CLOSE HKD1.25

UP/DOWNSIDE +7.4%

PRIOR TP HKD CHANGE IN TP %

HOW WE DIFFER FROM CONSENSUS MARKET RECS

TARGET PRICE (%) 52 POSITIVE 1

EPS 2013 (%) NA NEUTRAL 0

EPS 2014 (%) NA NEGATIVE 1

Esther C Chen [email protected]

+886 2 8729 7065

Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for

authorisation. Please see the important notice on the back page.

KEY STOCK DATA

YE Dec (HKD m) 2012A 2013E 2014E 2015E

Revenue 2,756 4,556 5,275 6,182

Rec. net profit 1,316 2,955 2,985 3,264

Recurring EPS (HKD) 0.10 0.11 0.11 0.12

EPS growth (%) 47.0 8.0 1.0 9.4

Recurring P/E (x) 12.8 11.8 11.7 10.7

Dividend yield (%) 0.0 0.0 0.0 0.0

EV/EBITDA (x) 9.5 7.0 8.6 7.2

Price/book (x) 1.4 2.2 1.8 1.6

Net debt/Equity (%) (6.2) (14.2) (1.8) (4.8)

ROE (%) 11.9 21.4 17.2 15.9

Share price performance 1 Month 3 Month 12 Month

Absolute (%) (6.7) 76.1 363.0

Relative to country (%) (5.5) 74.1 352.6

Next results February 2014

Mkt cap (USD m) 4,502

3m avg daily turnover (USD m) 29.0

Free float (%) 37

Major shareholder Hanergy Group (63%)

12m high/low (HKD) 1.43/0.26

3m historic vol. (%) 67.7

ADR ticker -

ADR closing price (USD) -

Issued shares (m) 27,927

Sources: Bloomberg consensus; BNP Paribas estimates

(6)

94

194

294

394

0.24

0.74

1.24

Nov-12 Feb-13 May-13 Aug-13 Nov-13

(%)(HKD) Hanergy Solar Rel to MSCI Hong Kong

http://equities.bnpparibas.com/

Hanergy Solar 566 HK Esther C Chen

2 BNP PARIBAS 18 NOVEMBER 2013

Investment thesis

Unlike c-Si, TFPV has higher technology entry barriers and broader applications than the conventional c-Si PV. In this field, First Solar (FSLR US, Not Rated) is currently the only large-scale over one gigawatt (GW) production size TF solar manufacturer in the world, followed by Solar Frontier (not listed). As such, the TF supply chain is healthier than that for c-Si. Hanergy Solar has recently acquired the CIGS (a type of TF) leaders MiaSolé and Solibro, which should hasten CIGS’s commercialisation. However, its cost-competiveness remains to be proved.

The downstream solar farm business is progressing smoothly, with 120MW capacity to be on-grid by the end of 2013. Hanergy Solar can leverage its parent company Hanergy Group’s expertise. We believe the expansion into the downstream solar farm business is a key move as it will diversify the customer base and ease investors’ concerns on the current single-customer issue. However, our estimation of a 7% sales contribution in 2014E is still too small to move the needle. This diversification is more like a story for beyond 2015E.

Catalyst

Smooth progress on solar farm projects with 120MW to be on-grid in China by the end of 2013. This will start contributing sales and bring cash flow in 1Q14 but still a small amount.

The environment for TF is favourable, as it is exempt from Europe’s anti-dumping levies; this provides a window for TF to gain market share.

Risks to our call

Key upside risks to our TP are faster-than-expected expansion in the downstream solar farm business, and earlier-than-expected commercialisation of CIGS technology.

Key downside risks are anti-dumping disputes on TF and subsidy cuts from the China government.

Company background Key assumptions

Hanergy Solar offers field-proven turnkey solutions for large-

scale thin-film (TF) solar cell production systems. The company

acquired global TF leaders MiaSolé and Solibro in September

2013. It is actively seeking investment opportunities in

downstream solar projects (solar farms) and moving towards

the global photovoltaic power generation market.

2012 2013E 2014E 2015E

Equipment installation (MW) 500 1,030 1,122 1,184

Solar farm installation (MW) - - 280 370

Equipment ASP (USD/watt) 0.71 0.57 0.56 0.55

Solar farm ASP (USD/watt) - - 0.16 0.16

Source: BNP Paribas estimates

Principal activities (2013E to 2014E sales mix) Earnings sensitivity

Year-end ------ Base ------ ------ Best------ ------ Worst -----

31 Dec 2014E 2015E 2014E 2015E 2014E 2015E

Equipment installation (MW) 1,122 1,184 1,234 1,302 1,010 1,065

Change (%)

10 10 (10) (10)

Solar farm installation (MW) 280 370 308 407 252 333

Change (%)

10 10 (10) (10)

Sales (HKD m) 5,275 6,182 5,803 6,800 4,748 5,564

Change (%)

10 10 (10) (10)

Key executives Source: BNP Paribas estimates

Age Since Title

Mingfang Dai (Frank) 49 2010 Chairman/CEO

Dr. Li Yuan-min 54 2009 Deputy Chairman/CTO

Chen Li 40 2011 Executive Vice President

Hui Ka Wah (Ronnie), J.P. 49 2009 Finance Director and Senior VP

Li Guangmin 36 2002 Financial Controller

http://www.hanergysolargroup.com

We believe the key factors for sales momentum are the

installation of equipment and solar farms.

A 10% increase in equipment and solar farm installation

would raise 2014E and 2015E sales by 10% and 10%, all

else being equal.

A 10% increase in equipment and solar farm installation

would raise 2014E and 2015E sales by 10% and 10%, all

else being equal.

Solar equipment

100.0%

Solar equipment

92.7%

Solar farm7.3%

http://www.hanergysolargroup.com/



Focused on Thin-Film technology

Why Thin-Film Photovoltaic?

Instead of jumping into the competitive c-Si PV (crystalline silicon photovoltaic)

arena, Hanergy Solar focuses on TFPV (Thin-Film Photovoltaic) technology.

According to EPIA, TF accounted for c.15% of global PV market share in 2012

(Exhibit 1) with only a few players (around 10 active players vs. around 150 players

in the c-Si field). Although TF’s conversion efficiency is lower than c-Si PV currently;

we think it will gradually gain traction thanks to technology advances and the higher

technology entry barriers, as well as its multiple advantages, which we outline below:

1. Semiconductor technology: While the c-Si solar cell is produced on a physical process, TF production, similar to semiconductor production, combines physical and chemical processes. Thus, it has higher entry barriers and fewer physical limitations, leaving more room for conversion efficiency to be improved.

2. Higher tolerance to hot temperatures: When the temperature is above 25ºC, conversion efficiency decreases accordingly. However, TF has a higher tolerance to hot temperatures: every 1ºC of decrease in temperature causes an approximately 1% reduction in c-Si PV vs c.0.5% for TF. As such, a TF module could generate a higher energy yield then c-Si in regions with average temperatures over 25ºC, such as South Africa, South America, and South-East Asia.

3. Better performance under weak light: TF could deliver a more-stable performance than c-Si when the irradiance is weak (e.g., at twilight, dawn, or during winter time), implying longer ultraviolet solar hours. TF could also work under shadow with indirect light, whereas shadows may cause significant power loss or even damage to c-Si panels.

4. More applications especially BIPV (Building-integrated Photovoltaics): TF could be easily installed on any type of rooftop without racks as it is thinner and lighter. This could also lower BOS cost (Balance of System, including inverter, labour, cables, wire, racking, frames, etc). Furthermore, as flexibility and transparency is achievable, TF could be applied in the growing BIPV market where c-Si is absent.

According to EPIA, TF’s production market share is expected to stabilize at c.15%

with a 6-9% CAGR range in 2013-17, depending on the type of TF technology. Given

rapid evolution, CIGS (Copper Indium Gallium Selenide) may gain the spotlight with

8.7% CAGR. Upside could be driven by improving efficiency, new government

subsidy programmes, and the growing BAPV/BIPV markets.

Worth noting is that TF companies are exempt from the recent price undertaking

agreement (27 August 2013) following the European Commission’s anti-dumping and

anti-subsidy tariffs against Chinese solar panels. In the agreement, the minimum

price for Chinese c-Si module imports will be EUR0.56/watt (10% higher than the

prior level) with the volume ceiling at 7GW. As such, we think this will create a

window for TF to gain market share.

TF supply chain is healthier than c-Si,

while conversion efficiency needs to

be improved

TF is exempt from the price

undertaking agreement

(EUR0.56/watt)



EXHIBIT 1: Global annual installation capacity EXHIBIT 2: PV company numbers

Sources: EPIA; BNP Paribas estimates Sources: EPIA; BNP Paribas estimates

EXHIBIT 3: TF vs c-Si - 2013-2017 CAGR by technology EXHIBIT 4: TF production market share

Sources: EPIA; IHS Solar; PV Insider and SNE Research Sources: IHS Solar Research (Jan 2013)

TF is more environmentally friendly. Energy payback time (EPBT) is the time in which

the energy input required to produce a module will be paid back from the electricity

generated over its lifetime. This includes the electricity used to provide the raw

materials for making a module. In general, c-Si PV modules require 2-3 years to pay

back the electricity they used during production while TF modules take about one

year, even with lower conversion efficiency. In addition, the by-product of the

production of poly-silicon, Silicon Tetrachloride (SiCl4), is deadly to marine life and

toxic to humans if poly-silicon manufacturers do not dispose of it safely and in an

environmentally-friendly manner.

The key weakness of TF is its higher cost as poly prices have dropped tremendously

since 2008 (from around USD475 in 2008 to merely USD16 in early 2013).

Nevertheless, we think the bottom of poly prices has passed, given production

control from c-Si PV makers; thus its impact on TF will be milder.

For more details regarding the TF supply chain, SWOT analysis, and applications in

BIPV please refer to appendices.

10

11

12

13

14

15

16

17

18

0

5

10

15

20

25

30

35

40

2009 2010 2011 2012 2013E

(%)(GW)c-Si (LHS) TF (LHS) TF % (RHS)

0

100

200

300

400

500

600

700

800

2010 2011 2012 2013E

(nos)

8.70

5.95

(2.98)

3.17

6.34

(4)

(2)

0

2

4

6

8

10

CIGS CdTe a-Si TF modules(inorganic)

c-Simodules

(%)

Thin-Film

0

2

4

6

8

10

12

14

16

18

2000 2002 2004 2006 2008 2010 2012

(%) CdTe a-Si CIGS



EXHIBIT 5: TF vs crystalline silicon PV

Crystalline Thin Film

Environmentally friendly Energy payback time 2-3 years c.1 years

Impact from side product SiCl4 + H2O è acid *

Raw material bottleneck Polysilicon Nil

Performance Conversion efficiency 11-18% 7-14.6%

Energy Yield ☼ ☼ ☼ ☼ ☼

Tolerance to hot temperature ☼ ☼ ☼ ☼

Weak light performance ☼ ☼ ☼ ☼

Performance under shadowing ☼ ☼ ☼ ☼

Light absorption bandwidth ☼ ☼ ☼ ☼ ☼

Commercialisation Production cost ☼ ☼ ☼ (lower) ☼ ☼ (higher)

Suitable applications Rooftop; BAPV Solar farm; BIPV; BAPV

Maturity of technology Commercialised for over 30 years Commercialised for 10-15 years

Sources: EPIA; BNP Paribas estimates

TF could be categorised into three major technologies: silicon-based, CdTe

(Cadmium Telluride), and CIGS (Copper Indium Gallium Selenide). With higher

efficiency and lower cost, CdTe is the leading technology among TF. First Solar

(FSLR US) is currently the only large-scale production-size CdTe TF manufacturer in

the world with more than 1GW of annual production. It is also the largest solar cell

producer globally with 1.6-1.7GW production in 1Q-3Q13. However, the key issue of

CdTe is the use of a highly toxic material – Cadmium – and there are concerns about

whether these panels pose a fire hazard. As such, Cadmium is restricted by the

RoHS (Restriction of Hazardous Substances) directive in the European Union, as

well as by the China government.

EXHIBIT 6: Thin-film PV comparison

Silicon based CdTe CIGS

Energy payback time ≤1 year 1 year 0.9 – 1 years

Toxic element N/A Cadmium N/A

Feedstock N/A Tellurium Indium

Conversion efficiency (commercialised level)

6-7% single tandem; 8-9% double tandem; 8-13% triple tandem

9-13.9% 11-14.6%

Tolerance to hot temperature ☼☼☼ ☼☼ ☼

Performance under weak light condition

☼☼☼ ☼☼ ☼

Light absorption bandwidth ☼☼ (single) - ☼☼☼ (triple) ☼☼ ☼☼☼

Maturity of technology Commercialised for over 10 years Commercialised since 2005 Commercialised in 2008

Key players Sharp; Astronergy; NexPower; Trony Solar; Terra Solar; Hanergy Solar

First Solar Solar Frontier; Hanergy Solar (Solibro, MiaSolé)

Source: BNP Paribas

Thin-Film PV conversion efficiency is improving

Although TF’s conversion efficiency is lower than c-Si at the moment (maximum

14.6% vs c-Si’s 18% on production level), it is expected to improve, CIGS in

particular. According to NREL, mc-Si PV has encountered a bottleneck after reaching

20.4% lab conversion efficiency in 2004 with little improvement afterwards, while

CIGS continued to hit record highs with a new record of 20.4% in 2013.

Many TF companies have recently announced record-high conversion efficiencies

from multiple technologies (Exhibit 8). Improving conversion efficiency in small-size

substrates is easy, whereas manufacturing of large sizes is difficult. CdTe expert First

Solar stated a world record high efficiency at 14.1% in October 2013. CIGS thin film

PV manufacturer MiaSole (not listed), recently acquired by Hanergy Group (the

parent company of Hanergy Solar), achieved 15.5% aperture area efficiency in

flexible PV modules. Solar Frontier’s research centre also achieved 14.6% for its

champion module in June 2013.



EXHIBIT 7: Conversion efficiency comparison by TFPV type

EXHIBIT 8: TFPV makers announced record-high efficiencies

Company Date Comments

First Solar Oct-13 Perrysburg facility’s conversion efficiency reached 14.1%. Lead production line averaged module efficiencies was 13.9% at end-3Q13 and expected all lines to reach 13.9% over the next few quarters.

Solibro Oct-13 Solibro‘s thin-film modules offer world record efficiencies up to 13.4 % in serial production.

MiaSolé Sep-13 Reached 17.9% at the experimental setting, 15.5% for standard size module, 14.0% for its largest scale commercial production lines. 15.5% for flexible TF (aperture area efficiency)

Solar Frontier Jun-13 Solar Frontier’s latest champion module has achieved 14.6% conversion efficiency. Aperture area efficiency reached 17.8%

Sharp Apr-13 Conversion efficiency of 37.9% achieved (at the research level) for a triple-junction compound solar cell.

Sources: NREL (Jan 2013); BNP Paribas Sources: Companies; BNP Paribas

Hanergy Solar is well positioned in Thin-Film PV

Hanergy Solar has been developing amorphous silicon (a-Si) and silicon-germanium

(SiGe) since 2009, currently in mass production with stable conversion efficiency at

8-10% (Exhibit 11). In June 2013, Hanergy Solar announced further technology

breakthroughs on its “Fab 2.0 Program”, which significantly improved its conversion

efficiency, output speed, and production capacity.

Triple Tandum: In 2012, Hanergy Solar upgraded its operational processing method

from a double tandum to a triple tandum SiGe manufacturing line, which

tremendously reduced the consumption of key material gases (germane, silane, and

trimethylboron). Gases accounts for around 20% of cost; with the breakthrough of

the triple-tandum process, Hanergy Solar could reduce direct material cost by 12.7%

per watt.

Shorten PECVD process cycle : Hanergy Solar has successfully reduced the

process cycle time of PECVD from 5.5 hours to 3.2 hours by upgrading the tools for

laser scribing (from 48 seconds to 35 seconds), annealing, soldering, packaging, and

lamination systems. Daily PECVD unit production was increased from 300 pieces to

over 520 pieces and cost per module was reduced by 9.34%. The number of

required workers was also reduced by 16% due to automation and production

efficiency.

Nano-Crystal silicon (nc-Si): A new type of PECVD for nc-Si is under development,

targeting mass production by mid-2014. nc-Si could achieve higher conversion

efficiency; more importantly, it could be adopted in flexible PV.

EXHIBIT 9: Less usage of gases, higher conversion efficiency EXHIBIT 10: Cost could be reduced by 9.34%

Sources: Hanergy Solar; BNP Paribas Sources: Hanergy Solar; BNP Paribas

31

1815

13 1210

2

0

10

20

30

40

50

60

70

CPV (3J) c-Si mc-Si CIGS CdTe a-Si OPV

(%) Theoretical maximum Best research-cell

Typical module production

40

60

80

100

120

140

Jan-1

2

Mar-

12

Jun-1

2

Dec-1

2 (

PE

CV

Dbre

akth

rough)

May-1

3 (

Fab 2

.0P

rogra

m)

Dec-1

3(e

xpecte

d)

(%)

Conversion efficiency

SIH4 Silane consumption

TMB Borane consumption

GEH4 Germane consumption

0

20

40

60

80

100

Before Fab 2.0 Program After Fab 2.0 Program

(%)

Raw material Depreciation

Facility operation Labour

Equipment operation



EXHIBIT 11: Hanergy Solar: Technology roadmap


Hanergy is an aggressive participant in the consolidation trend

Hanergy Solar collaborates with its parent, Hanergy Group, which transfers

technology know-how from the Group to Hanergy Solar (Exhibit 13). On 19 April

2012, Hanergy Solar signed a Technology Transfer Agreement with the Group to

obtain 5 TF patents and the nc-Si technology at an expense of HKD246m (34% of

2012 cash). In 2012-2013, the Group acquired two leading CIGS companies: Solibro

and MiaSolé. Earlier than our expectation, in September 2013, Hanergy Solar bought

the two companies’ IP (intellectual property) from the Group for HKD353m and

HKD445m respectively.

Solibro GmbH (not listed) is a Germany-based company specialising in CIGS

technology with its R&D centre located in Sweden. The company had sold 140MW to

Q.SMART (QCE GR) to 2012; conversion efficiency is >14%. After the acquisition,

Hanergy Group intends to ramp Solibro’s annual production to 100MW. On 7

October 2013, Solibro announced an efficiency breakthrough of its CIGS TF module

at 18.7% (aperture area efficiency).

MiaSolé (not listed) is a US Silicon Valley-based TF company with expertise in CIGS

and also has know-how in flexible PV technology. Ahead of its rivals, MiaSolé has

achieved 15.5% conversion efficiency for its champion standard-size module and

flexible PV in September 2012. Cost per watt is targeted to be improved from the

current USD0.79 to USD0.5 thanks to localisation and economies of scale.

Also worth noting is that, to expand into the downstream residential solar market, the

Group acquired another UK solar installation company Engensa (not listed) in May

2013. Engensa has successfully launched a financing model which allows customers

to install solar panels with no upfront cost, an attraction for the Hanergy Group.

Given Hanergy Group's past moves, we think further acquisitions for more

CIGS/flexible PV IP are likely. The environment seems to be favourable for Hanergy

Group as many US/Europe-based solar makers are still struggling. We believe the

trend of consolidation in the industry will remain intact. Its strong cash position offers

the Hanergy Group an opportunity to become one of the TF leaders in the future.

However, the conversion efficiency of CIGS remains to be proved.

Year

Conversion

efficiency

2009 2010 2012 1H14 1H14

6-7% 8-9% 8-10% 10-13% 14-16%

Technology

Tandem Double Double Triple Triple

Cost

(USD/watt)0.3-0.5 0.3-0.5 0.5 0.5-0.7 > 0.8

Key product Target: 0.5

TCO

a-Si

a-Si

ZnO

Glass(1-4mm)

Glass(1-4mm)

TCO

a-Si

a-Si-Ge

ZnO

Glass(1-4mm)

Glass(1-4mm)

TCO

a-Si

a-Si-Ge

ZnO

Glass(1-4mm)

Glass(1-4mm)

a-Si-Ge

TCO

a-Si

nc-Si

ZnO

Glass(1-4mm)

Glass(1-4mm)

a-Si-Ge

TCO

Sulphide n

Mo metal

ZnO

Glass(1-4mm)

Glass(1-4mm)

CIGS p

a-Si a-Si - SiGe a-Si – SiGe - SiGe a-Si – SiGe – nc-Si CIGS



EXHIBIT 12: Production of top TFPV makers (2012)

Sources: Companies; BNP Paribas estimates

0

200

400

600

800

1,000

1,200

1,400

1,600

FirstSolar

SolarFrontier

Sharp Astronergy NexPower

TronySolar

MiaSolé T-Solar 3Sun Solibro

(MW)

Acquried by Hanergy Group

Type CdTe CIGS c-base c-base c-base c-base CIGS c-base c-base CIGS



Upstream business: Hanergy Group is the sole customer

Hanergy Solar provides TFPV equipment (Plasma Enhanced Chemical Vapor

Deposition/PECVD, Plasma Vapor Deposition/PVD) and turnkey solutions to its

parent company, Hanergy Group, which is also its sole customer. Hanergy Group

(“the Group”) is one of the leading clean energy companies in China, and is engaged

in hydro, wind, and solar power. The Group currently owns a 63% stake in Hanergy

Solar. The Group’s solar business includes both midstream businesses (solar panels)

and downstream businesses (solar power plants, roof-top projects), it has signed

several solar power plant construction agreements with governments in Europe,

America, and China for a total capacity of around 10GW.

After Apollo Solar was acquired by the Group in 2009, the price of poly collapsed due

to significant over-production in the solar industry. Therefore, customers reduced or

delayed their investments in manufacturing and R&D, some even ceased the whole

operation. Hanergy Group, with its solid experience in the renewable energy field

(hydropower, wind power) and close relationship with the Chinese government,

decided to enter solar industry, and thus became the sole customer of the Apollo

Group (renamed to Hanergy Solar in January 2013).

EXHIBIT 13: Business model: Hanergy Group and Hanergy Solar

Sources: Hanergy Solar; BNP Paribas

Working closely with the Group, Hanergy Solar’s key R&D team is located in

Chengdu, Sichuan. There are two factories with six production lines each; to achieve

400MW of annual production upon completion, every production line requires seven

sets of PECVD and seven of PVD.

PECVD (Plasma-enhanced chemical vapor deposition): Dual vacuum pumping

systems and multi-RF electrode stabilisation technology enables stable plasma

without interference among the RF sources. Hanergy Solar’s PECVD could process

72 pieces of substrate (cells) in a single batch with total surface area of 57 square

metres. Its competitor, Applied Materials (AMAT US) could process seven

independent chambers with each substrate reaching 5.7 square metres, leading to a

total area of 40 square metres, 30% less than Hanergy Solar. In addition, Hanergy

Solar is developing a new generation of PECVD for nc-Si PV, this PECVD will be

able to process 48 pieces of substrate at the same time, and total area could reach

65-68 square metres.

Hanergy Group

Hanergy Solar

Advanced Integrated

System Group (Upstream)

Global Solar Power &

Applications Group (Downstream)

63% holdings, will increase to 70%+

Equipment

(contract base)

New shares, options (contract base)

Solar cells

EPCBuild and

operateBuild and sell

Solar farms, roof-top projects

$Patents R&D know-how

Upstream

Downstream

7% 18%

2014E 2015E

Hanergy Group is the parent

company of Hanergy Solar with a

63% stake



PVD: A 10-chamber structure PVD with eight targets enables continuous deposition

of a robust set of thin film targets for back electrodes, such as AZO, Ag and Al. It can

also run fully automated, and is capable of connecting to other process equipment.

Hanergy Solar’s PVD could be used for future nc-Si PV and flexible PV. Applied

Materials’ ATON PVD 5.7 seems to have fixed the size at 5.7 square metres for both

PECVD and PVD, leaving lower flexibility for future applications. However, its newly-

launched “TopMet™ 4450” is a PVD for depositing ultra-thin aluminium films for

flexible packaging applications. Applied Materials announced it is the world’s largest

and fastest roll-to-roll machine, which allows up to 12 different thin film layers to be

deposited simultaneously on flexible materials, enabling complex structures to be

created in a single pass. This is a potential threat to Hanergy Solar if it does not

manage to bring about synergies with MiaSolé’s R&D team.

Competition in the TF equipment market is intense, as equipment giant Applied

Materials is the pioneer in this field. Hanergy Solar enjoys a high gross margin of

above 70% given that more than 50% of its parts are procured from multiple Chinese

suppliers. However, its competitiveness remains to be seen, since the parent

company is also the sole customer.

EXHIBIT 14: Hanergy Solar provides turnkey solutions EXHIBIT 15: PECVD (left) and PVD (right)

Source: Hanergy Solar Source: Hanergy Solar

A contract-based business with its parent company Hanergy Group

Hanergy Solar entered into two contracts with the Hanergy Group, in May 2010 and

September 2011, respectively. A 10GW capacity plan bundling with a series of share

subscription agreements was clearly stated in these two contracts. The Group will be

able to purchase Hanergy Solar’s new shares at an agreed price; subscription is

based on the progress of installation and payment (Exhibit 16). For instance, when

the total payment of the first tranche reached HKD3.3b, the first subscription could

take place, which is 1,965m of the new share issuance (capital increase) and a 10%

holding increase.

There are three tranches in each contract plus an incentive agreement. To the end of

September 2013, Hanergy Group had completed the conditional payment for the first

tranche of the 2010 contract, and the first and second tranche of the 2011 contract,

lifting its shareholding to 63%. Without taking options and convertible bonds into

consideration, the Group’s stake in Hanergy Solar will reach 73% when both of the

contracts are completed. We are expecting the conditional payment of the 2011

contract, tranche 3, to be completed by end-2014, which will inject HKD2.7b to the

top line and HKD0.9b cash from new share issuance. The heavy cash requirements

for solar farms could be partially eased.



EXHIBIT 16: 2010 and 2011 contracts with Hanergy Group

Date Tranche

Installed

volume

Total

payment

Down

payment

Condition payment for

share subscription

Share to

be subscribed

Share

subscribed

% of total

shares Price

(MW) (USD m) (USD m) (HKD b) (m shares) (m shares) (%) (HKD)

5/20/2010 1

1,000 850 425 3.3 1,965 1,965 13 0.239

Equipment only 2

1,000 850 425 1.7 1,473 - 5 0.120

3

1,000 850 425 1.0 1,473 - 5 0.100

3,000 2,550 1,275 6.0 4,912 1,965 -

9/18/2011 1

2,000 1,700 850 1.8 6,000 6,000 28 0.100

50% equipment, 50% service

2

2,000 1,700 850 1.8 6,000 6,000 22 0.100

3

3,000 2,550 1,275 2.7 6,000 - 21 0.100

9/28/2011 Incentive agreement

3,000 - 11

7,000 5,950 2,975 6.3 21,000 12,000 -


Installation progress is on schedule

The installation of production lines is divided into four phases: move-in and

installation, start of production (SOP), end of ramping (EOR), and lastly, mass

production. Sales and cost are recognized according to the progress of these four

phases. Hanergy Group has targeted eight bases in China with 7.55GW to be

installed upon completion, while location of the remaining 2.45GW has not been

finalised yet. Approximately 1.7GW of a-Si/SiGe PV capacity had been installed by

June 2013; we forecast at least 200-250MW of new capacity will be installed per

quarter.

EXHIBIT 17: Hanergy Group’s module manufacturing bases EXHIBIT 18: Installation progress (to June 2013)

Bases Plan Completed ------------ Phrases ------------

City (MW) (MW) move-in SOP EOR

1. Chengdu 1,000 400 v v v

2. Heyuan 1,000 200 v v

3. Haikou 1,000 300 v

4. Wujin 1,000 200 v v

5. Yucheng 1,000 200 v v

6. Changxing 1,000 200 v v

7. Shuangyashan 300 200 v

8. Nanjing 1,250 -

TBD 2,450 -

Total 10,000 1,700

Sources: Hanergy Solar; BNP Paribas Sources: Hanergy Solar; BNP Paribas *TBD: to be determined

7

1

2

3

45

6

8



Smooth downstream expansion, but still too small to move the needle

In January 2013, when Apollo Solar was renamed Hanergy Solar, the company

structure was also reorganized into two divisions: Hanergy Advanced Integrated

Systems Group and Hanergy Global Solar Power & Applications Group (Exhibit 13),

representing upstream and downstream businesses respectively. This shows

Hanergy Solar’s determination to go into the downstream solar business.

Unlike other solar module companies, Hanergy Solar is not manufacturing the solar

module. Instead, it purchases modules from the Group, builds solar farms/roof-top

power plants, and then either sells them out or operates them by itself. Besides,

Hanergy Solar also acts as a contractor to design and build for others. There are

three typical models for a solar farm business:

Build and operate: build and operate the solar farms/rooftop power plants.

Electricity may be connected to the power grid, or supplied directly to the underlying

for rooftop projects. Hanergy Solar is targeting an unleveraged IRR of 8% or above,

which implies a leveraged IRR of 20% or above, assuming 75% leveraged ratio.

Currently several projects are ongoing in Europe and Asia. Note it is the only

segment we have factored into our model as its progress is running ahead of the

other two segments.

Build and sell: build and sell the solar farms/rooftop power plants to long-term

investors, e.g. pension funds or mutual funds. Finance through financial instruments

such as securitisation, real estate investment trusts (REIT) or other forms of trusts to

transfer the interests in these projects. While some projects are already at the initial

stage, we believe it will take another 2-3 years for the finance regulation to be ready,

and for the investors to fully understand these structured products. PV securitisation

is maturing in the US while it is still at the early stages in Asia.

EPC (Engineering Procurement and Construction): act as contractors to design

the installation, procure the solar panels and build the solar farms or rooftop projects.

The service content of EPC is negotiable; customers could choose the panel supplier

by themselves and only outsource BOS to contractors. In June 2013, the Group

signed an agreement with IKEA: the Group will install 383MW TF PV modules for

IKEA’s outlets in the PRC over the next three years. We think Hanergy Solar is likely

to get involved in this project as a coordinator.

It’s worth noting that in April 2012, Hanergy Solar signed a Master Supply Agreement

with the Group, which allows Hanergy Solar to purchase TF solar panels at a price

not higher than either: 1) the prevailing market price; or 2) USD1/watt. This makes

Hanergy Solar’s cost structure more competitive than peers. The cap of the total

power generation capacity in this agreement is 1.5GW (400MW, 500MW, and

600MW for 2012, 2013, and 2014).

Downstream business could bring stable cash inflow

Hanergy solar recently announced progress on two new solar farm projects in China,

with a total capacity of 120MW being connected to the grid by end 2013. As the

locations of these two solar farms (Qinghai and Xinjian) are high-latitude areas, the

average sunshine hours could reach 2,500-3,500 hours. FiT is anticipated to be

RMB1.0 per kWh, resulting in an unleveraged IRR of more than 10%.

We believe the build and operate solar plant business will run ahead of other two

sub-segments (build and sell, EPC). We forecast downstream business to account

for 7% of sales in 2014 and reach 18% in 2015. However, the net margin for solar

farms is much lower than the upstream equipment business for the first two to three

years as hefty upfront capex leads to high depreciation and in high interest expense

(at 75% of leverage ratio). We model a 14% net margin for the downstream business

in 2014E vs 60% for upstream equipment. As such, we expect the downstream

business to only contribute 2% and 6% of 2014 and 2015 net profits.



EXHIBIT 19: Hanergy Solar sales mix EXHIBIT 20: Hanergy Solar net profit mix

Source: BNP Paribas estimates Source: BNP Paribas estimates

The business of solar plants is based on long-term contracts with the government,

typically 15-20 years at a fixed FiT (Feed-in Tariff). As upfront capex is heavy, IRR

(Internal Rate of Return) becomes a key factor. Hanergy Solar has conservatively set

the minimum unleveraged IRR at 8%. However, we believe 10% of unleveraged IRR

is achievable thanks to its superior cost structure. Despite some ongoing projects

being from Europe, where the FiT is higher than other regions, we conservatively use

USD0.16/kWh (RMB0.95/kWh) as our FiT assumption for 2014E. This leads to 13%

of unleveraged IRR and 23% leveraged IRR on 75% leverage ratio.

Under the assumptions of 10% conversion efficiency, 1,700 sunlight hours per year,

5% opex (indirect labour, utility and others), 7% annual interest rate, and 17%

effective tax rate, we think 280MW installation in 2014E will require a front-end

investment of HKD939m in cash, which is 25% of total capex, given 75% financial

leverage (Exhibit 21). The capex payback and cash payback periods are around 17

and 5 years, respectively. As to the P&L, we estimate net profit margin will grow from

15% in 2014 to 43% in 2033 at an accelerating speed as interest expense will

decrease as principal is repaid.

EXHIBIT 21: Cash flow of 2014E downstream projects EXHIBIT 22: Net profit of 2014E downstream projects


Exhibit 23 shows the cash flow and margin trends for downstream projects in the

next two years (2014-15E). We forecast 280MW and 370MW of new installation in

2014E and 2015E respectively. A stable annual cash inflow at HKD550m-650m is

estimated in 2016-34 with net margin improving from 14% to 46% during the same

period.

In the long term, we expect Hanergy’s downstream business to continue to expand

on both organic growth and M&A. Its close relationship with the Group will be a plus

0

20

40

60

80

100

1H12 2H12 1H13E 2H13E 1H14E 2H14E 1H15E 2H15E

(%) Equipment Downstream

0

10

20

30

40

50

60

70

80

0

20

40

60

80

100

1H12 1H13E 1H14E 1H15E

(%)(%)

Equipment (LHS) Downstream (LHS)

Equipment NM (RHS) Downstream NM (RHS)

(1,000)

(800)

(600)

(400)

(200)

0

200

400

2013E

2018E

2023E

2028E

2033E

(HKD m)Capex payback period: 17 years

Cash payback period: 5 years

15

43

10

20

30

40

50

0

50

100

150

200

250

2014E

2017E

2020E

2023E

2026E

2029E

2032E

(%)(HKD m)

Principle Repayment (LHS)

Interest Expense (LHS)

Net profit margin (RHS)



as the Group has started constructing solar farm projects (Exhibit 24) in both

overseas countries and in China. The Group stated that a total of 10GW of capacity

has been signed with various governments. Catalysts for the downstream business

should come from: 1) increasing conversion efficiency for TF, 2) increasing demand

for BIPV; 3) China government’s future subsidy programmes.

EXHIBIT 23: Cash flow and margin trends for 2014-2015 downstream projects


EXHIBIT 24: Hanergy Group: Ongoing downstream projects as at 1H13

Location Type Planned installation Installed Completed

(KW) (KW) (Date)

Overseas

Russia Rooftop 5,000 101

Italy - L'Aquila Rooftop 837 837 Jun-12

Greece - Solel Achaias Ground-mounted 2,000 grid-connected Jan-13

Greece - Solel Imathias Ground-mounted 2,000 grid-connected Jan-13

China

Guangdong Rooftop 1,554 1,554 Oct-12

Wujin BIPV 66 grid-connected May-12

Ningxia Wuzhong Taiyangshan Power Plant

Power Plant 20,000 grid-connected Late-2012

Hainan BIPV 3,000 under construction

Beijing Olympic Forest Park BIPV 2,000 under construction

Beijing BIPV (CIGS) 335 under construction

Qinghai Ground-mounted 50,000 under construction

Partnership with IKEA EPC 383,000 under construction

Total 469,792


14

46

0

10

20

30

40

50

60

70

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600

800

2013E 2015E 2017E 2019E 2021E 2023E 2025E 2027E 2029E 2031E 2033E

(%)(HKD m)Cash flow (LHS) Gross margin (RHS)

Operating margin (RHS) Net margin (RHS)



Valuation and financial statements

HOLD with TP of HKD1.34, 7% upside

Hanergy Solar is currently trading attractively at 8.6x 2014E EV/EBITDA, the higher-

end of TF equipment peers’ 6-9x range. We like the company’s smooth progress in

downstream solar farm expansion, as well as its decent 2014 and 2015 ROEs of

17% and 16%. However, our concerns lie with the issue of its reliance on one sole

customer. Downstream business should diversify its customer base and relieve

investors’ concerns, but this is still too early to gauge. As such, we initiate with a

HOLD rating and a HKD1.34 TP, based on 9.5x 2014 EV/EBITDA. We suggest

investors to wait on the sidelines, while a faster-than-expected ramp of solar farms

would be a positive sign.

EXHIBIT 25: Peer comparison

Market Share --------P/E-------- -------P/BV------- --------ROE------- ---EV/EBITDA---

Company BBG code Rating cap price 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E

(USD b) (LC) (x) (x) (x) (x) (%) (%) (x) (x)

Global TF equipment suppliers

Hanergy Solar* 566 HK HOLD 4.5 HKD1.25 11.8 11.7 2.2 1.8 21.4 17.2 7.0 8.6

Applied Materials AMAT US NR 21.1 USD17.56 16.1 13.6 2.8 2.5 17.0 18.4 9.4 7.9

Oc Oerlikon OERL SW NR 0.7 CHF13.40 19.7 16.8 2.2 2.0 9.3 12.3 6.9 6.0

Ulvac 6728 JP NR 0.7 JPY1336.00 11.8 10.5 1.3 1.2 9.3 9.8 8.2 7.4

Global TF module makers

First Solar FSLR US NR 6.4 USD64.28 14.8 18.5 1.4 1.3 9.2 6.3 7.8 7.4

Sharp 6753 JP NR 4.9 JPY286.00 282.9 14.7 2.4 2.4 4.7 34.8 7.8 7.1

China c-Si module makers

GCL-Poly* 3800 HK BUY 5.2 HKD2.58 n.a. 27.8 2.2 2.0 (5.0) 8.1 15.1 9.9

Yingli – ADR YGE US NR 1.1 USD6.35 n.a. n.a. 3.4 5.9 (48.8) (7.0) 33.0 15.1

Trina Solar – ADR TSL US NR 1.3 USD16.28 n.a. n.a. 1.5 1.5 (14.1) 1.8 130.9 14.8

Canadian Solar CSIQ US NR 1.5 USD31.88 31.3 9.0 3.3 2.1 10.0 34.4 11.6 5.1

Hanwha SolarOne – ADR HSOL US NR 0.4 USD4.37 n.a. n.a. na na n.a. n.a. n.a. n.a.

JA Solar – ADR JASO US NR 0.5 USD12.03 n.a. n.a. na na n.a. n.a. n.a. n.a.

LDK – ADR LDK US NR 0.3 USD1.48 n.a. n.a. na na n.a. n.a. n.a. n.a.

Solargiga Energy 757 HK NR 0.2 HKD0.38 1.4 0.8 na na n.a. n.a. n.a. n.a.

Singyes Solar Tech 750 HK NR 0.7 HKD8.64 8.7 7.3 2.4 1.9 23.2 23.1 6.0 5.3

Price as at 15 Nov 2013; Ulvac: year-end 31 Mar.; Applied Materials, Oc Oerlikon: year-end 31 Oct Sources: *BNP Paribas estimates; all others (not rated) are Bloomberg consensus estimates

EXHIBIT 26: 12-month forward P/E bands EXHIBIT 27: 12-month trailing P/E bands

Sources: Bloomberg; BNP Paribas Sources: Bloomberg; BNP Paribas

0.0

0.5

1.0

1.5

2.0

Nov-09 Nov-10 Nov-11 Nov-12 Nov-13

(HKD)

14x

2x

5x

9x

0.0

0.5

1.0

1.5

2.0


(HKD)

14x

2x

5x

9x



EXHIBIT 28: 12-month forward P/BV bands EXHIBIT 29: 12-month trailing P/BV bands

Sources: Bloomberg; BNP Paribas Sources: Bloomberg; BNP Paribas

DCF model: Weight more on debt implies lower WACC

Our DCF model shows a conservative WACC at 14.7%, derived from 5.1% after-tax

cost of debt and 15.8% cost of equity, leading to an implied share price of HKD1.30,

close to our HKD1.34 TP. Normally solar equipment peers such as Applied Materials

and Oc Oerlikon have lower debt weighting in WACC (Applied Materials: 10%, Oc

Oerlikon: 9%) while downstream solar cell/module companies borrow more capital

via debt, especially Chinese companies (e.g., First Solar: 19%, Suntech Power: 85%,

Yingli Green Energy: 87%).

EXHIBIT 30: DCF valuation

WACC calculation (%) Enterprise value

Target Capital Structure Present value of Free Cash Flow 6,264

Debt to Total Capitalization 9.8

Equity to Total Capitalization 90.2 Terminal Value 41,362

Debt to Equity Ratio 11.7 Discount Factor 0.3

Present Value of Terminal Value 10,473

Cost of Debt (after tax) 5.1 % of Enterprise Value 63

Cost of Debt (before tax) 6.0

Taxes 15.0 Enterprise value 16,737

Less: Total debt -

Cost of Equity 15.8 Plus: Cash and Cash Equiv. 721

Risk-free rate 1.9 Net Debt (721)

Market risk premium 11.5

Levered Beta 1.2 Implied Equity Value 17,458

Outstanding shares 13,431

WACC 14.7 Implied share price 1.30

Sources: Bloomberg; BNP Paribas estimates

EXHIBIT 31: WACC sensitivity analysis EXHIBIT 32: Share price sensitivity analysis

WACC ----------------------- Equity to total capital -----------------------

Beta

80 85 90 95 100

1.0 11.81 12.23 12.65 13.07 13.49

1.1 12.73 13.21 13.69 14.16 14.64

1.2 13.66 14.19 14.72 15.26 15.79

1.3 14.58 15.17 15.76 16.35 16.94

1.4 15.50 16.15 16.80 17.45 18.10

Price ------------------------ Perpetuity growth ------------------------

WACC

2.0% 2.5% 3.0% 3.5% 4.0%

12.7 1.57 1.64 1.73 1.83 1.94

13.7 1.36 1.43 1.49 1.57 1.65

14.7 1.19 1.24 1.30 1.36 1.43

15.7 1.05 1.09 1.14 1.19 1.24

16.7 0.93 0.97 1.00 1.04 1.09


0.0

0.5

1.0

1.5

2.0


(HKD)

2.2x

0.2x

0.8x

1.5x

0.0

0.5

1.0

1.5

2.0


(HKD)

2.2x

0.2x

0.8x

1.5x



EXHIBIT 33: DCF assumptions

Year-end 31 Dec 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E

(HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m)

Revenue 4,556 5,275 6,182 6,367 6,558 6,755 6,958 7,166 7,381 7,603

COGS (905) (1,172) (1,519) (1,565) (1,566) (1,644) (1,688) (1,732) (1,790) (1,842)

Gross profit 3,651 4,103 4,662 4,802 4,992 5,111 5,269 5,434 5,591 5,761

OpEx (241) (386) (387) (379) (351) (326) (319) (312) (305) (311)

Operating Profit (EBIT) 3,410 3,717 4,275 4,423 4,641 4,785 4,951 5,123 5,286 5,450

Net interest income (63) (205) (435) (428) (416) (404) (390) (375) (360) (343)

Tax (392) (527) (576) (599) (634) (657) (684) (712) (739) (766)

Net income 2,955 2,985 3,264 3,396 3,591 3,724 3,877 4,035 4,187 4,341

Add back

Depreciation & amortization 54 212 457 509 509 509 509 509 509 509

Interest expenses (net of tax) 56 174 369 364 354 343 331 319 306 291

EBITDA 3,072 3,402 4,156 4,868 5,088 5,234 5,402 5,576 5,741 5,908

Less

Capex (1,817) (4,242) (2,926) (1,463) (731) (512) (410) (205) (123) (123)

Change in working capital (2,415) (2,058) (1,864) 502 (214) (175) (284) (292) (301) (310)

Unlevered FCF (1,569) (3,430) (1,208) 3,309 3,508 3,889 4,024 4,366 4,578 4,708

Discount period (year) 0.8 1.8 2.8 3.8 4.8 5.8 6.8 7.8 8.8 9.8

Discount factor 0.89 0.78 0.68 0.60 0.52 0.46 0.40 0.35 0.31 0.27

Present value of FCF (1,399) (2,666) (819) 1,954 1,806 1,745 1,574 1,489 1,361 1,220


CBs and Options: 14% potential EPS dilution

At end-2012, Hanergy Solar had HKD848m of outstanding convertible bonds with an

exercise price of HKD0.27, transferrable into 3,116m shares. Maturity date has been

extended from November 2013 to December 2014. These convertible bonds imply

10% share dilution. On top of this, outstanding options held by Hanergy Option

Limited and management will lead to another 4% dilution (Exhibit 34). The 14% total

dilution is likely to bring downside pressure to its share price. Hanergy Group’s stake

has risen from 20% in early 2013 to 63% at present.

EXHIBIT 34: EPS dilution from CBs and options EXHIBIT 35: Shareholder structure

CB & Options Convertible/exercisable

share number EPS dilution

(m shares) (%)

Convertible bonds (maturity to be extended to 31-Dec-2014, exercise price: HKD0.27)

3,116 10.04

Option A (5-Nov-2009) 2.4 0.01

Option B (18-Sep-2011) 758 2.64

Option C (6-Sep-2012) 422 1.49

Total 4,298 14.18

Sources: Hanergy Solar; BNP Paribas Sources: Hanergy Solar; BNP Paribas

Hanergy Group63.0%

Individuals21.0%

Institutions9.0%

Funds7.0%



Potential risks

Continuous deterioration of macro economy: The solar industry is still a cost-

driven industry. Before reaching grid parity, it is highly correlated to government

subsidy programmes and macroeconomics. When the economy turns down,

governments invest less money in subsidy programmes, they may delay launches,

cut total rebates, or, more commonly, lower the FiT (Feed-in Tariff). A recent example

is August 2012, when the UK government cut FiT from GBP21p to GBP16p per kwh

and shortened the subsidy contract from 25 years to 20 years. As the UK economy is

still in turmoil, further FiT cuts seem likely.

Highly reliant on Hanergy Group, a private company: It is obvious that Hanergy

Solar is highly reliant on its parent company, especially in upstream businesses.

Therefore, the credibility and financial liquidity of the Group becomes key. Hanergy

Group is the largest private-owned hydropower energy company in China; upon the

acquisition of MiaSolé in January 2013, Li Hejun, the chairman, stated that its

hydropower dams could generate several hundred million dollars a year in free cash

flow, which should be sufficient for the solar investment. However, as it is a private

company, its financial liquidity is still a wild card to investors.

Refinancing risks: High capex for solar farms will require long-term debt or

syndicated loans. It is not common for banks to sign a 20-year loan, therefore

Hanergy Solar may face refinancing risks when the debt/loan reaches maturity,

usually in 7-8 years. Refinancing risks include interest, liquidity, credit, financial

environment risks upon maturity. Hanergy Solar has set a credit account in the CDB

(Central Development Bank) with amounts of RMB30b and USD5b, but it can be

activated only when the solar farms start generating stable cash inflow.

Other risks include possible levy punishment from the European Commission on

China TF solar makers, slower-than-expected improvement of conversion efficiency,

challenges associated with marketing if entering into the residential market,

breakthrough of other technologies where Hanergy Solar does not have a presence

such as HCPV (High Concentrated Photovoltaic) and OPV (Organic Photovoltaic).

Grid parity: cost of solar modules ≤

the price of electricity grid



Financial statements analysis

Assumptions and P&L analysis

We assume solar equipment to be shipped steadily at 200-250MW installation per

quarter with a stable ASP of USD0.56 per watt. While the contribution of the

downstream business is still too early to gauge, we forecast 280MW/370MW

capacity to be installed in 2014E/15E, and sales contributions to reach 7% and 18%

respectively, which is around 5-6% of global TF market share when fully utilised.

With promising sales contribution from upstream equipment, and the expansion into

downstream solar power plants, we forecast 2013 and 2014 sales will grow 65% and

16% y-y. Solar farm projects will lower its net margin from 65% in 2013E to 57% in

2014E, but will bring a stable operating cash flow.

EXHIBIT 36: Key assumptions: Both upstream and downstream, ASP, volume, sales mix

Key assumptions 1H12 2H12 1H13E 2H13E 1H14E 2H14E 1H15E 2H15E 2012E 2013E 2014E 2015E

Sales mix (%)

Solar equipment 100 100 100 100 95 90 85 80 100 100 93 82

Solar farm

5 10 15 20

7 18

Net profit mix (%)

Solar equipment 100 100 100 100 99 98 95 92 100 100 98 94

Solar farm

1 2 5 8

2 6

Installed capacity (MW)

Solar equipment 285 215 468 562 545 577 577 606 500 1,030 1,122 1,184

Solar farm

130 150 170 200

280 370

ASP (USD/Watt)

Solar equipment 0.74 0.67 0.57 0.57 0.56 0.56 0.55 0.55 0.71 0.57 0.56 0.55

Solar farm - FIT

0.16 0.16 0.16 0.16

0.16 0.16




EXHIBIT 37: Quarterly P&L

Year-end Dec 1H12 2H12 1H13 2H13E 1H14E 2H14E 1H15E 2H15E 2012 2013E 2014E 2015E

(HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m) (HKD m)

Revenue 1,637 1,119 2,080 2,476 2,505 2,770 2,937 3,245 2,756 4,556 5,275 6,182

Depreciation (14) (14) (21) (32) (80) (132) (192) (265) (28) (54) (212) (457)

COGS (540) (250) (405) (500) (539) (633) (704) (816) (790) (905) (1,172) (1,519)

Gross profit 1,097 870 1,675 1,976 1,966 2,137 2,233 2,429 1,967 3,651 4,103 4,662

Other income 2 3 64 8 13 12 14 14 5 72 25 29

Operating expense (98) (148) (139) (173) (212) (199) (206) (210) (246) (313) (411) (416)

Operating income 1,001 725 1,599 1,811 1,767 1,950 2,042 2,234 1,726 3,410 3,717 4,275

Net Interest Income (29) (31) (32) (32) (77) (128) (185) (250) (60) (63) (205) (435)

Net Other Income - - - - - - - - - - - -

Pre Tax profit 972 694 1,568 1,779 1,690 1,822 1,857 1,984 1,666 3,347 3,512 3,841

Tax (200) (150) (125) (267) (254) (273) (279) (298) (350) (392) (527) (576)

Net profit 772 544 1,442 1,513 1,437 1,548 1,578 1,686 1,316 2,955 2,985 3,264

EPS (HKD) 0.06 0.04 0.11 0.07 0.05 0.06 0.06 0.06 0.10 0.11 0.11 0.12

Margins (%)

Gross margin 67.0 77.7 80.5 79.8 78.5 77.1 76.0 74.9 71.4 80.1 77.8 75.4

Operating margin 61.1 64.8 76.9 73.1 70.5 70.4 69.5 68.8 62.6 74.8 70.5 69.2

EBITDA margin 61.7 66.6 77.9 74.4 73.7 75.1 76.1 77.0 63.6 76.0 74.5 76.6

Net margin 47.1 48.6 69.3 61.1 57.4 55.9 53.7 52.0 47.7 64.9 56.6 52.8

Sequential growth (%)

Revenue (7) (32) 86 19 1 11 6 10 7 65 16 17

Gross profit (8) (21) 93 18 (1) 9 5 9 22 86 12 14

Operating profit (1) (28) 120 13 (2) 10 5 9 65 98 9 15

Net profit 1 (29) 165 5 (5) 8 2 7 83 125 1 9

EPS 1 (29) 165 (35) (26) 8 2 7 48 8 1 9


Balance sheet and cash flow analyses

Downstream solar farm business requires heavy front-end capex investment for solar

modules and other materials; hence we forecast capex intensity (capex/sales) to rise

significantly from 0.02x in 2012 to 0.80x in 2014E. The capex may come from: 1)

stable operating cash flow; 2) continued new share subscription from the Group,

based on the upstream equipment contracts; and 3) issuance of new debt.

In 2012, the company turned net debt to net cash, given the payback of long-term

debt. To ramp up downstream business, we expect the company to issue new debt.

As such, we factor in HKD3b/4b of long-term debt in 2014E/15E. Nevertheless, we

forecast net cash to remain, with gearing ratio being controlled within a reasonable

range (up from the current 0% to 18% in 2015E vs peers’ 15-30% in 2013E, Exhibit

40). The company should be able to turn net debt to net cash within three to five

years on the back of stable operating cash flow. Free cash flow will suffer in 2014E

when ramping up solar farm capacity, while it should gradually turn positive after

being connected to the grid.

Compared to equipment rivals, Hanergy Solar’s AR days are much longer (Exhibit

43), implying a weaker receivables term due to the sole-customer issue. As at June

2013, HKD2.1b of outstanding receivables was due from the Hanergy Group.

Although Hanergy Solar stated the Group’s intention to settle HKD0.5b of due

payment in October, HKD0.6b in November, and HKD1.0b in December 2013, this

payment delay has caused investors some concern.



EXHIBIT 38: Downstream business will weigh on capex… EXHIBIT 39: …while net cash and gearing remains healthy

Sources: Hanergy Solar; BNP Paribas estimates Sources: Hanergy Solar; BNP Paribas estimates

EXHIBIT 40: Gearing ratio comparison – TF equipment EXHIBIT 41: Gearing ratio comparison (2013E)

Sources: Bloomberg; BNP Paribas estimates * Equipment makers Sources: Bloomberg consensus; BNP Paribas estimates

EXHIBIT 42: Operating cash flow EXHIBIT 43: AR days comparison

Sources: Hanergy Solar; BNP Paribas estimates Sources: Bloomberg; BNP Paribas estimates

DuPont analysis

Based on our DuPont Analysis, Hanergy Solar's ROE improved to 11.9% in 2012

from 7.7% in 2011 mainly thanks to higher net margin, while both asset turnover and

financial leverage remained stable.

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

(1,000)

0

1,000

2,000

3,000

4,000

5,000

2009 2010 2011 2012 2013E 2014E 2015E

(x)(HKD m)

Capex (LHS) Depreciation (LHS)

Capex intensity (RHS)

0

5

10

15

20

25

30

35

40

45

50

(3,000)

(2,000)

(1,000)

0

1,000

2,000

3,000

2009 2010 2011 2012 2013E 2014E 2015E

(x)(HKD m)

Net debt / (cash) (LHS) Gearing (RHS)

0

20

40

60

80

100

2009 2010 2011 2012 2013E 2014E 2015E

(%)

Hanergy Solar Applied Materials

Oc Oerlikon Ulvac

First Solar

0

200

400

600

800

1,000

LD

K

Yin

gli

Canadia

n

Hanw

ha

Trina

JA

Sola

r

Ap

plie

dM

ate

rials

*

Oc

Oerlik

on*

First S

ola

r

Hanerg

yS

ola

r*

(x)

(3,000)

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

2009 2010 2011 2012 2013E 2014E 2015E

(HKD m) Operating cash flow Free cash flow

0

100

200

300

400

500

2010 2011 2012 2013E

(days) Hanergy Solar Applied Materials Oc Oerlikon Ulvac



Looking forward, the solar farm business will add pressure to the net margin and

increase fixed assets (solar plants), and hence will lift financial leverage; however, it

will be partially offset by the increasing equity due to share subscription agreements.

Net net, we forecast ROE to improve to 21% in 2013 but slightly lower to 17% and

16% in 2014 and 2015 when solar farms commence operation.

EXHIBIT 44: DuPont analysis


(30)

(20)

(10)

0

10

20

30

40

50

60

70

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2009 2010 2011 2012 2013E 2014E 2015E

(%)(x) Asset turnover (LHS) Asset / Equity (LHS)

Net profit margin (RHS) ROE (RHS)



Appendix 1: Company background and management

Hanergy Solar Group Limited (Hanergy Solar)

Hanergy Solar Group Limited, formerly known as Apollo Solar Energy Technology

Holdings Limited, provides integrated solutions for large-scale thin-film solar cell

production systems. Hanergy Solar is one of the suppliers of equipment production

and integrated solutions for world-class thin-film solar PV modules. Hanergy Solar is

actively seeking investment opportunities in downstream solar projects, and moving

towards the global photovoltaic power generation market.

The company’s turnkey systems offer automated high yield, short time-to-market and

low-maintenance manufacturing solutions. These systems could provide customers

the best performance in the industry's thin-film silicon PV production equipment, at

the lowest production cost per watt. The company also provides customised modular

designs, which facilitates further upgrades of the system and capacity expansion,

allowing truly scalable production.

The company has a global presence with employees worldwide; currently the

company has full-range research and development teams comprising an equipment

and manufacturing research and development team based in Beijing, a technology

research and development team based in Chengdu and a silicon-based research

and development team in Tianjin, providing global customer support and training

through sales and service centres in Mainland China and Hong Kong.

Hanergy Holding Group, Ltd. (Hanergy Group)

Hanergy Holding Group, Ltd., Hanergy Solar’s parent company with 63% stake, is

China’s largest privately-held energy enterprise encompassing hydroelectricity, wind

electricity and solar electricity generation. Its headquarters are located in Beijing,

China, with branch offices in several Chinese provinces, North America, Europe, and

the Asia Pacific region. More than 5,000 scientists, engineers, technicians, and

management and professional support staff are dedicated to providing clean energy.

Hanergy Group has completed total installed capacity of 6GW of hydroelectric

projects and 131MW of wind electricity projects. Additionally, Hanergy Group has

been heavily investing in solar photovoltaics (PV) research and manufacturing

facilities in several Chinese provinces. It is anticipated that Hanergy Group’s total PV

production capacity will reach 3GW by end-2013, making it the largest thin film PV

producer in China. Hanergy Group is actively involved in developing power plants

worldwide. It has entered into various power plant construction agreements with

authorities and project owners in China, the U.S.A and Europe. The total capacity of

these solar electric power plant agreements is in excess of 10GW. Hanergy Group

has become a fully integrated clean energy enterprise in the energy industry from

technology research, facilities manufacturing, and PV cell production to solar power

utilization.



EXHIBIT 45: Hanergy Solar’s management and R&D team

Name Title Experience

Frank Mingfang Dai

Chairman and Chief Executive Officer

Mr. Dai is a senior vice president of Hanergy Holding Group Limited. Mr. Dai has extensive experience in asset restructuring, mergers and acquisitions, international financing and development of photovoltaic business. Prior to Hanergy Holding Group Limited, Mr. Dai was engaged for many years in business management and market development in the PRC, Hong Kong and the United States. Mr. Dai graduated from the Faculty of Industrial Economy Management of Shenyang University in 1984 and later obtained an Executive Master of Business Administration degree in 2000 from the University of Texas at Dallas, the United States.

Dr. Li Yuan-min

Vice Chairman and Chief Technology Officer

Dr. Li joined the Group in 2009 and is the Chief Technology Officer of the Group. Dr. Li graduated from the Department of Modern Physics at the University of Science and Technology of China in 1982. Dr. Li obtained a Master's degree in physics from Harvard University in 1984 and a PhD in applied physics from Harvard University in 1989. Dr. Li has over 30 years of experience in international thin-film materials preparation, characterisation and deposition technologies, photovoltaic (PV) devices design, synthesis, analysis and optimisation, large-area PV module manufacturing and related process engineering, displays and optoelectronic devices and materials. Dr. Li is the co-inventor of numerous patents in relation to thin-film materials preparation and technologies and PV devices design. Dr. Li is currently a member of the Technical Advisory Board of SEMI (China) PV Committee, an organisation promoting the PV industry headquartered in Shanghai. Dr. Li is also the President and Chief Technology Officer of a thin-film PV company in New Jersey, the United States and a consultant to a number of other PV companies in the People's Republic of China, Taiwan and the United States

Hui Ka Wah, Ronnie J.P.

Finance Director and Senior Vice-president

Mr. Hui joined the Group in 2009 as Chief Financial Officer of the Group, a position which he later vacated following his appointment as an Executive Director and the Chief Executive Officer of the Company in August 2011. Mr. Hui is a specialist in Paediatrics and also a Chartered Financial Analyst. Mr. Hui holds a Master of Business Administration (MBA) degree conferred by Universitas 21 Global. Mr. Hui is a member of the Energy Advisory Committee and the Small and Medium Enterprises Committee of the Government of the Hong Kong Special Administrative Region ("HKSAR") and also a non-official member of the Women's Commission of the Government of the HKSAR.

Chen Li

Executive Vice-president

Mr. Chen has many years of experience in financial management, risk management and arranging finance. He obtained a Master's degree in business administration from the University of International Business and Economics in 2006. Mr. Chen is currently the Executive Vice-president of the Company. He is also the Vice-president and the Chief Head of Finance Management of Hanergy Holdings Group Company Limited. Before joining Hanergy, Mr. Chen was employed by the Jinan branch of the Bank of China, responsible for the credit business

Li Guangmin

Financial Controller Mr. Li joined Hanergy Holdings Group Company Limited in 2002 and is currently the Senior Deputy Financial Controller. Mr. Li was previously employed by Beijing Crane Factory from 2000 to 2002. He graduated from Northern Jiaotong University, currently known as Beijing Jiaotong University with a bachelor's degree in accountancy in 2000.

R&D Team

Dr. Xu Xixiang

Chief Technology

Officer

Dr. Xu has over 30 years of experience in silicon-based thin-film solar cells, thin-film process technology & materials characterisations, & semi-conductor process development. He has developed a nc-Si:H process with over 12% efficiency for large-area solar cells based on nc-Si (world record confirmed by National Renewable Energy Laboratory/NREL, February 2011). He has significantly improved a-SiGe based solar cells with 11% stable large-area efficiency (world record confirmed by NREL, September 2010). Dr. Xu has a PhD in Materials Science from Kanazawa University in 1990.

Dr. Shan Hongqing

General Manager of R&D center

Dr. Shan has over 20 years of experience in semiconductor and photovoltaic industries, specialising in plasma diagnostics, plasma processing and plasma and photovoltaic devices developments. He is also the inventor of 67 granted US patents. Prior to Hanergy Solar, he was the leader of a series of successful semiconductor-processing equipment developments at Applied Materials and Mattson Technology. Dr. Shan has a PhD from Stanford University.

Dr. Zhang Jinyan

Deputy Director of R&D

center

Dr. Zhang has over 20 years R&D experience in thin-film & semiconductor integrated circuit manufacturing fields. Dr. Zhang is the inventor of a number of patents. Prior to Hanergy Solar, he was the CTO of a photovoltaic company. He has a PhD in Materials Science from Kanazawa University.

Source: Hanergy Solar



Appendix 2: Thin Film technology and its application in BIPV

In the solar PV industry, crystalline PV technology has been commercialised for over

25 years. Traditional crystalline silicon photovoltaic technologies are generally

classified as 1st generation (Gen 1). Thin film PV technology (TFPV) has also been

on the market for a long time. Low power amorphous silicon PV solar cells have

been present in calculators and watches for decades. We classify amorphous silicon

(a-Si), as well as CIGS and CdTe solar cells as 2nd generation (Gen 2) technology.

For 3rd generation (Gen 3), we refer to emerging technologies like organic solar cells

and dye sensitized solar cells (DSSC). The primary distinction between each of the

segments has been the use of different target materials and configurations for

producing the absorber layer of the photovoltaic cell.

EXHIBIT 46: Classification of TFPV technologies

Source: BNP Paribas

EXHIBIT 47: Classification of Thin-film Structure

Source: BNP Paribas

PV

Gen 1: Crystalline

Gen 2: Thin film

Chemical

compound

Gen 3: Emerging

Mono-crystalline (c-Si)

Multi-crystalline (mc-Si)

Amorphous (a-Si)

Micromorph/Tandem (a-Si/µc-Si)

Other a-Si-alloy multi-junction

Cadmium Telluride (CdTe)

Copper Indium Diselenide (CIS)

Copper Indium Gallium Diselenide

(CIGS)

III-V : GaAs

Dye sensitized (DSSC)

Organic

Silicon based

Polymer

CdTe cell structure

TCO

P-CdTe

N-CdS

Back metal

Buffer layer

Substrate glass

uc-Si

a-Si

Back metal

Tandem cell structure

TCO

Substrate glass

CIS cell structure

ZnO

Cu(In,Ga)Se2

Back metal

ZnO: Buffer layer

Mo

Substrate glass

Thin film structure



Amorphous silicon technology

Today most amorphous silicon (a-Si) PV solar cells use a p/i/n device configuration

rather than a p/n junction configuration because amorphous silicon solutions have

higher defect densities. This results in lower minority-carrier lifetimes adding to costs

and processes for efficient collection of carriers. The majority of amorphous silicon

production technology is focused on multi-junction substrate strategies because

single-junction cell-efficiencies have long demonstrated that enhancements in single

junction would show diminishing cost/performance returns in cell efficiency against

multi-junction approaches. Multi-junction structures use several layers of thin film and

allow the cell to capture more of the solar spectrum in order to convert it to electricity.

Over the past three decades, researchers have developed more efficient alloys that

use hydrogenated amorphous silicon and new material deposition process

technologies to produce devices with higher conversion efficiencies. Currently,

amorphous thin film technology uses a tandem or multi-junction approach. Because

lower conversion efficiencies command lower selling prices, single-junction

amorphous thin film technology is being phased out in major markets like Europe

and Japan.

Amorphous silicon uses plasma enhanced chemical vapor deposition (PECVD)

method, a process used to deposit thin films from the usage of target materials to a

substrate. The process is key to making good thin film panels with higher stability,

resulting in more reliable performance of the products it can produce. There are not

many quality PECVD vendors in the world – major equipment providers using

amorphous-based silicon thin-film technology offering turnkey solutions include

Applied materials (AMAT US), Oerlikon Solar (OERL EU) and ULVAC (6728 JP).

CdTe technology

CdTe thin-film PV technology involves using Cadmium Telluride (CdTe) and

Cadmium Sulfide (CdS) as materials to build p/n junctions for the absorber layer.

First Solar (FSLR US) is currently the only large-scale production-size CdTe thin-film

solar manufacturer in the world with more than 1GW of annual production. It is also

the largest solar cell producer globally (cumulative product surpassed 7GW in 2012).

The company recently entered the India market and aimed to reach 25% market

share (10GW accumulative installation) in the following three years. First Solar’s

production cost has also dramatically decreased from USD0.87/W in 2009 to

USD0.59/W in 3Q13 with conversion efficiency being improved from 11% to 13.3%

over the same period.

Although First Solar has been successful in the solar sector, the major issue with the

technology is the use of a highly toxic material, Cadmium, to produce its panel, and

there are concerns about whether these panels pose a fire hazard. Cadmium is

restricted in the RoHS (Restriction of Hazardous Substances) directive in the

European Union. If the RoHS directive is eventually applied to solar modules, it

would become a hurdle to further business development.

CIGS/CIS technology

As a relatively new technology, the main issue with CIS/CIGS technology is still on

the capability of its commercialisation. There are several layers to build up the p/n

device in absorber layer. The panel has to pass through many chambers to deposit

Cu, In/Ga and Se on the substrate. Stability of the process is very important, with

even slight deviation in the thickness of each target material potentially causing

incompatibility in the electrical performance of the panel. Another problem is the

feedstock of Indium, which may become a bottleneck to CIS/CIGS manufacturers if it

ever becomes the dominant mainstream solar technology.



EXHIBIT 48: CIS manufacturing process and product structure

Source: BNP Paribas

Substrate

Thin film on plain glass 1.8mm

Strengthen glass 3.2mm

Backsheet

EVA

Junction boxAl frame

sunlight

Roll in substrate

Glass cleaning

Glass ID marking

Mo-layer Sputtering

Laser scribing

H2S coating

Light absorbing

Buffering layer sputtering

Cutting by needles

ZnO2 deposition by MOCVD

Cutting by needles

Plasting ribbons on

ribbon cells

Solar Cell

Fabrication

(front end)

Roll in strong glass

Place EVA

Place thin film cell

Place EVA

Place backsheet

Lamination

Edge trimming

Light absorbing

Cooling down

Frame installation

Junction box sealing

Visual inspection

Place label

Packaging

Module

Assembly

(back end)



EXHIBIT 49: TFPV SWOT analysis

Strength Weakness

Higher energy yield Lower conversion efficiency than crystalline

More absorption of sunlight High capex investment

Better performance in shadowing

Less energy payback time (more environmentally friendly)

Monolithic manufacturing process

Opportunities Threats

Hot and cloudy regions – Middle East, Southeast Asia, South America and places closed to equator

Aggressive cost cutting and vertical integration from Crystalline PV manufacturing

Large scale ground-mounted solar field BIPV applications Oversupply in polysilicon

Exemption from anti-dumping levies to China solar makers

Source: BNP Paribas

TFPV application in BAPV/BIPV

Energy can be produced through photovoltaic panels using Building Applied PV

(BAPV) or Building Integrated PV (BIPV) methods. BAPV panels are added and

integrated in the building after the construction work is completed. We believe BAPV

will be a large volume market in the near term as it is relatively easy to install and

maintain solar panels on rooftops or buildings like factories and warehouses. We

believe BAPV installations have to be architecturally and aesthetically appealing

even though it is just about installing photovoltaic panels on buildings.

EXHIBIT 50: Residential BAPV EXHIBIT 51: Commercial BAPV

Source: BNP Paribas Source: BNP Paribas

When photovoltaic systems are integrated in buildings using construction materials

and built and constructed along with an object, it is called building-integrated

photovoltaic (BIPV). BIPV converts sunlight into useful electricity and also acts as a

building material replacing conventional building materials in parts of the building

such as roofs, facades or shades. BIPV systems are also planned together with the

object. They can form part of the actual structure of a wall, providing a waterproof

shell, or be positioned alongside the wall to provide shade from the sun. Additional

costs incurred for installing integrated photovoltaic panels over non-integrated

photovoltaic panels can be offset, even if partially, by savings incurred on building

materials and labour required to construct the part of the building.

If we analyse the installed capacity of a BIPV project along with its complexity, we

can easily understand that as the complexity of a BIPV project increases, installed

capacity drops significantly (Exhibit 52). The challenges become far greater when we

integrate solar technologies into the structure or materials of a building to generate

power, as sustainability, maintenance, functionality and architectural aesthetics

become critical factors. Seamless integration of structural components requires

knowledge of solar technologies and also building construction, architectural design,

material sciences and aesthetics. It is fairly easy to install photovoltaic panels in

partially integrated rooftops, while facades require a higher standard of building



integrated knowhow as it is not simply about installing PV modules as curtain walls,

but requires a combination of the original curtain wall and mixing different patterns.

Facades are being installed on existing buildings as well as old buildings to provide a

completely new look as well as to enhance the appeal of the buildings.

EXHIBIT 52: Complexity and installed capacity in various BIPV

Source: BNP Paribas

We believe BIPV will play a significant role as a market with higher margins and

higher barriers to entry in the medium and longer term. BIPV will remain a tricky

solution as critical issues in material/technology choices need to be addressed for

aesthetic reasons. We are well aware of the technical challenges for BIPV, with

installation of PV films on windows increasing the indoor temperature of the building,

violating energy-efficiency principles and dramatically affecting the uniformity of

energy production.

EXHIBIT 53: Examples of BIPV projects

Source: BNP Paribas

We think BIPV will not just remain an overhead application but will use an entire

building structure to generate its own power and feed additional power into the grid

system creating a sustainable energy solution. According to Navigon Research‘s

Building Integrated Photovoltaic report in January 2013, the market size of BIPV and

BAPV is expected to increase from USD606m in 2012 to USD2.4b in 2017. The

global BIPV and BAPV markets will witness more than 400% growth as these

markets are expected to grow from c.400MW in 2012 to 2,250MW in 2017. With

BIPV as an available solution, we expect solar suppliers to team up with building and

construction companies, as well as designers and architects to generate a new

revenue stream altogether. Even building companies are interested in associating

with these players to exploit available opportunities in the green building space. It is

interesting to know that construction companies and architectural firms are aiming to

construct net-zero energy buildings, which will have zero net-energy consumption or

carbon emissions. We reaffirm that BIPV could provide aesthetically pleasing, non-

intrusive, multi-purpose building elements, ensuring supply reliability, reducing

energy and peak demand charges and contributing to environmental protection. It

represents the combination of renewable energies and traditional building practices

on the building exterior.



Critical success factors for BIPV

Though BIPV is expected to grow significantly in medium term, we believe the BIPV

industry has to overcome several challenges.

1. Cost-to-performance: We believe project economics is the most crucial

success factor not only in the BIPV segment but also the entire solar industry.

The existing BIPV system costs are almost double the normal solar field

application costs. As BIPV is a customised solution, it cannot be mass-produced,

thus impeding BIPV‘s scalability. We believe lack of economies of scale and

learning curve coming through manufacturing process deployment limits cost

reductions, which could eventually impact adoption of the BIPV technology.

2. Performance deterioration from dissipation and shadowing: Unlike rack-

mounted PV, BIPV modules tend to generate greater heat as they are installed

flat on the building and prohibit any airflow between module and host structure.

Higher temperatures result in quality deterioration of the module‘s

semiconducting material that could lower conversion efficiency. Although BIPV

enhances the available space for PV-suitable space of a building (given more

than just the roof is eligible for installation), the sub-optimal angle of irradiation

on these non-horizontal surfaces and obstructions posed by surrounding

buildings results in diminished energy. Performance deterioration can be

minimised to a certain extent by installing air exhaust ventilation systems and the

right choice of PV technology.

3. Aesthetic concern: Designers and architects have to choose the right PV

technology and product design to minimise the aesthetic concern.

4. Local regulatory: The BIPV systems industry is facing difficulties in electrical

design and permission procedure as each country has unique regulatory

requirements. Also, the BIPV industry has to adhere to codes and standards,

and regulatory requirements of two separate industries (PV and construction).

For instance, even measuring standards could create problems in BIPV project

deployment as the construction industry uses square metre units signifying area,

while the PV industry uses watt units measuring electrical output. Hence, it

becomes imperative to harmonise incongruence between different industry

standards involved in BIPV deployment.

We think building construction, aesthetic design, and energy-efficiency are the three

pillars for successful BIPV project deployment. Moreover, companies with tactical

knowledge in the building and photovoltaic segments as well as economies of scale

are likely to have a definite competitive advantage.

Thin Film Solar Solutions

Project developers and system integrators have been trying to come up with different

optimised solutions to increase adoption of BIPV projects. Currently, we come across

common solutions such as flexible thin film PV, rigid thin film PV and crystalline

silicon PV in the market.

EXHIBIT 54: Types of BIPV modules

Source: BNP Paribas



TFPV is an important development in recent years as it helps to generate affordable

solar electricity. Thin films use a very thin layer of semiconductor, which is just a

millionth of a metre (microns) thick. They are not only relatively easy to manufacture,

but also efficiently use raw materials and energy, resulting in reduced costs and

carbon footprint. The monolithic manufacturing process in thin film PV technology

improves the efficiency of the production process and helps decrease labour costs.

Thin films are relatively energy-efficient as the energy payback time (EPBT), the time

required to generate electricity equivalent to the energy input required to

manufacture a PV module, including the energy input for its raw materials, is

approximately one year, even with lower conversion efficiency (7-15%). Due to their

natural features such as higher energy yield, higher tolerance to hot temperature,

better performance in shadowing and higher transparency, thin-film technologies

have a unique position in the BIPV market. Although crystalline silicon PV has better

conversion efficiency than thin film technology, the latter scores more than crystalline

silicon PV on other parameters such as energy yield, tolerance to hot temperature

and performance in shadowing. Leading thin film PV producers have started using

environmental management principles based on Life Cycle Analysis (LCA), which will

help offer sustainable energy solutions with no, or minimum, hidden environmental

costs. The LCA approach considers and analyses the total life-cycle impact of a

technology from raw material sourcing to recycling of the technology.

We believe Hanergy Solar (566 HK) could benefit from the increasing use of BIPV

and thin films in the construction of buildings, but that it is more likely to be a 2015

and beyond story. We believe the cost-performance ratio will be the most critical

factor for survival and growth of these companies, given the solar utility industry is

cost-driven rather than technology-driven. As discussed above, companies with

tactical knowledge of semiconductor, solar and building industries will have a definite

advantage over competition.



Financial statements Hanergy Solar

Profit and Loss (HKD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E

Revenue 2,565 2,756 4,556 5,275 6,182

Cost of sales ex depreciation (934) (761) (852) (961) (1,062)

Gross profit ex depreciation 1,630 1,995 3,705 4,314 5,119

Other operating income 7 5 72 25 29

Operating costs (572) (246) (313) (411) (416)

Operating EBITDA 1,065 1,754 3,464 3,928 4,732

Depreciation (19) (28) (54) (212) (457)

Goodwill amortisation 0 0 0 0 0

Operating EBIT 1,046 1,726 3,410 3,717 4,275

Net financing costs (79) (60) (63) (205) (435)

Associates 0 0 0 0 0

Recurring non operating income 0 0 0 0 0

Non recurring items (4) 0 0 0 0

Profit before tax 963 1,666 3,347 3,512 3,841

Tax (244) (350) (392) (527) (576)

Profit after tax 719 1,316 2,955 2,985 3,264

Minority interests 0 0 0 0 0

Preferred dividends 0 0 0 0 0

Other items 0 0 0 0 0

Reported net profit 719 1,316 2,955 2,985 3,264

Non recurring items & goodwill (net) 4 0 0 0 0

Recurring net profit 724 1,316 2,955 2,985 3,264

Per share (HKD)

Recurring EPS * 0.07 0.10 0.11 0.11 0.12

Reported EPS 0.07 0.10 0.11 0.11 0.12

DPS 0.00 0.00 0.00 0.00 0.00

Growth

Revenue (%) (25.5) 7.5 65.3 15.8 17.2

Operating EBITDA (%) (40.3) 64.8 97.4 13.4 20.5

Operating EBIT (%) (40.4) 65.0 97.5 9.0 15.0

Recurring EPS (%) (74.2) 47.0 8.0 1.0 9.4

Reported EPS (%) (74.2) 47.9 8.0 1.0 9.4

Operating performance

Gross margin inc depreciation (%) 62.8 71.4 80.1 77.8 75.4

Operating EBITDA margin (%) 41.5 63.6 76.0 74.5 76.6

Operating EBIT margin (%) 40.8 62.6 74.8 70.5 69.2

Net margin (%) 28.2 47.7 64.9 56.6 52.8

Effective tax rate (%) 25.3 21.0 11.7 15.0 15.0

Dividend payout on recurring profit (%) 0.0 0.0 0.0 0.0 0.0

Interest cover (x) 13.3 28.7 54.0 18.1 9.8

Inventory days 105.6 180.0 156.3 169.4 202.9

Debtor days 311.0 435.4 330.5 353.5 328.7

Creditor days 77.6 92.0 100.7 111.7 114.3

Operating ROIC (%) 57.7 65.7 85.9 47.6 36.8

ROIC (%) 10.2 15.5 27.1 22.7 21.2

ROE (%) 7.7 11.9 21.4 17.2 15.9

ROA (%) 6.7 10.6 19.2 15.2 14.0

*Pre exceptional, pre-goodwill and fully diluted

Revenue By Division (HKD m) 2011A 2012A 2013E 2014E 2015E

Solar equipment 2,565 2,756 4,556 4,888 5,074

Solar farm 0 0 0 387 1,107

Others 0 0 0 0 0

- - - - -




Financial statements Hanergy Solar

Cash Flow (HKD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E

Recurring net profit 724 1,316 2,955 2,985 3,264

Depreciation 19 28 54 212 457

Associates & minorities 0 0 0 0 0

Other non-cash items 0 0 0 0 0

Recurring cash flow 742 1,344 3,008 3,197 3,721

Change in working capital (1,636) (14) (894) (983) (126)

Capex - maintenance 0 0 0 0 0

Capex - new investment (1) (43) (1,817) (4,242) (2,926)

Free cash flow to equity (894) 1,287 297 (2,028) 669

Net acquisitions & disposals 0 0 0 0 0

Dividends paid 0 0 0 0 0

Non recurring cash flows 152 (226) 13 0 0

Net cash flow (742) 1,062 310 (2,028) 669

Equity finance 1,231 10 1,234 19 21

Debt finance (1,263) (682) (6) 3,088 1,046

Movement in cash (774) 390 1,537 1,080 1,736

Per share (HKD)

Recurring cash flow per share 0.07 0.10 0.11 0.11 0.13

FCF to equity per share (0.08) 0.10 0.01 (0.07) 0.02

Balance Sheet (HKD m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E

Working capital assets 3,297 4,307 4,974 6,537 6,256

Working capital liabilities (802) (1,798) (1,571) (2,152) (1,743)

Net working capital 2,495 2,509 3,403 4,386 4,512

Tangible fixed assets 119 134 1,898 5,928 8,397

Operating invested capital 2,614 2,643 5,301 10,314 12,909

Goodwill 0 0 0 0 0

Other intangible assets 0 0 0 0 0

Investments 0 86 86 86 86

Other assets 8,373 8,513 8,500 8,500 8,500

Invested capital 10,987 11,242 13,887 18,900 21,495

Cash & equivalents (331) (721) (2,258) (3,338) (5,074)

Short term debt 0 0 0 0 0

Long term debt * 729 0 0 3,000 4,000

Net debt 398 (721) (2,258) (338) (1,074)

Deferred tax 0 0 0 0 0

Other liabilities 197 251 244 333 378

Total equity 10,392 11,712 15,901 18,906 22,191

Minority interests 0 0 0 0 0

Invested capital 10,987 11,242 13,887 18,900 21,495

* includes convertibles and preferred stock which is being treated as debt

Per share (HKD)

Book value per share 0.77 0.87 0.57 0.68 0.79

Tangible book value per share 0.77 0.87 0.57 0.68 0.79

Financial strength

Net debt/equity (%) 3.8 (6.2) (14.2) (1.8) (4.8)

Net debt/total assets (%) 3.3 (5.2) (12.7) (1.4) (3.8)

Current ratio (x) 4.5 2.8 4.6 4.6 6.5

CF interest cover (x) (10.3) 23.1 34.5 11.8 9.3

Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * 18.8 12.8 11.8 11.7 10.7

Recurring P/E @ target price (x) * 20.1 13.7 12.7 12.6 11.5

Reported P/E (x) 18.9 12.8 11.8 11.7 10.7

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

P/CF (x) 18.3 12.5 11.6 10.9 9.4

P/FCF (x) (15.2) 13.0 117.5 (17.2) 52.2

Price/book (x) 1.6 1.4 2.2 1.8 1.6

Price/tangible book (x) 1.6 1.4 2.2 1.8 1.6

EV/EBITDA (x) ** 13.4 9.5 7.0 8.6 7.2

EV/EBITDA @ target price (x) ** 14.3 10.2 7.6 9.2 7.8

EV/invested capital (x) 1.6 1.4 2.4 1.8 1.6

* Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income




Disclaimers and Disclosures

APPENDIX

DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S) (BNP Paribas Securities (Taiwan) Ltd)

ANALYST(S) CERTIFICATION

Esther C Chen, BNP Paribas Securities (Taiwan) Ltd, +886 2 8729 7065, [email protected].

The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certify(ies) that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst herein. Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/or FINRA regulations.

IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS "BNP Paribas” is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNP Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other entities within the BNP Paribas Group (collectively, "BNP Paribas").

The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:

Company Ticker Disclosure (as applicable)

N/A N/A N/A

BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months. 5. It beneficially owns 1% or more of any class of common equity securities of the subject company. 6. It makes a market in securities in respect of this company. 7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in

securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted. 8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from the

company.

IMPORTANT DISCLOSURES REQUIRED IN KOREA The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or recommended in this report:

Company Ticker Price (as of 15-Nov-2013 closing price) Interest

N/A N/A N/A N/A

1. The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (“BNPPSK”) by means of payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations.

2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company. 3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act. 4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the

transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares. 5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year. 6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act,

BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision shall apply only where tender offer has not expired.

7. the listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering into arrangement for public offering or underwriting-related agreement for issuance of stocks

8. The Company is recognized as having considerable interests with BNPPSK. 9. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the

following securities or rights (hereinafter referred to as “Securities, etc.” in this Article) regardless of whose name is used in the trading. 1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited. 2) Stock options of the Company whose securities dealings are being solicited. 3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.

GENERAL DISCLAIMER This report was produced by BNP Paribas Securities (Taiwan) Ltd, member company(ies) of the BNP Paribas Group. This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the recipient’s own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this report may not be available for sale in certain jurisdictions.



As an investment bank with a wide range of activities, BNP Paribas may face conflicts of interest, which are resolved under applicable legal provisions and internal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in this document, either for its own account or for the account of its clients.

Australia: This report is being distributed in Australia by BNP Paribas Sydney Branch, registered in Australia as ABN 23 000 000 117 at 60 Castlereagh Street Sydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 and therefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this document you agree to be bound by the foregoing limitations, and acknowledge that information and opinions in this document relate to financial products or financial services which are delivered solely to wholesale clients (in terms of the Corporations Act 2001, sections 761G and 761GA; Corporations Regulations 2001, division 2, reg. 7.1.18 & 7.1.19) and/or professional investors (as defined in section 9 of the Corporations Act 2001).

Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence.

Hong Kong: This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whose business involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a subsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities, providing automated trading services, dealing in futures contacts and advising on corporate finance. For professional investors in Hong Kong, please contact BNP Paribas Securities (Asia) Limited for all matters and queries relating to this report.

India: In India, this document is being distributed by BNP Paribas Securities India Pvt. Ltd. ("BNPPSIPL"), having its registered office at 5th floor, BNP Paribas House, 1 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 (Tel. no. +91 22 3370 4000 / 6196 4000). BNPPSIPL is registered with the Securities and Exchange Board of India (“SEBI”) as a stockbroker in the Equities and the Futures & Options segments of National Stock Exchange of India Ltd. and Bombay Stock Exchange Ltd. (SEBI regn. nos. INB/INF231474835, INB/INF011474831).

Indonesia: This report is being distributed by PT BNP Paribas Securities Indonesia and is delivered by licensed employee(s) to its clients. PT BNP Paribas Securities Indonesia, having its registered office at Menara BCA, 35th Floor, Grand Indonesia, Jl. M.H.Thamrin No.1, Jakarta, 10310, Indonesia, is a fully subsidiaries company of BNP Paribas SA and is licensed under Capital Market Law No. 8 of 1995 and the holder of broker-dealer and underwriter licenses issued by the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK). PT BNP Paribas Securities Indonesia is also a member of Indonesia Stock Exchange. Neither this research publication nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens except in compliance with applicable Indonesian capital market laws and regulations. This research publication is not an offer of securities in Indonesia. Some of the securities referred to in this research publication have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstance which constitute an offer within the meaning of Indonesian capital market laws and regulations.

Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments and Exchange Law Enforcement Order. BNP Paribas Securities (Japan) Limited is a financial instruments firm registered according to the Financial Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers Association, the Financial Futures Association of Japan and the Type II Financial Instruments Firms Association. BNP Paribas Securities (Japan) Limited accepts responsibility for the content of a report prepared by another non-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan.

Malaysia: This report is issued and distributed by BNP Paribas Capital (Malaysia) Sdn Bhd. The views and opinions in this research report are our own as of the date hereof and are subject to change. BNP Paribas Capital (Malaysia) Sdn Bhd has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of BNP Paribas Capital (Malaysia) Sdn Bhd. This publication is being provided to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of BNP Paribas Capital (Malaysia) Sdn Bhd.

Philippines: This report is being distributed in the Philippines by BNP Paribas Manila Branch, an Offshore Banking Unit (OBU) of BNP Paribas whose head office is in Paris, France. BNP Paribas Manila OBU is registered as an offshore banking unit under Presidential Decree No. 1034 (PD 1034), and regulated by the Bangko Sentral ng Pilipinas. This report is being distributed in the Philippines to qualified clients of OBUs as allowed under PD 1034, and is qualified in its entirety to the products and services allowed under PD 1034.

Singapore: This report is distributed in Singapore by BNP Paribas Securities (Singapore) Pte Ltd ("BNPPSSL") and may be distributed in Singapore only to an Accredited or Institutional Investor, each as defined under the Financial Advisers Regulations ("FAR") and the Securities and Futures Act (Chapter 289) of Singapore, as amended from time to time. In relation to the distribution to such categories of investors, BNPPSSL and its representatives are exempted under Regulation 35 of the FAR from the requirements in Section 36 of the Financial Advisers Act of Singapore, regarding the disclosure of certain interests in, or certain interests in the acquisition or disposal of, securities referred to in this report. For Institutional and Accredited Investors in Singapore, please contact BNP Paribas Securities (Singapore) Ptd Ltd for all matters and queries relating to this report.

South Africa: In South Africa, BNP Paribas Cadiz Securities (Pty) Ltd and BNP Paribas Cadiz Stock Broking (Pty) Ltd (hereinafter referred to as “BNPP Cadiz”) are licensed members of Johannesburg Stock Exchange and are authorised Financial Services Providers and subject to regulation by the Financial Services Board. BNPP Cadiz does not expressly or by implication represent, recommend or propose that the financial products referred to in this report are appropriate to the particular investment objectives, financial situation or particular needs of the recipient.

Switzerland: This report is intended solely for customers who are “Qualified Investors” as defined in article 10 paragraphs 3 and 4 of the Swiss Federal Act on Collective Investment Schemes of 23 June 2006 (CISA) and the relevant provisions of the Swiss Federal Ordinance on Collective Investment Schemes of 22 November 2006 (CISO). “Qualified Investors” includes, among others, regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes, regulated insurance companies as well as pension funds and companies with professional treasury operations. This document may not be suitable for customers who are not Qualified Investors and should only be used and passed on to Qualified Investors. For specification purposes, a “Swiss Corporate Customer” is a Client which is a corporate entity, incorporated and existing under the laws of Switzerland and which qualifies as “Qualified Investor” as defined above." BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the Swiss Federal Market Supervisory Authority FINMA. BNP Paribas (Suisse) SA is registered at the Geneva commercial register under No. CH-270-3000542-1. BNP Paribas (Suisse) SA is incorporated in Switzerland with limited liability. Registered Office: 2 place de Hollande, CH-1204 Geneva.

Taiwan: Information on securities that trade in Taiwan is distributed by BNP Paribas Securities (Taiwan) Co., Ltd. Such information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decision. Information on securities that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. BNP Paribas Securities (Taiwan) Co., Ltd. may not execute transactions for clients in these securities. This publication may not be distributed to the public media or quoted or used by the public media without the express written consent of BNP Paribas.

Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to an arrangement between BNP PARIBAS (“BNPP”) and Finansia



Syrus Securities Public Company Limited (“FSS”). The International Investment Advisory Team at FSS prepares and distributes research under the brand name “BNP PARIBAS/FSS”. FSS is not an affiliate of BNPP. FSS also publishes a different research product under the brand name “FINANSIA SYRUS,” which is prepared by research analysts who are not part of the International Investment Advisory Team and who may cover the same securities, issuers, or industries that are the subject of this report. The ratings, recommendations, and views expressed in this report may differ from the ratings, recommendations, and views expressed by other research analysts or research teams employed by FSS. This report is being distributed outside Thailand by members of BNP Paribas.

Turkey: This report is being distributed in Turkey by TEB Investment and outside Turkey jointly by TEB Investment and BNP Paribas. Notice Published in accordance with “Communiqué Regarding the Principles on Investment Consultancy Activities and the Investment Consultancy Institutions” Series: V, No: 55 issued by the Capital Markets Board. The investment related information, commentary and recommendations contained herein do not constitute investment consultancy services. Investment consultancy services are provided in accordance with investment consultancy agreements executed between investors and brokerage companies or portfolio management companies or non-deposit accepting banks. The commentary and recommendations contained herein are based on the personal views of the persons who have made such commentary and recommendations. These views may not conform to your financial standing or to your risk and return preferences. Therefore, investment decisions based solely on the information provided herein may fail to produce results in accordance with your expectations.

United States: This report may be distributed in the United States only to U.S. Persons who are “major U.S. institutional investors” (as such term is defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a “major U.S. institutional investor”. U.S persons who wish to effect transactions in securities discussed herein must do so through BNP Paribas Securities Corp., a US-registered broker dealer and member of FINRA, SIPC, NFA, NYSE and other principal exchanges.

Certain countries within the European Economic Area: This document may only be distributed in the United Kingdom to eligible counterparties and professional clients and is not intended for, and should not be circulated to, retail clients (as such terms are defined in the Markets in Financial Instruments Directive 2004/39/EC (“MiFID”)). This document will have been approved for publication and distribution in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas SA whose head office is in Paris, France. BNP Paribas SA is incorporated in France with limited liability with its registered office at 16 boulevard des Italiens, 75009 Paris. BNP Paribas London Branch (registered office: 10 Harewood Avenue, London NW1 6AA; tel: [44 20] 7595 2000; fax: [44 20] 7595 2555) is authorised by the Autorité de Contrôle Prudentiel and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request.This report has been approved for publication in France by BNP Paribas, a credit institution licensed as an investment services provider by the Autorité de Contrôle Prudentiel whose head office is 16, Boulevard des Italiens 75009 Paris, France. This report is being distributed in Germany either by BNP Paribas London Branch or by BNP Paribas Niederlassung Frankfurt am Main, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).

Other Jurisdictions: The distribution of this report in other jurisdictions or to residents of other jurisdictions may also be restricted by law, and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by the foregoing instructions. This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

All research reports are disseminated and available to all clients simultaneously through our internal client websites. For all research available on a particular stock, please contact the relevant BNP Paribas research team or the author(s) of this report.

Additional Disclosures Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative.

All share prices are as at market close on 15 November 2013 unless otherwise stated.

RECOMMENDATION STRUCTURE

Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B). The upside is 10% or more. HOLD (H). The upside or downside is less than 10%. REDUCE (R). The downside is 10% or more. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. * In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Industry Recommendations Improving (é): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Stable (previously known as Neutral) (çè): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating (ê): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.

RATING DISTRIBUTION (as at 18 November 2013)

Total BNP Paribas coverage universe 640 Investment Banking Relationship (%)

Buy 324 Buy 5.2

Hold 195 Hold 1.5

Reduce 121 Reduce 3.3

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report.

© 2013 BNP Paribas Group

18 NOVEMBER 2013 - 漢能薄膜發電集團

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