Update Alert and New Target for Hoku (Nasdaq:HOKU)

Aug 07, 2008
Author: SCP Editor

August 7, 2008 – Hoku (Nasdaq:HOKU) signed another mammoth supply deal this week worth $284 million over a 10 year period. This is on the heels of a $298 million deal it announced last week, adding up to a total of $584 million in supply agreements. These contracts come at a great time for the business, which is in the process of financing the build-out of its production plant in Idaho, given that both agreements call of immediate payments:

·         Jiangxi $298 million contract – initial deposit of $10 million with additional prepayments of $20 million by December, 2008 and an additional $25 million by March 31, 2009.

·          Tianwei $284 million contract – initial deposit of $15 million with additional deposits of $15 million by November, $10 million by January, 2009 and $5 million upon the first shipment. On July 30, we raised our target on the stock to $5.56 (from $3.80 on July 17) based on a FY2008 revenue target of $22 million, trading at a 5x P/S multiple, a significant discount from the current 27x P/S (ttm) that the stock is trading at.

The primary rationale was the Jiangxi deal which allayed concerns we had about substantial dilution based on capital requirements the business had to build out its production plant. Now, which this Tianwei deal, we are raising our target again, using an 8x P/S multiple on our expectations of $22 million in revenue for the year. The company really appears to be hitting significant stride and is reportedly oversubscribed on 3,500 metric tons per year of planned polysilicon output. So, at an 8x P/S multiple, we think the stock should be trading closer to $8.89, a 49% premium to the current $5.94 price.

Disclosure Note: SCPEditor is LONG HOKU.



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