Investing in Sky Solar Holdings (NASDAQ: SKYS)

Will Sky Solar Crush it?

Written by Brian Hicks
Posted November 21, 2014

skysolarChina's downstream solar sector -- that is, distribution and wholesaling, physical installation, and project development-- has been seeing an increase in activity over the past couple of years.

With a glut of low-cost solar panels at home, and anti-dumping tariff disputes overseas, Solar companies began to seriously investigate their downstream options in 2012.

So far it's looking like a wise move for China's biggest solar companies.

Trina Solar (NYSE: TSL) for example, expects to build 400-500 MW of solar projects this year, accounting for some 12% of its total megawatt realization for the year. In 2013, not even five percent of its overall business came from its downstream projects.

Jinkosolar (NYSE: JKS) meanwhile, is considering a spin-off and relisting of its downstream business. The division posted a strong third quarter of 2014, with 15 projects totaling 488.5 MW under construction.

Both of these companies, however, have been concentrating on downstream opportunities within the Chinese market. 80% of Trina Solar's downstream projects, for example, are within China.

But there's a newly-public Chinese downstream solar company that has been shifting its downstream focus too. Where it was once building capacity in other countries, it's now focused on the wholesaling aspect. We feel it's worth a look.

It's Sky Solar Holdings Limited, now listed on the NASDAQ exchange under the memorable ticker SKYS.


Sky Solar Holdings bills itself as an Independent Power Producer (IPP), and it has built solar parks in every continent except Australia and Antarctica since its formation in 2009.

The company started out strictly as one that built solar parks, but it expanded in 2013, and moved into the sale of electricity from the parks it builds. Now that makes up the larger portion of its business.

The majority of its work thus far has been in Greece and Japan, but it's also built parks in The Czech Republic, Bulgaria, Spain, Germany, The United States and Canada. In total, it's developed and completed 198 parks with a total of 181 MW of power.

It also operates 53 MW worth of these parks, specifically ones in Japan,Greece, Canada, the Czech Republic, Bulgaria and Spain.

The company is currently expanding its footprint in South America and Africa, and there are over 1.3 GW of projects in development in nations such as Chile, Uruguay, and South Africa, as well as more projects in Japan and Canada. The company broke out this figure a little further in its IPO prospectus, and said 4.6 MW of this figure is fully under construction, 280.3 MW of this is "shovel ready", and the remaining 850 MW is in early development.

It expects 546.6 MW of this final number to move into the "shovel ready" category within 12 to 18 months.

On November 14, Aafter a couple of delays and a couple of major reductions in its target income from its planned IPO, Sky Solar officially went public.


Sky Holdings had revenue of $14.4 million and gross profit of $6.1 million for the first half of 2014. It incurred a loss of $8.2 million during this time because the company was "shifting our focus from selling solar energy systems to selling electricity as an IPP. "

Originally, the company planned to raise $138 million with an offering of 12.5 million shares at a range of $10 to $12, giving it a market value of around $604 million at the midpoint.

In early November, the company cut its range by more than a third, to as little as $7 per depository share (ADS).

It did a little better than that in the actual IPO on the 18th of November, with 6,353,750 ADSs with a price of $8 per ADS. These ADSs represent eight ordinary shares, so SKYS debuted at essentially $1 per share.

The net proceeds of this offering were estimated to be $46.1 million, and it enjoyed a decent pop on the first day of trading, rising as high as $13.30 per share.

The timing of this IPO was crucial. It occurred exactly one week before the company was scheduled to post its full-quarter earnings and reveal how its done since filing its prospectus at the end of the Spring.

If the company's numbers improve upon the progress made earlier in the year, SKYS will enjoy an immediate, post-IPO boost.

The company believes its position in the downstream market is sound.

"There has been a meaningful reduction in the cost of solar energy systems over the past five years. As a result, the levelized cost of energy, or LCOE, of solar is increasingly economically competitive compared to other forms of energy. Downstream market participants, which develop --and in many cases retain-- solar power projects, are benefitting from these favorable market trends, capturing higher margins and long-term income from power generation."

We'll see if the numbers agree.