Hoku up huge on Polysilicon deal with Suntech Power
Hoku Scientific (HOKU) announced the signing of a definitive contract for sale and delivery of polysilicon to Suntech Power (STP) over a ten-year period beginning in mid-2009. As I write this the HOKU is up 63% in pre-market. It was up around 75% in after-hours yesterday. The contract also provides for an initial deposit of $2 million to Hoku upon signing and requires that Suntech make additional prepayments for products in the amount of $45 million.
HOKU also signed a similar deal back in January with Sanyo Electric Co. worth $370 million over seven years. The contract with Sanyo also included an initial deposit of $2 million. During the Sanyo deal in January the stock doubled overnight similar to what happened yesterday in after-hours. 
The Polysilicon plant is still in the process of being constructed in Pocatello, Idaho. The plant when completed will be capable of producing 2,000 metric tons of polysilicon per year. Hoku also intends to seek debt capital of approximately $150 million for the financing and construction of the plant. With the market cap of only 75.91M (before the Suntech deal was announced) the stock has lots of room to grow long term. However, this is only possible if they are successful in building the Polysilicion plant in Idaho. The fact that we have two big names in the solar industry (Sanyo and Suntech) backing them up is a positive sign for such a small company.
The stock price will experience huge swings both up and down until at least the company becomes profitable and finishes the polysilicon plant in 2009. Also according to a lot sources the Polysilicon shortage will end at the latest by 2009 so the margins won’t be as fat as they are now. I would wait for the stock to settle back down before going in long term. If you are momentum trader then you can probably give it a shot at these levels.
* No positions in HOKU or STP.
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June 25th, 2007 at 11:43 am
Hi, H.P.
I miss your weekly energy updates. Are you planning to continue them? I hope so.
Comment on HOKU - These guys are amazing. Within a year they have turned themselves from an IP company into a major polysilicon production company, and they haven’t broken ground on the plant yet! Plus, they aren’t using any of their own money. They are financing the plant with customer pre-payments and (hopefully) credit facilities that are backed up by the prepayments. Brilliant if it works, but if they miss any of their milestones, watch out, this will fall apart quickly. All of these prepayments depend on production and quality standards being met and shipments commencing next year! And all they need to do is get a power substation installed, build the plant, hire the people, install the reactors, and flip the switch… out comes product. At least they hope it goes that way.
I’m buying HOKU puts on price spikes, buying calls when it calms down again. I’m sure they will have more announcements to pump the stock.
Jon
June 25th, 2007 at 11:53 am
I will be starting to provide those updates in the next couple of weeks. HOKU is up another 18% today. The market is so good right now specially solar that it’s hard to short. I have FSLR puts expiring in September but the stock keeps going up. There is no stopping it. Be careful with HOKU as I didn’t expect them to announce back to back news like they did last week. I might buy some PUTS as well. I agree with you long term it COULD be a winner with emphasis on COULD. Good Luck and thanks for leaving the comment.