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Wikler's Case Competition

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on 27 July 2014

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Transcript of Wikler's Case Competition

Saito Solar Case
Privately-owned photovoltaic (PV) solar panel manufacturer
Founded by Takuya Saito in 2002
Specializes in polycrystalline silicon-based PV modules
Services the residential and small commercial PV market
Reputation for superior customer service
Current Valuation
Threat
Analysis
PEST Analysis
Overview

Bright Ideas Consultants
Brittany Lerner Alexander Duplessie Justin Kollender Michael Cohen Saral Nigam
Strengths
Weaknesses
Opportunities
Threats
SWOT Analysis
Porter's 5 Forces
Political
Economic
Yen has depreciated against the dollar
Domestic exporters benefit
Feed-in tariffs reduce the costs of PV installation
Consistently low interest rates for borrowing
Technological
Japan is known for technological resources
Invested heavily in technology for solar energy
More efficient technology than Chinese competitors
Social
Nuclear power plant disaster
Concerned with health and safety
Solar energy is seen favorably
Looking to move away from nuclear power
PEST
Bargaining Power of Buyers:
Moderate
Threat of New Entrants:
Moderate-High
Production requires specialized knowledge of PV cells
Economies of scale are important to profitability
Rapid growth of the industry will make it very appealing to potential competitors
Competition within the Industry:
Moderate-High
Chinese manufacturers produce PV modules at a lower price
Market growth will create ample opportunity for other PV companies to expand
Saito holds an established niche in the residential and small business spaces
Bargaining Power of Suppliers:
Moderate
Mr. Yoshida's Valuation
Mr. Suzuki's Valuation
Mr. Saito's Valuation
Agenda
Company Overview
Policy Overview
1. Objective
2. Overview
3. Analysis
4. Comparable Case
5. Valuations
6. Conclusion
7. Appendix

Valuation: 5,000 million JPY
Valuation: 2,809 million JPY
Valuation: 7,695.4 million JPY
Sensitivity Analysis for
Long Term Growth Rate
and WACC
In response to the 2011 earthquake and subsequent energy crisis, there has been a new push towards renewable energy production
The Ministry of Economy, Trade, & Industry (METI) implemented a new feed-in tariff (FIT) effective July 1, 2012 as part of Japan's Renewable Energy Law

Feed-In Tariffs
Signature Solar – Feed-In Tariff for Retail

Signature Solar - Feed-In Tariff for Retail
Exceptional customer service
Expertise in the residential and small commercial solar markets
High-quality, efficient product
Falling revenues
Inability to compete with Chinese prices
The closing of Japan's nuclear reactors and rising rising crude oil prices are encouraging growth of renewable energy
Feed-in tariff
The commercial PV market is rapidly expanding
Increased competition in growing market
Cheap production of Chinese solar cells
2011 Earthquake
Shutdown of nuclear reactor --> electricity shortage
Economic damage to Japanese companies
Government Initiatives:
Feed-in tariffs
Capital subsidies
Tax benefits
Protection of Japanese manufacturers

Composition of the Japanese PV Market
Data from the European Photovoltaic
UK FIT Program
Comparable: Germany
2000

2004
2009
2012
Renewable Energy Law (EEG)
introduced with an initial FIT
equivalent to 72.15 JPY/kWh.
5% annual degression.
Objective
EEG amended with new
FIT of 65-88 JPY/kWh
New FIT rates introduced,
with planned annual
degression of 5.5-7.5%.
Each new FIT implementation spurred an approximately 4-5 year period of heightened growth.
Deutsche Bank
Climate Change
Advisors
Objective
Determine an Enterprise and Equity Value for Saito Solar using Discounted Cash Flow (DCF) analysis
Recommend a selling price for Saito Solar based upon our analysis

FIT Rates and PV Energy Production
First Growth Period
Second Growth Period
Period of excess return (before constant growth) is approximately 5 years
Initial growth will be highest with slow decline after
First year growth rate of 30%, second year growth rate of 22%, third year growth rate of 15%, 5% decreases in growth the next two years
2% terminal growth rate
Saito Solar's 10% WACC is reasonable
Operating margin will improve to a point
Marketing and Selling and G&A were kept at the same percentage of sales as predicted by Saito Solar
Assumptions
Our Valuation
Conclusions
Questions?
Suppliers must meet buyers' demands for product quality
Buyers are price-sensitive
Few substitutes for PV inputs (e.g. purified silicon)
Product is highly differentiated
Buyers are motivated to buy high-quality models over cheaper models (less price sensitive)
Buyers purchase in relatively low volumes
Very few alternatives to solar are feasible in an urban environment for earning the FIT
Appendix
Sensitivity Analysis
Threat of Substitutes:
Moderate
Wide variety of renewable resources (wind, geothermal, etc.) which are also being supported by the FIT
Few of these are possible to implement in an urban environment and have high costs, so the average consumer cannot take advantage of these
Rising crude oil prices
Total Equity Value: 7733.13 million JPY
Minimum Firm Value:
7733.13 million JPY

Price for Controlling Interest (51%) in Equity:
3943.89 million JPY

Assumptions
Ministry of Economy, Trade, & Industry

Feed-In Tariff Plan for 2012

Japanese Photovoltaic Energy Association
Sources
Bloomberg Professional
Japanese Photovoltaic Energy Association - Statistical Information <http://www.jpea.gr.jp/en/statistics/index.html>
Ministry of Economy, Trade, & Industry - Feed-In Tariff Scheme in Japan
Deutsche Bank Group - DB Climate Change Advisors: The German Feed-in Tariff for PV
Signature Solar - Feed-In Tariff for Retail Graphics <http://www.solar-signature.com/fitretail.php>
European Photovoltaic Industry Association - Global Market Outlook for Photovoltaics Until 2016: Japan (2012)
IHS Technology - <http://technology.ihs.com/435734/japan-set-to-become-worlds-largest-solar-revenue-market-in-2013-as-installations-boom-in-q1>
Institute for Sustainable Energy Policy - Renewables 2012 Japan Report <http://www.isep.or.jp/wp-content/uploads/2012/07/JSR2012_Summary_ENG0702.pdf>
Ecology.com - Renewable energy in Japan http://<www.ecology.com/2014/01/07/renewable-energy-in-japan-current/>
PwC - Power & Renewable Enegy Deals <http://www.pwc.com/en_GX/gx/utilities/publications/assets/pwc-power-and-renewable-deals-2013-outlook-and-2012-review.pdf>
BP -Natural Gas Prices http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy-2013/review-by-energy-type/natural-gas/natural-gas-prices.html
Bloomberg NewsWeek, Carnage on the Natural Gas Market http://www.businessweek.com/articles/2014-02-27/carnage-on-the-natural-gas-market
IBISWorld, Solar Panel Manufacturing Industry http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=754

Lead Competitors in the PV Market
Solar Frontier
Mitsubishi Electric
Panasonic: Sanyo Solar
Kyocera
Sharp
Our Valuation
Our Valuation
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Full transcript