5N Plus (TSX:VNP) Research Update

Highlights:

• Arrowhead is updating coverage on 5N Plus with a fair value bracket of CAD 3.95 to CAD 4.91 (share price on November 21, 2022: CAD 2.85) based on the Discounted Cash Flow (DCF) method
• 5N Plus (VNP) continued the business momentum seen in H1 2022, despite macro‐economic and geopolitical uncertainties, the company’s disciplined and focused commercial excellence strategy yielded a revenue growth of 30.6%, reaching USD 66.3 mn, compared with USD 50.8 mn in Q3 2021. For 9M 2022, revenue increased by 39.7%, reaching USD 203.2 mn, compared with USD 145.4 mn in 9M 2021. The growth in the revenue was supported by higher demand for the Specialty Semiconductors segment, as well as pharmaceuticals, and health in the Performance Materials segment
• 5N Plus announced a historic multi-year supply agreement with renewable energy leader First Solar for the supply of semiconductor materials associated with manufacturing thin-film photovoltaic (PV) modules. The largest award until now is expected to increase 5N Plus volumes by 35% in 2023 and by more than 100% in 2024, in line with First Solar’s growth plans
• The company, during the quarter, also announced the signing of a 10-year extension of its exclusive teaming arrangement with Sierra Space through its wholly owned subsidiary AZUR SPACE Solar Power GmbH (“AZUR”). The arrangement involves the production of a new solar cell, referred to as the MWT, for use in the production of Sierra Space’s unique Space Solar Surface Mount Technology solar array systems. The incremental revenue contribution from Sierra Space to AZUR is expected to reach c. USD 10 mn in 2023 and over USD 20 mn in 2024
• The company expects the St-Laurent project (Montréal, Canada) to be completed and commissioned during Q4 2022, despite delays due to contractor unavailability and delayed equipment deliveries
• The company aims to capitalize on the segmented approach to commercial partnering and value pricing. As a result, the company expects to sustain above-double‐digit growth rates over the coming years, underpinned by strategic partnerships in the renewable energy and space sectors, supported by growing demand from North America and Europe and from medical imaging applications
• The implementation of the company’s commercial excellence program and go‐to‐market strategies is expected to continue to gain momentum under the leadership of Roland Dubois. He will not only be responsible for leading and implementing the company’s program as it focuses on value‐creating commercial partnerships with clients by sector but also ensure the successful integration of AZUR, which is the key priority of the company