TPIC: Shuts Iowa/Juarez Facilities – Withdraws 2020 Guidance

We thought we’d pass along a snippet from our recent note on TPIC (4/23) – highlighting both its 2020 guidance withdraw, as well as the shutdown of its Iowa & Juarez facilities – which, while disclosed in subsequent filings, were not highlighted in the guidance suspension press release. For access information email us at [email protected]

TPIC: Newton Iowa Facility Latest To Be Affected By COVID-19. Earlier today TPIC announced it would pause production at its manufacturing facility in Newton, Iowa after 28 associates tested positive for COVID-19 last week. The Newton facility is set to be shut for roughly 1 week for deep cleaning and development of more advanced testing procedures for associates. Additional Updates: Not included in the press release was a series of updates to its other manufacturing facilities:

• Juarez, Mexico: 1 facility (of 3) temporarily closed due to an order from a division of the Mexico Secretary of Labor. TPIC said it plans to administratively challenge the order but that if it’s not reversed, the facility would be closed through 5/31.
• Matamoros, Mexico: Reduced capacity timeline extended from 4/30 to 5/31 due to the extension of Mexico’s sanitary emergency order and demands from its labor union.
• Chennai, India: Resumed limited production with additional personnel on 4/21 (previously targeted 4/15). Other facilities operating at normal capacity, including its 2 facilities in Izmir, Turkey which had been operating at 50% capacity for the first half of April.
• Guidance Suspension Not Surprising: As a result of the additional facility closures and the general unpredictability of the magnitude and duration of the pandemic, TPIC also announced it was withdrawing its 2020 guidance (Figure 1). The majority of TPIC’s Wind OEM peers and customers have already suspended guidance – making TPIC’s announcement seem largely inevitable – particularly after it had already tempered EBITDA expectations earlier this month (below). TPIC said it would provide an update on its Q120 earnings call (5/7) but we don’t expect a confident reset 2 weeks from now.
• That said, we do expect the revised guidance to be substantially lower – as we’ve already been modeling 2020 EBITDA 21% lower than the mid-point of….continued

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Renewable Energy: The Next Generation

Initiating Coverage Of ENPH, TPIC, REGI, & ENS

Executive Summary ……………………………………………….Page  5
Industry Overviews………………………………………………..Page 9
Near-Term Drivers.…………………………………………………Page 11
Solar …………………………………………………………………Page 14
Wind …………………………………………………………………Page 20
Biofuels ……………………………………………………………..Page 25
Energy Storage …………………………………………………….Page 30
Enphase Energy, Inc. (ENPH) …………………………………….Page 33
TPI Composites, Inc. (TPIC) ………………………………………Page 47
Renewable Energy Group, Inc. (REGI) ………………………….Page 59
Enersys (ENS) ………………………………………………………Page 70
Disclosures ………………………………………………………….Page 81

Rolling Out Our First Wave Of Renewable Energy Coverage: We are initiating coverage of REGI (Outperform, PT: $36), ENPH (Market Perform, PT: $33), TPIC (Market Perform, PT: $17), and ENS (Market Perform, PT: $55). As our historical energy infrastructure coverage has evolved, we’ve watched renewables consistently gain market share and play an increasingly competitive role in energy trade dynamics – particularly in the emerging markets, where we’ve seen prices come down, viability rise, and competitive flash points between traditional fuels, LNG, and renewables. Rather than focus solely on incumbent fuels and infrastructure, or solely on a potential bridge like LNG, we think it’s more prudent to cover energy transitions from every angle – hence our expansion into renewables.

Why These Names? We’re establishing a footprint in several renewable verticals: solar, wind, biofuels, and energy storage, creating a well-rounded platform that we can continue to expand. Within those verticals, ENPH, TPIC, REGI, and ENS were among the stocks most commonly highlighted by our clients as either underfollowed, misunderstood, or both. Although oil and gas (which remains the focal point of our legacy
coverage) still dominate global energy markets, it’s increasingly clear the future of energy is here – and it’s decarbonizing, innovating, and quickly becoming price competitive. We also think the group dovetails nicely with our skill-sets: analyzing SMID energy and infrastructure names with asymmetric risk/return profiles.

How Are We Tackling Renewables? There’s a reason why we were both drawn to and pushed toward this space – each company has a strong core business, at least one (or several) growth drivers, and the kind of significant shifting dynamics that can create particularly compelling risk/reward profiles.

COVID-19 Disclaimer: We continue to highlight our gratitude for health care providers and first responders during this time, and while our primary focus continues to be with the safety and well-being of our families, associates, and employees, the pandemic has certainly complicated our plans for initiation, however we think it’s important to have coverage through this period of uncertainty – rather than simply waiting for smoother seas. Each of our names have been and will continue to be greatly affected by the outbreak and associated economic downturn. Countries around the world have delayed energy auctions while agencies and data service providers have all begun to cut global supply and demand forecasts across all energy verticals. That said, it’s still too early to fully assess the potential impact on our industry- and company-level coverage. As a result, we are generally exercising caution with our ratings, price targets, and estimates until we get a broader view of the long-term disruption.

Investment Theses (Abridged)
Enphase Energy (ENPH) – Market Perform, PT: $33….continued (more…)

LNG Canada Update: Shell, Fluor, JGC, & Force Majeure

• **March 18 Update………………………………….Page 2
• Executive Summary…………………………………Page 3
• COVID-19 Impact……………………………………Page 4
• EPC Schedule Analysis……………………………..Page 5
• Site Labor Analysis 6………………………………..Page 6
• Site Labor EPC Cost Impact……………………….Page 7
• Conclusions…………………………………………..Page 8

Update: In light of yesterday’s announcement that the Shell-led LNG Canada project was cutting its staffing levels in half over the coming days, we felt it worthwhile to pass along our LNG Canada Update from late February, along with a slide on our updated thoughts. (Page 2)

COVID-19 Impact Updates
1. The World Health Organization (WHO) officially declared COVID-19 a pandemic on 11-Mar-20.
a. JFJV may have a stronger FM claim now that WHO has declared the COVID-19 a pandemic, to the extent that JFJV specifically has “pandemic” or “epidemic” listed as an FM event in their contract.
b. FM Impact of Chinese module fabrication yards…….Page 4

2. On 17-Mar, LNG Canada and JFJV both announced that JFJV’s on-site workforce in Kitimat would be halved in order to increase social distancing and help prevent the spread of COVID-19. Given that the announcement was made jointly between JFJV and LNG Canada – impact on FM/schedule relief.…..Page 5

3.While JFJV did not announce when the site at Kitimat would resume a full workforce, it took “several” weeks for workers to return to JFJV’s Chinese fabrication yards…..Page 5

LNG Canada Planned Vs Foretasted Progress – Where Were We In February, and Where Are We Heading Now?…..Pages 5-8

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Venture Global LNG: Costs Ramping At Calcasieu?

Headcount, Parking Data Suggest Material EPC Inflation

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• Construction Details:                                                           Pages 1-2
• Parking & Headcount estimates                                        Pages 2-3
• Previous CPLNG Cost Curve                                               Page 3
• Our New CPLNG Labor Cost Estimates                           Page 3 
• EPC Costs – Expanded                                                         Page 4
• Key Questions From Here                                                   Pages 4-5

Forcasted Ramp In Craft Labor Headcount Indicate Costs Likely Trending Above Plan. Recent filings indicate that Calcasieu Pass LNG’s (CPLNG) average on-site workforce is set to more than double compared to company Pre-FID plans, while also introducing a night-shift. While there are likely several variables in play here, we believe the data (analyzed in the pages that follow), suggests that CPLNG’s on-site craft labor costs could increase materially……(data and our estimates on pages 2-5).

Parking Lot Infrastructure: In addition to the craft labor increases, there’s usually an increase in both indirect construction support infrastructure and the associated cost for that infrastructure. An example of this phenomenon is the reported increases by CPLNG in parking lot infrastructure. While not usually top-of-mind, ancillary factors like parking carry a real cost for projects this large, and significant increase in parking requirements would be felt in a projects budget. This same correlation is true for other indirect costs like lunch tents, lavatories, office spaces, personal protective equipment, health & safety supervision, small tools and consumables, radios and other IT equipment, trash removal, security, craft training, and on and on. That trend in data over the past year shows….(continued on pages 2-3).

While there could be several explanations for the ramp in labor (too many to list within a single note), if we were stakeholders we’d want to understand what’s actually driving the ramp in labor, and how any associated overrun in direct and indirect costs are being accounted for by CPLNG. While our cost overrun estimate (pages 2-3) is just that – an estimate – we’re confident the
fundamental relationship between labor head count and project costs have us pointed in the right direction.
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