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Zacks raises price target on SunSi again

12/27/2011

Steven Ralston, CFA

A year-end review of our income statement forecasts and valuation model supports an increase of our price target for SunSi Energies (SSIE). In September, SunSi’s management issued guidance for fiscal 2012, stating that revenues are expected to be in the range of $49 million to $52 million compared to $15.1 million in fiscal 2011, primarily due to recording a full year of revenue from Baokai and Wendeng, but also from the increase of TCS capacity at the Wendeng trichlorosilane facility from 20,000 metric tons (MT) to 30,000 MT. Later on October 17th, SunSi reported fiscal first quarter results, and revenues at Wendeng were on target despite weak TCS pricing. Fine-tuning our quarterly income statement estimates, confirms the company’s ability to expand its revenue base to $51 million and compels us to raise our price target to $5.25.

Having expanded the capacity of the Wendeng trichlorosilane facility by 50% from 20,000 MT to 30,000 MT, management also plans to initiate a second expansion phase in order to bring total capacity to 75,000 MT when funding is secured. The Wendeng trichlorosilane production facility, in which SunSi Energies owns a 60% interest, is scalable.

Using a valuation methodology based on price-to-sales due the character of SunSi’s enterprise (namely a small-capitalization company crossing over to profitability and with a sales profile that should grow through acquisitions and capacity additions), we expect SunSi’s stock to trade at the top-end of our estimated valuation range of 1.1 and 3.2 times sales. Factoring the increase of shares outstanding (assuming the financing of the capacity addition with equity and the non-controlling party paying $5 million of the required $15 million capex), a 3.2 price-to-sales valuation projects at price target of $5.25

We reiterate our Outperform rating as we raise our price target to $5.25.

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