Coal Skyrockets, Coinbase Paycheck to Crypto & More...

1. Coal Prices Skyrockets as China Power Outage Deepens

BBC reported that China has in the past struggled to balance electricity supplies with demand, which has often left many of China’s provinces at risk of power outages. But this year, a number of factors have aggravated the situation. Demand for Chinese goods have picked up as the world reopens after Covid-19 pandemic. Manufacturers in China are producing more goods which require a lot more power.

On the other hand, the Chinese government has imposed rules to make the country carbon neutral by year 2060, which have seen slowdown in coal production. The price of coal has skyrocketed as electricity demand has risen. With the Chinese government strictly controlling electricity prices, coal-fired power plants are unwilling to operate at a loss, with many drastically reducing their output instead. Around 20 provinces are experiencing the crises of power outages, with factories temporarily shuttered.

The biggest producer and consumer of coal is China. Chinese State media reported about 20 provicial jurisdictions were hit by power cuts and factory closures as coal energy crisis deepends during winter season. This year Coal futures continued to break fresh records to $228 per metric ton, after gaining 27% in September, and adding 171% so far on the year.

2. Coinbase New Rollout allowing users to Deposit Paychecks into Crypto

Over the next few weeks, Coinbase (Nasdaq: COIN) will be rolling out a direct deposit feature that will allow US customers to convert their paychecks into crypto automatically.

Coinbase allows users to invest their savings into crypto to make short or long-term investemnts on a recurring basis and the company aims to become the consumer’s “primary financial account” within the next few years.

Users will choose what percent of their paychecks to deposit with Coinbase and then the currencies into which to convert: the USD or one of the more than 100 cryptocurrencies on its platform. Coinbase will not charge direct conversion fees but will earn a spread when buying and selling the cryptocurrencies. This service will become part of a broader Coinbase roll-out as it aims to become the consumer’s "primary financial account".

Coinbase’s existing 6.5 million existing users base give users or employees full control depositing as little or as much of their paycheck as they want. Other fintech players like Robinhood or Square has also emphasized that boosting the Cash App and Robinhood Crypto wallet recurring inflows as a top priority and such deposits have been the primary reason its gross profit increased.

With widespead adoption of crypto as payments globally, Singular believes that with payroll direct deposit, Coinbase will encourage the adoption and monetization of its trading, yield-generating, P2P and commerce products. Morever, Coinbase with its existing user base is likely contributing to an increase an user activity across the broader crypto ecosystem.

3. Solar Power Remains in Great Demand WorldWide

Sungrow (Sungrow Power Supply Co., Ltd.) is the world’s largest solar inverter producer by production volume with a market share of 27% - 30%. Relative to other inverter producers, market views Sungrow to have superior product quality and more established brand awareness. Solar inverter is a type of electrical converter which converts the direct current (DC) electricity to alternating current (AC).

  • In year 2020, Sungrow achieved strong revenue growth of 48.3% yoy and net profit margins of 10.1%, a strong improvement compared to net profit margins of 6.9% in year 2019.

  • Solar EPC contributes around 43% to the company’s total revenue, followed by solar inverter (39%), ESS (6%) and solar farm (5%).

  • Over the next 3 years, we expect Sungrow to continue achieve double digit revenue growth. Sungrow is currently trading at PE of 98x.

  • Other peers in the industries like Solar Edge is trading at 105x and Ginlong is trading at 134x.

While the share price of Sungrow has rallied, we think the company’s share price still has further upside given that they have the largest market share in the world with strong earnings growth.

4. Gotion High tech & Volkswagen to industrialize battery cell production in Germany

Lithium iron phosphate (LFP) batteries make up 90% of Gotion’s battery sales volume in year 2020. In the EV segment, markets are expecting more OEMs to launch LFP versions due to cost advantage of LFP over NMC ((Lithium-Nickel-Manganese-Cobalt-Oxide) batteries.

Gotion is operating in the lithium battery business and transmission and distribution of equipment business. The company offers Lithium ion phosphate batteries and materials, power battery packs, energy storage battery packs. The products of the company have applications in the pure electric passenger car, commercial vehicles, backup power systems, etc. Volkswagen owns 26.5% of Gotion High-Tech and both companies will work together to build unified NCM and LFP batteries as well as upstream supply chain management.

This is positive for Gotion and the company could be the unified cell supplier for Volkswagen in EU. Gotion High Tech is currently trading at PE of 376.07x, much more expensive compared to another peer in the industry, CATL.

Volkswagen’s Chinese battery partner Gotion High-Tech wants to achieve a battery cell production volume of 300 GWh by 2025, three times as much as previously planned. Cells from Gotion are also to come off the production line in Göttingen, Germany.