Hoku Traction 1-2 Years Away
Hoku Scientific, Inc. (HOKU - Snapshot Report), based in Kapolei, Hawaii, engages in the design, development and manufacture of Membrane Electrode Assemblies (MEAs) and non-fluorinated membranes for Proton Exchange Membrane (PEM) fuel cells. Hoku Solar markets and installs turnkey photovoltaic (PV) systems in Hawaii.
HOKU's $1.7 billion of polysilicon order backlog for up to 10 years from four solar companies represents a great growth story. However, its poly-silicon plant with the exit of Merrill Lynch (MER) is facing a capital crunch forcing the company to resort to dilution of its equity base. Also, the facility will not be operational before 2009, and will achieve full capacity only in 2010.
Until then, the company will have to depend upon its PV system installation business. This, along with a diminishing significance of fuel cells, increasing O&M [operations and maintenance] expenses leading to higher cost structure, earnings dilutive stock issuance and a strong competitive challenge in the alternative energy industry may present material risks to the company.
Therefore, we maintain our HOLD recommendation on HOKU common stock, with a six-month target price of $6.00. This represents 7.9% upside potential.