Rising LED Lighting Leader
It is clear that FNRG is an underfollowed and relative unknown in the LED market. However, as the Company hits on some of its nearly $100M in projects up for bid, the stock could quickly trade to the $9.00 level.
U.S.-based ForceField Energy, Inc., (formerly known as SunSi Energies Inc.), is a global company whose diverse products and solutions focus on renewable energy with the objective of improving customers’ energy efficiency and reducing costs.
The Company operates in 3 distinct segments: Renewable Energy through its majority stake in waste heat recovery pioneer TransPacific Energy, LED Lighting via its exclusive North American distribution relationship with LED leader Lightsky, and TCS Production and Sale through its subsidiaries.
(This report’s objective is to highlight recent activity in the Company’s LED lighting business. For further background on LED and detail on ForceField Energy’s other business lines, refer to our SSIE report dated December 14, 2012 on our website:
ForceField’s LED Segment Overview: Clever Model & Tremendous ROI for Customers
ForceField Energy is the exclusive distributor in the U.S., Canada, and Mexico of Light Emitting Diode ("LED") commercial lighting products and fixtures for a premier LED manufacturer, Lightsky.
An LED is a semiconductor device which converts electricity into light. Recent advances in the performance of these LEDs have made LED lighting applications commercially feasible. Lumens per watt from an LED have increased to over 140 lumens today from only 55 lumens per watt just a few years ago making LED lighting a viable and economically attractive alternative to conventional lighting options. Through Lightsky, ForceField offers an array of commercial LED products for street lights, warehouses, parking garages and lots, exterior building facades, and indoor replacements for fluorescent fixtures.
LEDs are better at placing light in a single direction than incandescent or fluorescent bulbs. Moreover, due to their directional output, they have unique features that can be exploited by clever designs. Plus, LED lights are more rugged and damage-resistant than compact fluorescents and incandescent bulbs and don't flicker and emit no audible ‘buzz.’ In all cases, LEDs demonstrate very attractive potential levels of payback and return on investment.
The LED lighting industry, which is growing by more than 30% annually in the U.S., is also considered "green" due to the absence of dangerous chemicals and an accompanying significant reduction in energy consumption based on the application. LED’s can reduce energy consumption by up to 80%. The paybacks on LED replacements of commercial lighting are as short as 18-36 months, but will soon be in the 6-24 month range.
ForceField’s innovative LED model makes it hard for customers to say “no”. ForceField provides the LED lighting to the customer in a complete turnkey package that includes financing in some cases at no initial cost where Company will only share the value of the annual cost savings over a multi-year timeframe, thereby creating the potential for huge recurring sales and margins.
The Latest and Greatest
As noted above, ForceField is on a major business development tear. Since the beginning of 2013, management has achieved a number of milestone events. For example, aside from agreements announced in late 20123, the Company has signed a handful of new distributors for its LED lighting segment. These include:
In addition to the $5M in sales expected from this latest majority-stake acquisition, we estimate that ForceField Energy is bidding on active projects whose combined size could approach $100M, given the type of projects in question, and its model. For example, many of these projects tend to have multiple locations or sites. We believe that the bid in Costa Rica to provide and retrofit streetlights for LED lighting, a multi-million dollar potential deal, could be one of the most promising and would serve as a great reference project.
To ensure that the Company’s business model that essentially offers financing with “no money down” in exchange for recurring revenue in the form of estimated operating expense savings, ForceField recently secured commercial project financing for its potential customers, form two of the Top 10 banks in the U.S. The appetite for environmental project finance is huge and through these relationships, up to 100% of the cost of the project can be financed, regardless of size.
With all of this in mind, we anticipate that the “hit list” of potential customers and potential dollar value of active project bids will quickly jump to $100M. Moreover, with this financing availability, and an average 24 month payback period due to the benefit of conversion to LED lighting likely means that ForceField will strike gold on some of these current active bids in the coming months.
VALUATION AND CONCLUSION
Anyone following the LED space knows that in recent weeks Revolution Lighting Technologies (NASDAQ – RVLT) has become a proxy for the industry, despite the fact that it recorded $4M in sales last year. However, it has signed at least one deal that appears as if it will result in up to $10M in LED sales---which is great. As a result, the stock is on a tear, nearly doubling in price since April 1st to a $300M market cap.
While it is too early to say who will enjoy top-dog status, clearly ForceField Energy is poised to make some serious noise. The Company is partnered with Lightsky that has major deployments of its products across the globe, up to 100% project finance opportunities with major banks, and a brilliant model that should result in wins this year.
Therefore, we believe that ForceField Energy, which just changed its name from SunSi Energies, is simply mistakenly off the radar. It happens occasionally, but not for long. Still, this situation presents an unusual and potentially wildly profitable opportunity for savvy investors.
Considering that FNRG could generate sales in the tens of millions in LED alone this year, the stock should be trading significantly higher just for this segment alone. That essentially means that investors that buy FNRG would be “getting the renewable energy/waste heat ORC, and solar TCS businesses for free.” A back of the envelope review could assume that the current valuation for the LED business alone should be around half that of RVLT given its manufacturer and distributor relationships, model, and active bids. That would actually put it close to our $9.00 target!
We rate these shares Speculative Buy and recognize that until a few of these bids are won and recurring revenue occurs, the stock will be event-driven and difficult to forecast financials. As the model begins to be demonstrated to the Street, we believe that FNRG could reach $9.00 next year. We will have more clarity on our preliminary $40 million revenue forecast during 2Q13 and will make adjustments as necessary.
Analyst: Robert Goldman
GSCR was compensated by SunSi Energies, Inc. for research services via its Opportunity Research program in the amount of $8,000 in 2011. ForceField Energy Inc.’s status was upgraded to Select Research in December 2012. All information contained in this report was provided by the Company or through independent due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
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