Cleantech Apollo Solar Energy Techzhf.hanergythinfilmpower.com/uploadfile/2017/0914/201709141117… · The dominant market for Apollo will be in China, the manufacturing hub of the

Apollo Solar Energy Technologies Holdings Limited (566.HK) is an amorphous silicon thin-film equipment and turnkey solutions provider. Apollo’s key value drivers are the yield throughput, single chamber deposition process, amorphous silicon/silicon germanium technology, and the ‘HK$19.84bn (3GW) mega contract’ with Hanergy, which comprises 60% of Apollo’s order pipeline. Thin-film Second Phase Investment Cycle — Investment in solar thin-film equipment is beginning its second phase investment cycle. Market opportunities for thin-film equipment suppliers are especially strong for those with key vacuum deposition tooling, such as that provided by Apollo, which makes up the majority of equipment spending.

Apollo’s Technology — Apollo’s technology edge lies with leading plasma-enhanced chemical vapour deposition (PECVD) technology for the deposition of photovoltaic layers on glass. Apollo’s customised turnkey amorphous silicon manufacturing equipment offers the lowest cost of production per watt for thin-film modules, along with superior yield. Over the last 12 months, using Apollo’s equipment, key customers had an installed capacity of 200MW. Hanergy Energy — Beijing-based Hanergy Energy is the largest privately-owned renewable energy generator in China, and also has operations in the US and Europe. Hanergy is predominantly a hydro power generator, with 2.4GW of operating assets in 2010 and a portfolio of 6.0GW (including development pipeline). On 20 May 2010 Hanergy completed a ‘mega contract’ order of thin-film PV module manufacturing lines worth HK$19.84bn (3GW) with Apollo, in exchange for a 25% shareholding upon completion. The contract is divided into three batches of production lines, and is to be produced and delivered in three years. Apollo has prepared the first of three deliveries. Hanergy has a stated target of installing 50GW of thin-film solar farm capacity by 2020, as it attempts to reshape the global solar industry. Risks — Upside risks: further investment from a potential strategic investor; improved customer order announcements; Hanergy receipts; new technology milestones. Downside risks: slow order delivery; negative amorphous silicon industry news. We initiate with a SPECULATIVE BUY rating and a price target of HK$1.11, a 66% premium to the current share price of HK$0.67.

Cleantech Apollo Solar Energy Tech

Speculative Buy Ready for Prime Time

Dean Cooper +44 (0)7747 700 842 [email protected]

Gurpreet Gujral, CFA +44 (0)20 7634 4771 [email protected]

19 November 2010 Apollo Solar Energy Technology Holdings Limited offers field-proven equipment and end-to-end manufacturing lines for the mass production of thin-film silicon solar modules. As a ‘spin off’ from GS-Solar, it was formed in November 2009 by merging Apollo Precision Limited, a company focusing on turnkey solutions for thin-film solar module manufacturing, with RBI Holdings Limited, a HKEx-listed company focusing on toy design and manufacturing

Market cap HK$3.09bn

Ticker 566.HK

Price HK$0.67

Shares in issue 4.6bn

52-week high/low (HK$) 1.58/0.49

Top shareholders

GS-Solar 10.04%

Yang Yu Sheng 8.69%

Dai Hai Dong 6.89%

Ming Tsui 5.54%

Edmond De Rothschild 5.20%

Share Price Performance (HK$)

Source: Bloomberg

Table 1: Financial Summary (HK$000)

Yr to Dec 08 09 10E 11E 12E

Revenue 511,810 717,442 4,604,320 8,890,480 7,936,000

Gross Profit 61,650 151,105 3,453,240 6,667,860 5,952,000

Profit/(Loss) (55,677) (124,494) 2,543,495 4,838,760 4,015,844

Cash Balance 51,770 153,637 3,289,293 8,609,450 13,113,442

Source: Company data, Ambrian estimates

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0.80

1.00

1.20

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Nov‐09 Feb‐10 May‐10 Aug‐10

Apollo Solar Energy Tech – 19 November 2010

Contents

Investment Thesis 3

Valuation 4

Company Overview 6

Customers 13

Thin-Film Industry 18

Second Phase Investment Cycle 18First Phase Investment — CdTe Breakthrough 18Volume Growth — International 19China Market Growth 19Thin-Film Industry 19Thin-Film Silicon 19Thin-Film non-Silicon 19Thin-Film Economics in China 20Impact on Polysilicon 20

Amorphous Silicon 21

First Generation a-Si — Single Tandem 21Second Generation a-Si/a-Si — Double Tandem 21Third Generation a-Si/Si-Ge — Double Tandem 21Structure 22Staebler-Wronski Effect 22

Apollo’s Cutting Edge Technology 23

Competition 26

Competitors that Have Left the Market 26Remaining Competitors 26Other Thin-Film Silicon Manufacturers 27Pricing 28

Management 29

Financials 31

Risks 34

Appendix 35


3

Investment Thesis

Apollo Solar Energy Technology Holdings Limited (‘Apollo’) provides amorphous thin-film silicon equipment and end-to-end manufacturing lines for the mass production of thin-film silicon solar modules.

As the thin-film silicon (and crystalline silicon) manufacturing industry embarks on the second phase of its investment cycle, market opportunities are plentiful for thin-film equipment suppliers.

Led by a group of industry-leading engineers with strong experience in thin-film, vacuum processing and precision manufacturing, Apollo’s key differentiators are:

The lowest cost of module manufacturing with largest throughput, achieved by using a single chamber production process and multiple pieces of glass.

Advanced amorphous silicon and silicon germanium (a-Si/SiGe) technology.

The solar business has the following product portfolio:

Proprietary plasma enhanced chemical vapour depositor (PECVD) for deposition of photovoltaic layers.

Proprietary magnetron sputtering devices for the deposition of conductive electrode layers.

Automated turnkey solution with a complete and fully-integrated manufacturing system for thin-film photovoltaic module

Figure 1: Integrated Turnkey Solutions with Flexible Module Design

Source: Apollo Solar Energy Technology

Apollo’s turnkey manufacturing equipment provides superior yield, combined with the lowest cost of production per watt for thin-film silicon modules.

Apollo’s integrated manufacturing lines using proprietary PECVD and PVD technologies position it favourably for the second phase of the thin-film equipment investment cycle, especially as demand focuses on suppliers of key vacuum deposition tooling, such as Apollo.

The dominant market for Apollo will be in China, the manufacturing hub of the world. This is shown by Apollo’s ‘mega HK$19.84bn contract’ with China’s largest private renewable energy generator, Hanergy Energy.

As the thin-film silicon (and crystalline silicon) manufacturing industry embarks on the second phase of its investment cycle, market opportunities are plentiful for thin-film equipment suppliers

Apollo’s turnkey manufacturing equipment provides superior yield, combined with the lowest cost of production per watt for thin-film silicon modules


4

Valuation

Apollo’s short-to-medium-term growth is underpinned by the HK$19.84bn contract with Hanergy. This provides a sustained growth profile for three years, and implies a step-change in the financial profile of the company.

We estimate revenues will increase from HK$717m in 2009 to HK$4.6bn in 2010 and HK$8.9bn in 2011. Given the company’s relatively strong profit margins (average of 51%), we expect this to have a dramatic impact on the valuation of the company.

The contract announcement was made during the summer of 2010, causing the stock price to jump to HK$0.91. However, since then, the price has trended down back to HK$0.67. We believe there are two significant reasons for this:

Some investors could be fearful of the potential dilution that is likely to occur when Hanergy subscribes to the shares and when existing option holders execute their holdings. The total number of shares outstanding is likely to increase from 4.9bn shares to 21.8bn shares fully diluted.

Given the size of the Hanergy contract, we believe some investors are sceptical that it will be completed, especially due to the fact that Hanergy’s financial position is not disclosed in any public forum.

While we sympathise with the latter point, we highlight Hanergy’s credibility as a renewable energy generator in this report given its relatively large portfolio of operating and pipeline assets. Hanergy has 2.4GW of operating hydro assets and annual free cashflow of approximately £250m.

Dilution is an obvious concern; however, we believe the potential upside from the growth profile of Apollo will outweigh any dilution impact for investors today. We forecast Apollo will generate HK$2.5bn and HK$4.8bn PAT in FY10 and FY11 respectively. This places the company on P/E multiples of 5x and 3x in for FY10 and FY11 on a fully-diluted basis.

In Figure 3 we highlight how an investment today is affected by dilution over the next five years, relative to the increase in shareholder value for the company.

The blue line highlights what the dilution impact would be if an investor buys 1bn shares in the company today. This will equate to 15% by the end of 2010 due to the first tranche of subscription shares issued to Hanergy. We forecast this will drop to 5% by the end of 2013, which is when the convertible bonds mature and are executed.

The green bar highlights the proportion of the Net Asset Value of the company this shareholder will own. The graph therefore shows that despite a reduction in the level of ownership through dilution, the shareholder’s stake (at diluted levels) of the net asset value of the company is greater than when the original investment was made.

Figure 2: Revenue Growth

Source: Ambrian estimates

We forecast Apollo will generate HK$2.5bn and HK$4.8bn PAT in FY10 and FY11 respectively. This places the company on P/E multiples of 5x and 3x in for FY10 and FY11 on a fully-diluted basis

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2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2008 2009 2010 2011 2012 2013 2014 2015

HK$


5

Figure 3: Dilution vs. Increase in Shareholder Value


Target Price

As shown below, we value Apollo using a blend of DCF- and Multiple-based valuations. As such, our target price is HK$1.11, a 66% premium to the current price. If the market priced Apollo at these valuations, then it would be trading on a forward P/E of 9x based on our FY10 forecast.

Table 2: Valuation Summary

Weighting Valuation

DCF 50% 8,837,758 Multiple 50% 15,260,967 Total Target Market Cap (HK$000) 24,098,726 Share price (fully diluted) 1.11

Source: Ambrian

Discounted Cashflow

Our DCF valuation is based on conservative assumptions: we used a discount rate of 15% and did not include a terminal value. This results in a valuation on a fully-diluted basis of HK$0.75.

Multiple Valuations

We apply a relatively conservative P/E multiple of 12x to our forecast 2010 profit after tax. This results in a valuation on a fully-diluted basis of HK$1.40. Given the growth profile of the business, we believe this is a low multiple to apply. Moreover, this is also low relative to its peers; as shown below, the average forward P/E of the peer group is around 14x.

Table 3: Peer Group

Stock code Market Cap (m) P/E (x) Fwd P/E (x)

Apollo Solar 566.HK HK$ 2,910 N/A 5

Oerlikon OERL.SW CHF 1,570 N/A N/A

ULVAC 6782.JP JPY 84,398 97 15

Centrotherm CTN.GR € 579 17 13

Applied Materials AMAT.US US$ 17,101 20 14

Trony Solar 2468.HK HK$ 8,668 10 15 Source: Bloomberg

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500,000

1,000,000

1,500,000

2,000,000

2,500,000

‐‐ 2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2010 2011 2012 2013 2014 2015

Shareholder Value (HKD 000s) % Ownership (left)

Increase in shareholder value on a fully diluted basis


6

Company Overview

Apollo Solar Energy Technology Holdings Limited, formerly RBI Holdings Limited, is an investment holding company listed on the Hong Kong stock exchange. The company’s current main business is the manufacturing of equipment and turnkey production lines for the manufacturing of silicon-based thin-film solar photovoltaic modules. It also has small business segments in: the design, manufacturing and sale of toys; the production of hybrid bus accessories; and property investment, all of which are diminishing both in scale and importance to the company.

In November 2009 RBI Holdings Limited completed the acquisition of Apollo Precision Limited, a company focusing on turnkey solutions for thin-film solar module manufacturing (‘Solar Business’), and changed its name to Apollo Solar Energy Tech Holdings Limited. Apollo Precision Limited had been spun-off from GS-Solar in December 2008.

In June 2010 Apollo announced a transformational transaction with Hanergy Energy. The business and strategic impact of this transaction is described elsewhere in this note, but its impact on the shareholder structure of Apollo is important to understand for an investor.

Figure 4: Apollo Shareholding — Pre- and Post-June 2010 Hanergy Transaction


The RBI/Apollo Transaction

RBI Holdings Limited was a Hong Kong-listed company. Through its holding company, RBI, its principal business prior to 2009 was the design, manufacturing and sale of toys to customers all over the world on Original Brand Manufacturing (OBM), Original Design Manufacturing (ODM) and Original Equipment Manufacturing (OEM) basis.

Appreciation of the RMB, rising staff costs and tougher testing requirements for toys in the global market had negatively affected profit margins (they fell from 21% for the year ending December 2007 to 12% the following year). For the year ending December 2008 the company reported a loss of HK$55.68m.

Lin Zhao-Hui Family

IDGManagement shareholders

of ApolloPublic

Apollo

45.3% 10.8% 9.7% 27.9%

Lin Zhao-Hui Family

IDGManagement shareholders

of ApolloPublic Hanergy

Apollo

34.9% 8.1% 7.22% 20.9% 25.2%

November 2011; Fully Diluted

July 2012 est. (after Hanergy subscription)

Hanergy equity subscriptionApollo Sale Convertible Bond

Existing HK-listed Shares Apollo Sales Convertible Bond + Share Options

China GoGreen*

6.1%

China Gogreen

4.6%

*The Sale and purchase of Apollo Sale Bonds with China GoGreen was announced on 3 November 2010, but will not complete until January 2011


7

The company had been actively seeking to maximise shareholder value and diversity for the group’s business since 1H09. At that time, with the profitability of the toy business declining, the company’s research into Chinese Government-backed solar energy suggested business diversification with a high potential for growth.

On 1 October 2009 RBI announced the proposed acquisition of Apollo Precision (in effect a reverse takeover) and a subsequent change of name to Apollo Solar.

Apollo Precision’s founder, Mr Lin Zhao-Hui, had previously been involved in solar through Quanzhou Licheng Golden Sun Lighting Co Ltd (from the 1990s). Zhao-Hui started to establish another company, GS-Solar, and construct his own a-Si thin-film production line with Mr Li Yuan-Min (Apollo’s current CTO) in 2006.

The transaction structure and consideration comprised the following elements:

RBI acquired the entire share capital of Apollo Precision for a consideration of HK$4,182.32m (c.US$339m). The consideration was made up as follows:

a. HK$367.37m by the issue of 279,153,413 ordinary shares at a price of HK$1.316/share.

b. HK$1,040.44m by way of a zero coupon First Tranche Convertible Bond with a conversion price of HK$1.316/share.

c. HK$2,774.51m by way of a zero coupon Second Tranche Convertible Bond with a conversion price of HK$1.316/share.

Both convertible bonds have a maturity of four years, but their conversion period is dependent upon the publication of certain audited accounts and the profitability of Apollo Precision as warranted by the vendors.

The sale of a 49% interest in the Toy Group (RBI) to the co-founder of the group and former director of RBI for HK$71m.

The change of the holding company’s name from RBI Holdings Limited to Apollo Solar Energy Technology Holdings Limited.

The purchase consideration for Apollo Precision was agreed upon after ‘arm’s length’ negotiations between the vendors and the company, with an ‘Adjustment to Purchase Consideration’ based on revenue for the 11 months ended 30 June 2010, and a P/E of approximately 9.8x guaranteed actual PAT of US$55m for the 11 months ended 30 June 2010.

Convertible Bond Transaction with China GoGreen

To assist with removing the overhang of the convertible bonds, Apollo disclosed a transaction by Mr Lin on 3 November 2010 for the sale and purchase of Apollo Sale Bonds at a consideration of HK$500m to an existing customer, China GoGreen. The principal amount of the bond is HK$329m. The sale purchase of the bonds is expected to be completed in January 2011.

The bonds are effectively a sale of 1bn shares of Mr Lin’s ownership, representing some 21.68% of the existing issued share capital (4.612bn shares) of Apollo. The terms of the convertible bond are unchanged.

We anticipate further transactions of this type in the upcoming weeks for Mr Lin to bring in strategic corporate investors and also to assist with removing the overhang. With Mr Lin’s sell-down, we would expect an expansion of Apollo’s shareholder base.


8

Toy Business

The toy business is becoming increasingly insignificant to Apollo’s future business. In 2010 profit contribution from the toy business is expected to be less than 10%. In the future we expect Apollo’s toy business to continue to scale back, as the business focuses on solar. We do not believe the toy business to be a drain on company resources and note that with improving economic conditions during 1H10 the toy business managed to break-even.

Apollo/Hanergy Transaction

On 20 May 2010 Fujian Apollo (100% subsidiary of Apollo) and Hanergy entered into a principal equipment sales contract (varied and supplemented by a supplemental sales contract) for a total contract value of US$2.55bn.

As a strategic partner, Apollo is also able to benefit from Hanergy’s substantial research and development base and gain brand recognition through the Hanergy deal, as Apollo becomes the largest provider of thin-film manufacturing turnkey solutions in the world.

In order to protect its interests, Hanergy will also become a strategic investor in Apollo, subscribing for 4.9bn shares at H$0.239/share.

This subscription price of HK$0.239 resulted from a 1 to 4 stock split of Apollo soon after the RBI transaction, also re-pricing the Apollo sale convertible bonds.

Equipment Supply

Fujian Apollo will produce and deliver 3GW of turnkey equipment in three phases. Hanergy will fund each batch in accordance with the sales contract and key subscription undertakings described below, and shown in Figure 5.

Figure 5: Hanergy Cashflow Payment Schedule/Share Subscription Timeline



9

Table 4: Apollo-Hanergy Sales Contract and Subscription Agreement

Sales Contract

Seller Fujian Apollo

Buyer Hanergy

Contracted for delivery 3GW of thin-film manufacturing turnkey solutions in three batches comprising 140 units of PECVD equipment, tools and machinery of Apollo’s Solar PV Module Production equipment

Consideration Total consideration of US$2.55bn (HK$19.84bn equivalent)

Payment Schedule 50% prepayment in three instalments:

First instalment within seven days after the receipt of: a) approval document for the transaction and relevant approval document granted by the PRC supervising authority to Hanergy; b) demand guarantee for an amount equivalent to the prepayment provided by Fujian Apollo’s bank

Second instalment within two months following payment of the first instalment

Third instalment within two months following payment of the second instalment

15% payment within seven working days from the date on which Fujian Apollo receives an acknowledgment receipt from Hanergy

10% payment within seven working days from the issue of a ‘start of production’ (SOP) certificate from Hanergy

10% payment within 12 months after the date of the SOP

15% within ten days after the expiry of the warranty period, which is a minimum period of 21 months after the date of the SOP

Refer to Figure 5 for cashflow payment schedule

Key Subscription Undertakings

Appointment of Directors Hanergy has appointed three directors to the board, which includes one non-executive independent director and two executive directors, one being the Chairman

Lock-up period The first share subscription lock-up period is six months

Non-competition clause Hanergy has provided an undertaking to Apollo that as long as Hanergy (or its subsidiaries or associated companies) holds not less than 10% of the issued share capital of Apollo, it will not engage in the business of production and sale of equipment and turnkey solutions of the manufacturing of thin-film solar modules

Non-dilutive issue Apollo has undertaken to Hanergy that it will not issue new shares, warrants, or other securities convertible into shares at any time before the third subscription completion, except shares or options issued for existing options/convertible bonds and those related to the Hanergy share subscription agreement

Non-disposal of important technology and patent

Apollo has undertaken to Hanergy that it will not transfer important technology and patents during the period commencing from the payment of the first instalment of the prepayment for the first batch of production lines until the completion of the delivery of all equipment under the sales contract, except if Hanergy does not comply with the obligations pursuant to the sales contract

Sales restriction Apollo has undertaken to Hanergy that, unless with prior written consent from Hanergy, it will not sell its equipment to any other party (outside of Hanergy) within the confines of: i) sales reaching 800MW; ii) sales to any region outside the PRC reaching 400MW; iii) sales to GS-Solar reaching 200MW; and iv) sales to any single company or a group reaching 100MW. This undertaking will be in effect until the completion of the delivery of all equipment under the sales contract, except if Hanergy does not comply with the obligations pursuant to the sales contract

75% board approval Apollo has provided an undertaking to Hanergy that all transactions with a monetary value of greater than HK$50m and all material contracts must be presented to the board for approval by not less than 75% of directors (excluding independent non-executive directors) and at least one director nominated by Hanergy

Source: Company data, Ambrian


10

Subscription

Hanergy’s 4.9bn subscription shares will take place in three tranches, with the first tranche having a lock-up of six months. The company has already stated that it has no plan to dispose of the shares.

The first 1.96bn shares will take place on the third business day after the payment by Hanergy of the entire pre-payment for the first batch of production lines — expected to be December 2010.

The second 1.47bn shares will take place on the third business day after the payment by Hanergy of the entire pre-payment for the second batch of production lines — expected to be August 2011.

The third 1.47bn shares will take place on the third business day after the payment by Hanergy of the entire prepayment for the third batch of production lines — expected to be July 2012.

Hanergy will also appoint up to three directors (out of a board of seven), including the Executive Chairman.

Options:

We show an additional 332,000,000 options which have been granted to management and external consultants with a conversion price of HK$0.25.

Hanergy has 602,448,000 options with a strike price of HK$0.72/share, exercisable during the period commencing the pre-payment of the first half of the sale of the first batch of production lines, up to five years after the granting date.

When comparing the value of the subscription shares to the HK$20bn in Hanergy contract value, the share transaction represents a 12% (HK$2.4bn) discount (based on the share discount at the contract signing date when the share price was HK$0.7) to the contract value. In the table below we illustrate the dilution effect of the Hanergy Subscription Agreement for shares when fully allotted and issued. Upon issuance these shares will rank pari passu in all respects among themselves and with shares in issue on the date of allotment.

Table 5: Hanergy Subscription Bond Structure

HK$0.24 Convers’

Price Share Count

Cash Received

Date est

2013 Dilution (Cum)

P/E (x)

Mkt Cap est

(HK$000)

Share Price est

(FD)

FD Share Price Gain (cum) Annualised

1st order 1.96bn HK$0.47bn Dec 2010 29.88% 12.00 30,521,935 1.4001 178.81% 178.81%

2nd order 1.47bn HK$0.35bn Aug 2011 42.71% 8.00 38,710,078 1.7757 253.60% 126.80%

3rd order 1.47bn HK$0.35bn July 2012 51.58% 6.00 24,095,065 1.1053 120.10% 40.03%

Options - Third Party 0.25 0.30 0.08

Options – Hanergy 0.72 0.60 0.43 Dec 2013 74.77% 4.00 20,840,300 0.9560 90.37% 25.82%

Apollo Sale Bond HK$ 0.24 11.40bn HK$2.72bn



11

Resulting Shareholder Structure

Ultimately we believe Hanergy and Mr Lin will hold equal proportions of ownership of Apollo in order to grow the company for mutual interest.

Table 6: Fully-diluted Shareholder Structure – following China GoGreen and Hanergy Transactions

January 2011

Immediately after 1st Hanergy Subscription

(Jan 2011E)

Immediately after 2nd Hanergy Subscription (Aug 2011E)

Immediately after 3rd Hanergy Subscription

(Jul 2012E)

# Shares % # Shares % # Shares % # Shares %

Public Shareholders 4,612,249,476 28% 4,612,249,476 24.4% 4,612,249,476 22.60% 4,612,249,476 21.07%

Hanergy or Hanergy Nominee

1,964,611,584 10.4% 3,438,070,272 16.84% 4,911,528,960 22.44%

Apollo Sale Convertible Bond Holders

11,427,513,724 69.80% 11,427,513,724 60.3% 11,427,513,724 55.98% 11,427,513,724 52.21%

Lin Zhao-Hui Family 45.37% 39.2% 36.39% 33.94%

China Go Green 6.11% 5.3% 4.90% 4.57%

IDG 10.81% 9.3% 8.67% 8.09%

Management shareholders of Apollo

7.63% 6.5% 6.02% 5.62%

Management Option Holders

332,000,000 2.03% 332,000,000 1.75% 332,000,000 1.63% 332,000,000 1.52%

Hanergy Options 602,448,000 3.18% 602,448,000 2.95% 602,448,000 2.75%

Total 16,371,763,200 100% 18,938,822,784 100% 20,412,281,472 100% 21,885,740,160 100%

Source: Company data, Ambrian

Share Repurchase Programme

Apollo announced in a circular plans to recycle 60% of operating profits into R&D or through a return to shareholders. For a Hong Kong-listed stock, the company will need to purchase HK dollars to effect a share repurchase.

We anticipate the company to follow an ongoing buy-back programme, partly to neutralise the 4.9bn share dilution concern potential investors may have with the Hanergy contract.


12

Site Locations

Apollo has three research centres — in Beijing, Tianjin and Quanzhou — and an assembly plant in Beijing. Customer support and training is based in mainland China and Hong Kong. Pilot plants are located in China for full-scale production testing, optimisation and customer training.

Customers are located throughout China, other Asia regions, North America and Europe.

Figure 6: Apollo Locations in Hong Kong and China


Xinjiang

Tibet

Qinghai

Gansu

ShandongShanxi

Hebei

Jilin

Heilongjiang

Inner Mongolia

HenanJiangsu

Shaanxi

Ningxia

AnhuiSichuan

Kunming

Guizhou

Hubei

Hunan

Zhejiang

Fujian

GuangdongGuangxi

Hainan

Taiwan

Jiangxi

Shanghai

Liaoning

Hong Kong

Quanzhou

TianjinBeijing

Beijing

►Manufacturing center

►Sales and service center

►Equipment R&D center (Yizhuang)

►Customer service and tra ining

Tianjin (NanKai University) R&D Center

►R&D base for Amorphous & Microcrystalline technology

►R&D center for thin film PV technology

Quanzhou

►R&D center for mass production & integration

►R&D center for integration of parameters, thin film PV materia ls, technology and equipment

Hong Kong

►Global headquarters

PhD7

Master9

University60

Others47

Management28%

Scientist24%

Engineer48%


13

Customers

Apollo has six existing customers: GS-Solar, Beijing ZhongJinYang, China GoGreen, Henan Argus, IC Energy (Vietnam) and Hanergy with its HK$19.84bn (3GW) ‘mega contract’. The Hanergy order comprises 60% of the current order pipeline.

Hanergy

Hanergy Holding Group Limited (the former Huarui Group) was founded in 1994. It is headquartered in Beijing, with subsidiaries and branch offices in a dozen Chinese provinces, as well as in countries and regions such as the US, the UK, the Netherlands and Hong Kong.

The Hanergy Holding Group is the largest privately-owned renewable energy enterprise in China and was also one of the earliest companies conducting wind project development in China. In 2003 Hanergy Holding Group won the international bidding for the Rudong wind farm, currently the largest in China.

This 100MW wind farm was the first wind power concession tendering project held by the National Development Reform Commission. The construction of this project commenced in March 2005.

Hanergy is a 100% renewable energy generator and aims to be the most powerful clean energy enterprise in the world by 2020. Its business is dominated by traditional hydropower generation, including the Jinsha river project at Jin’anqiao Bridge.

Jinsha River Project

Hanergy has a hydropower project at Jin’anqiao Bridge project in Jinsha River, launched in 2010, 2.4GW in size, with output at 11bn kwh. According to the hydropower tariff ranging between 0.24-0.3 RMB/kwh, this implies annual free cashflow generation of RMB3bn (£250m).

Hanergy is also involved in another ‘mega’ Jinsha river mid-stream project of 20-30GW in size and valued at over RMB200bn. Hanergy is part of a consortium involving China Power, China Energy and Datang. Hanergy has an 11% stake.

Inclusive of development projects, Hanergy has over 6GW of hydro projects as part of its portfolio. Hanergy is also building solar energy and photovoltaic research, with development and manufacturing bases in Guangdong, Sichuan, Heilongjiang, Tianjin and Tangshan, with a targeted capacity of at least 5GW.

The Hanergy Holding Group is the largest privately-owned renewable energy enterprise in China

The Jinsha river project was launched in 2010, is in excess of 20GW and valued at over RMB200bn. Hanergy is part of a consortium involving China Power, China Energy and Datang. Hanergy has an 11% stake (2.4GW) for an output of 11bn kwh at 0.24-0.3 RMB/kwhr. This implies annual free cashflow generation of RMB3bn (£250m)


14

Privately Owned

Hanergy is privately owned, with no individual investor owning more than a 30% stake. Chairman Mr Li Hejun is the founder and major shareholder; he is a politically well-connected, successful businessman. As a privately-owned company, there are no publicly available financial statements to show Hanergy’s financial position.

Mr Li Hejun — Native of Heyuan City, Guangdong

Established Hanergy through development of the Jinsha River middle stream hydropower project in 2002, becoming the leader of non-state-owned enterprises of large power construction, previously

monopolised by state-owned enterprises

Board Chairman and President of Hanergy Holding Group

President of New Energy Chamber of Commerce

Member of CPPCC

Member of the Standing Committee of All-China Federation of Industry and Commerce

Member of All-China Federation of Youth

Vice President of China Guangcai Career Promotion Society

‘Mega Contract’

Hanergy has a stated ambition to install 50GW of operating solar farms by 2020. To achieve this, Hanergy commenced an extensive evaluation process of available commercial solar technologies in 2008.

Believing cost/watt was a critical element of solar technologies reaching grid parity, Hanergy evaluated the market opportunity and technologies over 3-4 years with its 110 scientists. Hanergy selected amorphous silicon (A-Si) thin-film as its technology path and evaluated Applied Materials, Oerlikon, ULVAC, Leybold and Jusang as potential partners. In 2009 Hanergy signed a memorandum of understanding with the then largest global supplier — Swiss turnkey equipment manufacturer Oerlikon — to build a factory to the specification of Oerlikon.

Soon after the Oerlikon trial commenced, Hanergy was approached by Apollo and convinced to trial Apollo’s competing turnkey solution. This trial resulted in Hanergy converting to Apollo as its chosen technology provider, based on the following criteria in favour of Apollo:

Lower module efficiency cost — US$0.66/w vs. US$>1/w

Lower additional fabrication costs — US$0.15/w vs. US$0.6/w

Total capex costs — US$0.85/w vs. >US$1.1 (including TCO glass)

In May 2010 Hanergy then placed a ‘mega contract’ order for thin-film PV module manufacturing lines worth HK$19.84bn (3GW) with Apollo. This deal was consummated at normal market pricing to ensure the profitability of Apollo. The contract is divided into three batches of production lines, to be produced and delivered over three years.

The Hanergy deal will grow Apollo’s sales by more than 10x, and should ensure sales growth for the next 3-5 years.

Soon after the Oerlikon trial commenced, Hanergy was approached by Apollo and convinced to trial Apollo’s competing turnkey solution

The Hanergy deal will grow Apollo’s sales by more than 10x, and should ensure sales growth forthe next 3-5 years


15

To date Hanergy has signed contracts for building solar farms globally for 2.5GW, and plans to build 40MW in solar farms by end of 2010. Hanergy has also established its US and European divisions, and targets to build out 140MW solar farm in the US and 150MW in Europe next year. Details of Hanergy’s manufacturing plants are shown below:

Table 7: Hanergy Manufacturing Plants

Site Capacity Comment

Heyuan Thin-film Solar Module Research, Development and Manufacturing Guangdong 1GW A cornerstone laying ceremony was held on 12

January 2010 Shuangliu Solar Module Research Development and Manufacturing Base in Sichuan

1GW The opening ceremony was attended by Mr Sun

Anmin, standing member of National Congress

Shuangyashan Solar Module Research Development and Manufacturing Base in Heilongjiang 1GW

Hainan Haikou Solar Module Research Development and Manufacturing Base in Heilongjiang 1GW

Jiangsu Wujin Solar Module Research Development and Manufacturing Base in Heilongjiang 1GW


Hanergy Subsidiaries

Hanergy has associated business interests in subsidiaries Unipower in Texas, US, and Europe China Power, based in Amsterdam, the Netherlands.

Unipower — This is registered in the state of Texas, US, and aims to develop, invest in and operate renewable energy projects globally. To date, Unipower has 500MW of operating assets, including 350MW of hydro across four sites in China, and 250MW of wind projects in China. There are currently no US installations.

Europe China Power (ECP) — ECP is an investment fund (China Renewable Energy Fund — ‘CREF’) designed to be one of the first financing vehicles dedicated to investing in both existing and new renewable energy projects in China. CREF will consider investment in projects with total capitalisation requirements of between €7.5m to €150m.

To date, ECP has invested in the Netherlands-registered company Bora Solar, which has 15MW of projects in various stages of development in Bulgaria, France and Italy. The company plans to build 150MW solar energy power generation stations in Europe within three years.

ECP has also invested 25% in the Jiangsu Rudong Wind Park project. With a capacity of 100MW, the project’s total investment was US$100m and was completed in 2007.


16

Figure 7: Hanergy Headquarters Site Visit Figure 8: Hanergy Headquarters Site Visit

Source: Ambrian Source: Ambrian

GS-Solar

Headquartered in Quan Zhou, Fujian Province, China, GS-Solar is a private company founded in 2007, where operations commenced in February 2008.

The company has equipment assembling facilities in Beijing, China, and operates a research and development institute in Tianjin, China. GS-Solar has installed 150MW of Apollo thin-film solar since 2008. GS-Solar has sold 50MW of thin-film worldwide, with 90% of this volume sold outside China in 2008. In 2009, 60% of sales volume was outside China, with domestic projects including a 10MW project in Golmud in North Western China.

IKEA

GS-Solar was successful from more than 200 bidders in winning a European contract with IKEA to install building integrated photovoltaic (BIPV) modules on 350 IKEA sites (shopping malls, factories, car parks), with an expected total volume of greater than 1GW.

Figure 9: GS-Solar Customer Site Figure 10: GS-Solar Customer Site

Source: GS-Solar Source: GS-Solar


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Other Customers

Beijing ZhongJinYang — Beijing ZhongJinYang is a Beijing-based thin-film manufacturer with 75MW of installed Apollo equipment, which has been operational since 1Q10. The company is 40%-owned by GS-Solar, and 40%-owned by a local Beijing Government.

China GoGreen — China GoGreen Assets Investment Limited develops a-Si/SiGe thin-film solar photovoltaics with it JV partner, Zhengzhou High-Tech Start-up Investment Co Ltd (Zhengzhou High-Tech), which is controlled by the Zhengzhou Municipal People’s Government, Henan Province, and the PRC.

Henan Argus — Is a manufacturer of Thin-Film Amorphous Silicon SOLAR Modules in Henan Province, China, for global and domestic markets.

EVA Tech — Evatech is a Japanese television screen manufacturer that purchased Apollo PVD for its consumer electronics applications.

IC Energy (Vietnam) — Apollo announced on 3 November 2010 that it had entered into a sales and technology licence contract with a customer based in Vietnam (IC Energy) for a total sum of US$33m for the purchase of 30MW of a silicon-based thin-film solar module (‘TFSC Modules’) production line. The contract stipulates the manufacture of TFSC Modules together with a non-exclusive non-transferrable licence to use the technology for the production of the TFSC Modules.


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Thin-Film Industry

Thin-film volume growth remains in the shadow of crystalline silicon production due to the early adoption of crystalline silicon, lower conversion efficiency, and an intrinsic thin-film efficiency degradation mechanism.

In 2009 thin-film modules represented 18.2% of global production, according to Solarbuzz. Thin-film production volume in 2010 is forecast to be approximately 560MW, or 3-4% of global installation of PV modules.

Conversion efficiency has been the primary causal effect of greater adoption of crystalline silicon ahead of thin-film. A lower efficiency for thin-film silicon requires more land, racking, cabling and mounting systems to install a solar PV installation generating the same output as a comparable crystalline silicon plant. Conversely, there is a niche for thin-film silicon which is more suited to high temperature or cloudy environments.

Second Phase Investment Cycle

The thin-film (and crystalline) industries are on the cusp of a second phase investment cycle. Equipment spending on new manufacturing equipment for c-Si cell and thin-film panel fabs should grow by over 60% YoY during 2010, and then by the same amount again next year.

Consulting group iSuppli forecasts a CAGR of up to 30% over the upcoming 2-3 years as thin-film manufacturers embark upon a new phase of equipment spending, which will peak during 1H11, reaching record quarterly highs in excess of US$3bn. This second cycle of equipment spending into thin-film manufacturing equipment is well underway, having started during 2Q10. The European Photovoltaic Industry Association forecasts a CAGR for silicon-based thin-film of 85% through until 2014. During this time period, the industry will witness seven consecutive quarters of above-average thin-film tool spending across a wide range of thin-film technologies as established and new entrants seek to gain market share downstream.

Although c-Si investment mirrors the demand cycle of installation growth (Spain in 2008, Germany, Italy, Japan and others in 2010), thin-film investment remains motivated by the hope of realising a next-generation, disruptive technology that could offer significant cost advantages over today’s c-Si cell technology.

First Phase Investment — CdTe Breakthrough

The first cycle of thin-film spending occurred between 2006 and 2009 and was driven by a range of competing thin-film technologies. Capacity expansion during this time period was a combination of First Solar’s rapid growth (moving from around 80MW ramped quarterly capacity to 280MW) and strong sales from a-Si/ a-Si turnkey production lines from the likes of Applied Materials, Oerlikon and ULVAC. First Solar’s manufacturing cost reduction of 15% pa was the driver behind the technology adoption of Cd Te thin-film.

During Q108 to Q109, First Solar accounted for less than 15% of all thin-film equipment spending, yet produced more than 60% of all thin-film panels worldwide. The only other significant thin-film producer to experience strong growth during this time was Trony Solar, which — like First Solar — had developed a very strong level of in-house tool and process ownership. Trony had YoY productivity gains of more than 200% between 2008 and 2009.

The thin-film (and crystalline) industries are on the cusp of a second phase investment cycle


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Volume Growth — International Thin-film manufacturing volumes are growing rapidly. According to Bloomberg New Energy Finance, there was 0.9GW pa of commissioned thin-film silicon capacity at the end of 2009. In 2010 this is forecast to produce approximately 560MW, or 3-4% of global installation of PV modules.

Figure 11: World Thin-Film PV Module Production

Source: Solarbuzz, “Green World”

China Market Growth PV installations in China currently account for 1% of global capacity at 305MW, and this compares to China’s total electricity capacity of 874GW. The National Development and Reform Commission target for 2020 is 80GW, representing a CAGR of 35%.

Thin-Film Industry The thin-film industry is comprised of Thin-film silicon and Thin-film non-silicon. Within this definition there are four recognised thin-film technologies: Cadmium Telluride (CdTe) dominates thin-film market share at 63%, largely due to the fortunes of US-based First Solar (NASDAQ: FSL).

Thin-Film Silicon Silicon-based thin-film — A manufacturing technique that uses chemical vapour deposition of silane and other chemical gas. This deposition can produce amorphous silicon, micro crystalline silicon or silicon germanium alloy on glass depending on the chemical gas used and parameters setting. Silicon-based thin-film represents approximately 32% of 2009 global thin-film solar manufacturing capacity.

Amorphous Silicon — A variety of substrates are able to be used with amorphous silicon PV modules due to the low deposition temperatures, resulting in a broader array of end-user applications. Flexible a-Si modules are typically used for Building Integrated Photovoltaic products (BIPV).

Thin-Film non-Silicon Cadmium Telluride, or CdTe — The photosensitive materials cadmium and tellurium are used to produce a CdTe cell. First Solar is the dominant manufacturer using this thin-film technology. Cadmium is a toxic material, while tellurium is a rare earth component. CdTe represents approximately 63% of 2009 global thin-film solar manufacturing capacity.

Copper Indium Diselenide/Copper Indium Gallium Diselenide, or CIGS — CIS and CIGS are a multi-layered thin-film module using copper, indium and selenide. Indium and gallium are both rare earth metals. CIGS thin-film represents approximately 5% of 2009 global thin-film solar manufacturing capacity.

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010e 2011e 2012e 2013e 2014e

GW

Thin Film

Crystalline


20

Table 8: World Thin-Film PV Module Production

Silicon Based TF (including a-

Si) TF (CdTe) c-Si

Conversion Efficiency(2) 8+% 9-10% 13-15% Commercialization Rapidly Growing Catching up c-Si Mature Requirement for Si <1% of c-Si - Highly Dependant Consumption of Electricity Lowest Low Very High Environmental Impact / Energy Wastage Lowest Very High High Manufacturing Process Integrated Integrated Fragmented Production Cost/Capex per Watt Lowest ($1.0-$1.2) Low High ($2.5-$3.5) Current Module Price / Sales Price $1.25/watt $1.50-$1.80/watt $2.00-$2.50/watt Current System Cost $2.50/watt $ 2.75/watt + $ 3.50/watt Current Levelised Cost of Electricity $0.15/kWh $0.17/kWh $0.20/kWh Efficiency Reduction under Low Irradiance* Stable (thru 200W/M

2) - Decline Rapidly (<600W/M

2)


Thin-Film Economics in China

The Chinese Government currently subsidises all solar below RMB0.80/w. Thin-film solar becomes the favoured solar technology due to its lower cost structure (<RMB 0.80), that compares to RMB0.60 for coal peak load pricing and RMB0.20 for coal base load pricing. Thin-film modules are expected to be a viable substitute for coal peak load power production.

Table 9: Cost Comparison

US$/watt Open Market Apollo (current) Apollo (2012)

BoP US$1.2 US$1.30 US$1.30

Thin-Film Module US$0.9/w US$0.40/w

Total US$2.2 US$1.66

Kwhr equivalent 0.9 RMB 0.6 RMB

Feed-in-tariff cost/kwh <0.8 RMB

<0.8 RMB

Baseload Coal 0.20 RMB

Peaking Coal 0.60 RMB

Source: Apollo Solar Energy Technology, Ambrian estimates

Impact on Polysilicon

Competing crystalline silicon is forecast to price below US$1.40/w in 2011. To be competitive with thin-film, polysilicon producers will prioritise efficiency to compete against the cost advantage of a-Si. Polysilicon has a theoretical floor price based on almost 60% of polysilicon production cost being derived from electricity costs resulting from the high temperature cooking (1100º) of silicon ingots. Implicitly, the lowest long-run potential cost for polysilicon is US$26/kg, and in addition to the current processing cost of US$0.82/w (for low-cost integrated producer Yingli Energy), polysilicon module pricing is approximately US$1.32/w.


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Amorphous Silicon

When thin-film silicon technology was first used in 1976, the chosen technology was Amorphous Silicon, the technique to deposit silane gas — usually Plasma Enhanced Chemical Vapour Deposition (PECVD) techniques — onto a glass substrate to form a layer of conductive atoms that are a few hundred nanometers thick.

In the 1990s it was discovered that after adding hydrogen to silane gas used in deposition, it was possible to catalyse the silicon to grow into ‘micro-crystals’ forming micro-crystalline silicon (uc-Si). The limitation of a uc-Si technology is its high cost due to a low (80%) production yield rate. The benefit of a smaller crystalline structure is to alter the wavelength of sunlight absorbed, meaning a stacked structure of uc-Si and a-Si would improve the overall efficiency (from 6-7% to 8-10%) as a result of multiple wavelengths in a ‘tandem cell’. The downside of this under conventional manufacturing techniques is that more reactors are required, increasing the capex/MW, along with reactor time being 3x as long as for single tandem production.

First Generation a-Si — Single Tandem

Amorphous silicon was first commercialised in 2003 and suffered from a degradation rate of 30-40% in its initial six months, a low 3-5% conversion rate, and a solution that was not cost effective.

Lower market penetration was also affected by unstable power output and misunderstood outdoor characteristics, and this was further compounded by the recent failings of Applied Materials and its SunFab line customers.

Second Generation a-Si/a-Si — Double Tandem

In 2007 there was a technology breakthrough to a more cost effective cost base (<US$0.75/w), a degradation rate of <15% proven with TUV/UL certification, and a conversion rate of >6.5%.

Manufacturers of amorphous silicon modules resolved the initial problems by enhancing cell efficiencies, improving durability and long-term stability, and improved long-term performance with field experience. The a-Si/a-Si double tandem amorphous silicon has a relative advantage over crystalline silicon on a cost/watt basis. Moreover, a-Si thin film module has clear advantage over c-Si in its ability to generate power under low irradiance condition (200w/m2) and also under hot, sunny conditions due to its lower power-loss temperature coefficient and the higher module operating temperatures improving the performance of stabilised amorphous silicon modules.

There is also a lower annualised degradation rate for amorphous silicon (0.5-0.8%) compared to crystalline silicon (1.0%), while also being more stable.

Third Generation a-Si/Si-Ge — Double Tandem

In 2010, the third generation a-Si/Si-Ge double tandem thin-film technology has matured. Besides retaining all the advantages of second generation a-Si double tandem technology, the cost advantage has further been improved to US$0.66/w, with conversion efficiency enhanced to over 8%.


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Structure

Amorphous silicon describes a silicon-based thin-film technology on a glass substrate using layers of thin-film polysilicon, Germanium silicon alloy, amorphous silicon, and an intermediary layer.

Figure 12: A-Si:H/Thin-Film c-Si:H hybrid Solar Cell Structure

Source: Kaneka Corporation

Staebler-Wronski Effect

The Staebler-Wronski effect describes the light-induced degradation of a-Si:H solar cells over the initial hours of light exposure (the solar cells then degrade at a much slower rate after several hundred hours of light soaking).

Degradation relates to the erosion of conversion efficiency in the first year of operation before it reaches a stable state, which generally lasts for a further 15 years. Polysilicon also suffers from degradation, but this is limited to 1% pa.

Single tandem amorphous silicon once had a 45% degradation. This reduced to less than 15% for double tandem technology. Triple tandem junction technology is expected to have a degradation of less than 10%, meaning Apollo’s initial 11-12% triple junction conversion efficiency should stabilise at 10-11%.


23

Apollo’s Cutting Edge Technology Apollo’s leading edge technology is based on its deposition of layered thin-film conductive materials on a TCO1 substrate, to deliver higher yield and superior conversion efficiency. The key distinction of Apollo’s layered approach is the use of silicon germanium alloy and the thin-film deposition technology (PECVD and PVD).

Materials — Apollo’s layered structure comprises a transparent conducting oxide glass (TCO glass), back glass and conductive layers of amorphous silicon, silicon and germanium alloy.

Silicon-Germanium Alloy — Germane gas represents 5% of total costs (US¢5-6/w) and is used to form the silicon-germanium alloy which is used in Apollo’s turnkey solution. Germanium has the effect of elevating conversion efficiency.

Thin-Film Deposition Thin-film deposition can take place with a variety of front-end deposition technologies. Apollo’s expert technology is with plasma-enhanced chemical vapour deposition (PECVD).

PECVD Breakthrough

PECVD is a process used to deposit thin-films from a gas state (vapour) to a solid state on a substrate. Chemical reactions are involved in the process, which occur after the creation of a plasma of the reacting gases. The plasma is generally created by RF (AC) frequency or DC discharge between two electrodes, the space between which is filled with the reacting gases.

Apollo’s system encompasses a single chamber PECVD with up to 72 pieces of glass panels with a gross area of 57m2 (72 x 0.79m2) in one production line. This offers a significantly greater yield than competitors, with Oerlikon at 43m2, ULVAC at 9.2m2 and Applied Material’s 5.7m2. Apollo’s yield rate is 93% compared with local (60%) and foreign competitors (80%).

Due to technology specifically designed for thin-film solar module production, Apollo is able to reduce capex to customers to an industry best level of US$0.85/w.

Key Personnel

The key technical competence within Apollo is CTO Dr Li Yuan-Min, who has over 26 years’ experience in the thin-film business internationally across design and related engineering processes. Dr Li earned a PhD in applied physics from Harvard University in 1989 and has previously been president and CTO of US-based thin-film companies, EPV and Solarex. Dr Li joined Apollo from GS-Solar in 2006 where he and his R&D team designed and developed the unique single chamber-multiple pieces of glass PECVD technology, and increased efficiency from 5% to 8% through double tandem thin film technology.

IP Protection

All technical know-how and ‘technology secrets’ are well controlled by Apollo. As part of its intellectual property management, Apollo has inherent protection with the structure of its supply chain. Apollo sources 4,000+ parts from over 300 suppliers. Each supplier is replaceable and represents a small percentage of the entire manufacturing line.

1 TCO (Transparent Conductive Oxide) — Glass coated with TCI, similar to what is used in the LCD industry.

Apollo’s yield rate is 93% compared with local (60%) and foreign competitors (80%)

The key technical competence within Apollo is CTO Dr Li Yuan-Min, who has over 26 years’ experience in the thin-film business internationally across design and related engineering processes. Dr Li earned a PhD in applied physics from Harvard University in 1989 and has previously been president and CTO of a US-based thin-film company


24

Approximately 40-50% of these outsourced parts are from China, providing a competitive cost structure and cushion from future price hikes or supply disruptions. Each major group of parts has three different suppliers to ensure no shortage in supply, no price hikes, and no bottlenecks even if demand increases rapidly.

Apollo also has seven self-owned patents, 26 highly confidential technologies, and hundreds of unique elements of technical know-how.

Delivery Time — Apollo has a 90-120 day delivery period for a full turnkey solution compared with competitors that range between 9-20 months. Apollo also offers a guaranteed technology upgrade to all customers.

Figure 13: Delivery Time


Table 10: Apollo’s Turnkey Projected Production Costs

2009 2010 2011

Efficiency 7% 8% 9%

Uptime 80% 85% 90%

Yield 90% 92% 95%

TAKT 7.8 9.0 9.9

Direct material cost (US$/w) 0.55 0.48 0.42

Operation costs (US$/w) 0.20 0.18 0.14

Output (MW) 100 125 145

Total Mfg Cost (US$/w) 0.75 0.66 0.56

Wholesale selling price 1.00 (RMB 6.5) Source: Apollo Solar Energy Technology

Apollo’s manufacturing cost compares with First Solar’s (CdTe thin-film) US$0.76/w and Trony Solar’s (a-Si thin-film) US$1.09/w.

Best in Class Industry Certification

Apollo is the only thin-film PV turnkey supplier in China with both TUV/IEC (European) and UL (US) certification, which endorses the quality and safety of its equipment. These certifications are prerequisites for government funding, subsidies and for on-grid solar projects in the EU and North America, so are instrumental in Apollo expanding its potential markets globally.

As part of its sales and service offering to customers, Apollo also assists with customer certification and offers performance guarantees.

Turnkey order*

Fab designFab

constructionRecruiting Training

Laser scriberGlass

cleanerSoldering

Lamination annealing

Installation & system

integration

CVD 1100SPL 1800

FX 72

(60-90 days)

(30-45 days)

(45-60 days)

90-120 days for full turnkey delivery (Based on one 25MW turnkey order)

Apollo proprietary manufacturing

(45-60 days)

Selective delivery times for Thin Film turnkey suppliers

Company Customer Order Delivery Time*

Apollo Domestic Chinese client 50 MW 4 months

Oerlikon Solar Ersol 40 MW (2x20 MW) 9 months

Applied Materials Moser Baer 40 MW 20+ months

First Solar N/A 75 MW 12+ months


25

Technology Roadmap — Quest for Triple Tandem Technology

Apollo has successfully designed and developed a mass production line for the manufacture of Amorphous Silicon (a-Si)/Silicon Germanium (SiGe) double tandem junction thin-film PV modules. Its technology roadmap is described below and shown in Figure 14.

Double Tandem — The Amorphous and Microcrystalline Tandem technology iteration is trialling in mass production currently, with an expected conversion efficiency of 8-9%. The management suggested that Apollo will not launch this a-Si/uc-Si technology since the conversion rate is more or less the same as the current a-Si/Si-Ge double tandem technology.

Triple Tandem — The Microcrystalline Tandem technology when mature will be combined with the current amorphous silicon, silicon-germanium double tandem technology to form the Amorphous Silicon, Germanium Alloy, Microcrystalline Silicon triple tandem technology. This technology set is expected to deliver a stabilised conversion efficiency of 10-11% (11-12% initial rate) and is targeted for delivery in 2011-2012. Hanergy is expected to use this technology for its third 1GW order.

The management suggested that Apollo may launch the amorphous silicon, silicon-germanium alloy, silicon-germanium alloy triple tandem technology in 2011. This will be based on the current amorphous silicon, silicon-germanium alloy double tandem technology and thus is relatively easier. The conversion efficiency could be enhanced to around 10-11%.

Figure 14: Superior Yield Rates of >93% Under Mass Production


Amorphous-Si Tandem Amorphous Silicon Germanium Alloy (single)

Tandem

Amorphous and Microcrystalline Tandem

Amorphous Silicon Germanium Alloy Tandem

a-Si - SiGe -Microcrystalline Silicon

Technology Advancement

Conversion Efficiency

6%-7% 7.5%-8.5% 8%-9% 9%-10% 10%-11%

Late 2010


26

Competition

Bloomberg New Energy Finance states that there are at least 100 companies producing, developing or trying to raise money for thin-film silicon technologies.

Apollo’s most recognised competitors are Applied Materials and Oerlikon. In comparison to these competitors, Apollo’s technology was specifically designed for thin-film manufacture. In contrast, Applied Materials and Oerlikon started from a technology base for the TV screen TFT technology. Manufacturing for the television TFT market also requires a corrosive chemical agent to wash the deposition chamber, which increases the floor area to compensate for an environment for cyanide and large aluminium alloys.

We do not include First Solar as a direct competitor as it sells modules rather than turnkey equipment.

Competitors that Have Left the Market

Applied Materials

US-based Applied Materials is a solar, semiconductor and LCD equipment manufacturer. It acquired deposition equipment manufacturer Applied Films in July 2006, and has been a thin-film industry bellwether ever since. In July 2010 it announced it would discontinue sales of its SunFab turnkey thin-film silicon line, but continue providing customer support.

Sanyo (TSE: 6764)

On 23 July 2010 Sanyo scrapped plans it had announced in January 2009 to manufacture thin-film silicon modules. This came at a time when it had announced a module efficiency of 17.4% for its HIT product that uses a layer of amorphous silicon over a crystalline silicon wafer. This suggests Sanyo has deposition equipment similar to Apollo.

Suntech (NYSE: STP)

On 8 August 2010 Suntech announced that it would close its amorphous silicon thin-film production facility in Shanghai to focus on crystalline silicon. Suntech was using Applied Materials equipment, and had installed a 50MW production line.

Remaining Competitors

Oerlikon (SWVX: OERL)

Oerlikon is a Swiss turnkey tandem junction thin-film silicon line supplier. Oerlikon claimed in September 2010 that its ThinFab lines can manufacture modules for €0.50/w with a stabilised efficiency of 10%. We understand this is at pilot scale and needs to be proven at mass-scale production. Oerlikon claims its customers have made over 3m modules (over 400MW) to date.

QS Solar

QS Solar is based in Nantong, China, and manufactures 55-90MW of single junction a-Si modules using an undisclosed western technology provider — we would assume this to be Applied Materials. QS Solar claims to offer customers US$1.8/MW freighted from Shanghai.


27

Sharp Solar (TYO: 6753)

Sharp has established a leading position in thin-film using its proprietary technology from the display industry. Sharp has at least 320MW/pa of amorphous silicon manufacturing capacity in Japan and plans to reach 1GW in the next 12 months.

Sharp’s technology is purported to have a 12-13% conversion rate, at a higher cost of US$1.3/w, using a-Si/u-Si/u-Si triple tandem technology.

Trony Solar (HKG: 2468)

Trony Solar listed on the Hong Kong Hang stock exchange on 12 October 2010, raising US$224m. Trony uses silicon-based thin-film technology (a-Si) to manufacture PV modules. As at 31 March 2010, its annual manufacturing capacity was 145MW.

Trony produces solar modules with a 6.5% conversion efficiency at US$1.01/w, primarily for the off-grid solar market. Trony’s products do not have the conversion efficiency to compete with Apollo’s customers, which focus on building on-grid energy generation.

Table 11: Apollo Technology vs. Trony Solar

Apollo Technology Trony

Technology A-Si/SiGe Tandem a-Si/a-Si Tandem

Conversion Efficiency >8% 6%, 6.5%, 7%

Certification TUV, IEC, UL VDE, IEC

Manufacture Costs US$0.66/w US$1.01/w

- Raw Materials US$0.48/w US$0.75/w

- Labour US$0.02/w US$0.02/w

- Other overheads US$0.16/w US$0.224/w

Average Selling Price US$1.2/w US$1.76/w

Geographic Europe China, Thailand

Application Solar farms Off-Grid, BIPV

Source: Apollo Solar Energy Technology, Trony solar prospectus

Other Thin-Film Silicon Manufacturers

Table 12: Other Thin-Film Silicon Manufacturers

Manufacturer Country Annual capacity (MW) Technology

Unisolar (Nasdaq: ECD) US 178 Proprietary: a-Si

NexPower Taiwan 88 Memory chip

ENN Solar Energy China 60 Tandem junction silicon on glass

Kaneka Japan 55 Proprietary: a-Si on glass

Mitsubishi Japan 54 Proprietary: Tandem junction silicon on glass

EPV Solar US 50 Proprietary: a-Si on glass

Bangkok Solar Thailand 48 EnergoSolar equipment: a-Si on glass

Anwell Technologies China 40 Proprietary: a-Si on glass



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Pricing

Module pricing is currently US$1.21/w for Apollo a-Si customers compared to CdTe selling at US$1.4-1.5/w, and c-Si at approximately US$1.66/w. Apollo is able to sell the equipment to customers at US$0.85/w, and its technology allows its customers to manufacture the modules at a cost of US$0.66/w, hence it is able to sustain the US$1.21/w market pricing for modules, which is shown against competitors in the chart below.

Figure 15: Efficiency/Bankability-adjusted Supply Stack Estimates for 2011

Source: Greentech Media, 3 November 2010


29

Management

Executive Directors

Mr Frank Mingfang Dai

Mr Frank Mingfang Dai, aged 47, is currently a senior vice president of Hanergy Holding Group Limited. Mr Dai joined Hanergy Holding Group Limited in 2002, and has served as vice president and president of Unipower Inc, a branch company of Hanergy Holding Group Limited in the US, general manager of international finance department and asset management department of Hanergy Holding Group Limited and assistant president of Hanergy Holding Group Limited. Mr Dai has extensive experience in asset restructuring, mergers and acquisition, international financing and development of photovoltaic business. Before joining Hanergy Holding Group Limited, Mr Dai has been engaged in business management and market development in the People’s Republic of China, Hong Kong and the US for many years. Mr Dai graduated from the faculty of industrial economy management of (Shenyang University) in 1984 and later obtained a master’s degree in business administration (EMBA) in 2000 from the University of Texas at Dallas, US.

Mr Li Guangmin

Mr Li Guangmin, aged 34, is currently the vice department head of the fund settlement department of Hanergy Holding Group Limited. He joined Hanergy Holding Group Limited in 2002. He had worked for Beijing Crane Factory from 2000 to 2002. He graduated from Northern Jiaotong University, currently known as Beijing Jiaotong University, with a bachelor degree in accountancy in 2000.

Mr Xu Guo Jun

Mr Xu Guo Jun, aged 38, has been the CEO of the group since November 2009. Mr Xu obtained a degree in Economics from Xiamen University in 1993. Mr Xu has over ten years of experience in international trading of minerals and chemical products. Before joining the Group and Apollo Sub-Group, Mr Xu was the head of International Logistics and Procurement Department of GS-Solar Fujian Company Limited (GS-Solar Fujian) for one year, and before that he was the head of the International Trading Department of Fujian Minerals Trading Company for more than ten years.

Mr Peng Li Bin

Mr Peng Li Bin, aged 44, is the chairman of Apollo Sub-Group. Mr Peng obtained a degree in Economics from Hunan Finance and Economics Institute (currently known as Hunan University) in 1989. Mr Peng has over ten years of experience in the power generation industry in the PRC. Before joining the Apollo Group, Mr Peng was the President of the Administrative Department of GS-Solar Fujian for around two years, and has previously held various positions in a number of power companies, namely, the vice economist and assistant to the Chief of Guangdong Electric Power Plant.

Mr Jiang Zhesheng (Independent Director)

Mr Jiang Zhesheng, aged 69, is an Independent Non-executive Director. Mr Jiang is the Secretary General of the National Electricity Technology Market Association, a professor-grade senior engineer and a senior member of the Chinese Society for Electrical Engineering. He had held various senior positions in the Technology Division of Ministry of Water Resources and Electricity, the Technology Division of Ministry of Energy, the Technology Division of Ministry of Electricity and the Environmental Technology Division of the State Electricity Corporation in the past 20 years.


30

Mr Xie Boyang (NED)

Mr Xie Boyang, aged 56, is a member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), a member of the Social and Legal Affairs Committee of the CPPCC and vice chairman of China Nongovernmental Chamber of Commerce. He was a member of the Ethnic Group Committee in the Ninth National People’s Congress, a member of the Finance and Economic Committee in the Tenth National People’s Congress. He was the chairman of Minsheng Life Insurance Company Limited from 2007 to May 2010. From 1997 to 2007, he served as the vice chairman of All-China Federation of Industry and Commerce, he is also the vice chairman of the Association for the Advancement of China Guangcai Program, board chairman of China Guangcai Program Foundation and vice chairman of China Green Foundation. Mr Xie completed the EMBA Programme in 2005 at Cheung Kong Graduate School of Business and was awarded the degree of Executive Master of Business Administration.

Senior Management

Dr Li Yuan-Min

Dr Li Yuan-Min, aged 51, is the chief technology officer of the Apollo Sub-Group. Dr Li graduated in modern physics from University of Science and Technology of China in 1982 and obtained a master’s degree in physics from Harvard University in 1984 and obtained a PhD in applied physics from Harvard in 1989. Dr Li has over 26 years’ experience in international thin-film materials preparation, characterisation and deposition technologies, PV devices design, synthesis, analysis and optimisation, large-area PV module manufacturing and related process engineering, displays and optoelectronic devices and materials. Dr Li was also the president and chief technology officer of a thin-film PV company in New Jersey, US, and was a consultant to a number of PV companies in the PRC, Taiwan and the US. Dr Li joined the group in 2009.

Dr Hui Ka Wah

Dr Hui Ka Wah, Ronnie Jp, aged 46, is the chief financial officer of the group. Dr Hui is a specialist in Paediatrics. Dr Hui is also a CFA Charter holder and holds a MBA degree conferred by Universitas 21 Global. Dr Hui joined the Group in 2009.

Hanergy Management

Mr (William) Hejun Li

Mr (William) Hejun Li, Chairman and CEO of Unipower Inc, is the founder and Chairman of Farsighted Investment Corporation, the parent company of Unipower. After graduating with a BS degree from Beijing Jiaotong University in 1991, Mr Li founded his own company. In 1995, he transformed the company’s core business into hydropower and real estate. The Farsighted Group is the largest private company in the hydropower industry in China. Mr Li was ranked 23rd richest individual in the year 2003 by ‘New Fortune’, a Chinese magazine.

Mr (Gorge) Yong Wang

Mr (Gorge) Yong Wang, Chief Financial Officer of Unipower Inc, is currently the Vice President at Hanergy Holding Group, the parent company of Unipower. He is responsible for capital and finance management. In 1997, Mr Wang joined Farsighted Group as Financial Controller and Assistant President. Previously, Mr Wang was the Assistant President at Taishan Industry Investment Com, LTD, China. Mr Wang received his Pedagogy Bachelor degree from Capital Normal University, China.

Mr (Frank) Mingfang Dai (previously mentioned)


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Financials

Cash Profile

Apollo’s cashflow profile with its customer base aims to limit working capital requirements through a 50% down-payment upon customer orders.

Apollo also has the shortest turnaround time in the industry. Apollo is able to convert 90% of invoice value to cash within six months due to its rapid deployment schedule. In comparison, competitor Oerlikon requires 12 months to install an equipment line.

Figure 16: Cash Profile


Table 13: Half-year Results Comparison (HK$000)

Yr to Dec 1H10 1H09

Revenue 668,025 153,028

EBIT 230,679 (45,314)

PBT 118,924 (45,315)

PAT 37,240 (47,702)

Net Assets 6,001,593 5,904,143


Table 14: Income Statement (HK$000)

Yr to Dec 08 09 10E 11E 12E

Sales 511,810 717,442 4,604,320 8,890,480 7,936,000

Cost of Sales (450,160) (566,337) (1,151,080) (2,222,620) (1,984,000)

Gross Profit 61,650 151,105 3,453,240 6,667,860 5,952,000

EBIT (48,686) (86,996) 3,223,024 5,923,336 4,955,200

PBT (49,291) (109,399) 2,992,347 5,692,659 4,724,523

Tax (6,386) (15,095) (448,852) (853,899) (708,678)

PAT (55,677) (124,494) 2,543,495 4,838,760 4,015,844


Time: 0

50% Down payment

Time: 4th month

Installment payment

Time: 6th month

Full payment received Revenue Recognised

Assembly ~4 months Testing ~2 months Commercial production

Turnkey Solution Order Delivery of production line Full Delivery

APOLLO CLIENT


32

Table 15: Balance Sheet (HK$000)

Yr to Dec 08 09 10E 11E 12E

PPE 174,319 112,267 220,783 322,064 416,593 Prepaid leases 43,728 26,768 26,768 26,768 26,768 Investment properties 30,000 30,000 30,000 30,000 Goodwill 7,882,953 7,882,953 7,882,953 7,882,953 Intangible assets 435,441 435,441 435,441 435,441 Deferred tax assets 9,196 6,686 6,686 6,686 6,686 Total non-current assets 227,243 8,494,115 8,602,631 8,703,912 8,798,441

Prepaid land leases 1,064 932 932 932 932 Inventories 112,169 225,742 225,742 225,742 225,742 Trade and other receivables 52,341 211,530 211,530 211,530 211,530 Bill receivable 2,486 3,574 3,574 3,574 3,574 Deposits and prepayments 5,206 12,143 12,143 12,143 12,143 Financial assets 3,806 3,806 3,806 3,806 Pledged bank deposits 864 864 864 864 Cash 51,770 153,637 3,289,293 8,609,450 13,113,442 Total current assets 225,036 612,228 3,747,884 9,068,041 13,572,033 TOTAL ASSETS 452,279 9,106,343 12,350,515 17,771,952 22,370,474

Bills payable 711 711 711 711 Trade and other payables 24,431 55,085 55,085 55,085 55,085 Deposits and accruals 38,028 210,898 210,898 210,898 210,898 Tax liabilities 3,175 49,740 49,740 49,740 49,740 Financing accruals 230,677 461,355 692,032 Total current liabilities 65,634 316,434 547,111 777,789 1,008,466

Convertible bonds 2,802,885 2,802,885 2,802,885 2,802,885 Deferred tax liabilities 4,008 82,881 82,881 82,881 82,881 Total non-current liabilities 4,008 2,885,766 2,885,766 2,885,766 2,885,766 TOTAL LIABILITIES 69,642 3,202,200 3,432,877 3,663,555 3,894,232

NET ASSETS 382,637 5,904,143 8,917,638 14,108,397 18,476,242

Issued share capital 39,726 11,532 481,532 833,532 1,185,532 Reserves 342,911 5,713,654 8,214,425 12,971,907 16,920,296 Minority interest 178,957 221,681 302,958 370,413 SHAREHOLDER EQUITY 382,637 5,904,143 8,917,638 14,108,397 18,476,242



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Table 16: Cashflow Statement (HK$000)

Yr to Dec 08 09 10E 11E 12E

Net cash from operations 27,518 63,166 2,781,656 5,084,156 4,267,993

Interest received 397 251 Capital expenditure (6,745) (14,338) (116,000) (116,000) (116,000) Purchase of investment properties (28,254) Acquisition of subsidiaries 29,892 Changes in pledged bank deposits 2,794 Purchase of trading securities (40,369) Proceeds from sales and trading securities 37,018 Proceeds from disposal of PPE 13 601 Proceeds from sale of investment prop 12,542 Proceeds from disposal of prepaid lease 537 Proceeds rec from minority shareholders 71,000 Net cash in investing activities 6,207 59,132 (116,000) (116,000) (116,000)

Shares repurchased (81,970) Repayment of bank loans (40,000) Proceeds from issuance of shares 34,980 63,561 470,000 352,000 352,000 Share issue expenses (973) (1,589) Convertible bond exe Net cash in financing activities (5,993) (19,998) 470,000 352,000 352,000

Net (decrease)/increase in cash 27,732 102,300 3,135,656 5,320,156 4,503,993 Cash at start of the year 24,038 51,770 153,637 3,289,293 8,609,450 Effect of exchange rates on cash held (433) Cash at the end of year 51,770 153,637 3,289,293 8,609,450 13,113,442



34

Risks

Customer Concentration/Order Delay — Any delay in the Hanergy order will have a significant impact on the Apollo valuation, as Hanergy represents 60% of the current order book of Apollo.

Execution Risk — Apollo is a young company in terms of total equipment volume delivered, with only 50MW delivered in 2009 and 200MW since being established in 2006. Managing 4,000 supply components to achieve a complex turnkey equipment solution is a complex task, which highlights execution risk.

Funding — Apollo’s ability to meet orders is related to its working capital management. With the cash cycle used by Apollo and the nature of its business model being ‘asset light’, we see the demand on capital as being manageable.

Non-recurring Income — The business model of Apollo results in non-recurring revenue, with no annuity maintenance stream. This presents a risk of lumpy earnings, and necessitates a growing and consistent order pipeline to maintain high utilisation of plant and personnel.

Policy Risk — Demand for solar modules and solar equipment lines is highly correlated to government policy sustaining demand for solar modules until the sector reaches grid parity.

Technology Substitution — In the second investment cycle for thin-film equipment, there is a risk that there will be a competing technology developed that could achieve lower cost and higher efficiency than Apollo equipment and make Apollo technology obsolete. As well as competition from existing thin-film equipment, there is competition from improved efficiencies and cost from crystalline silicon, and third generation organic solar technology.


35

Appendix

Table 17: Customers with Existing SunFab Lines

Company Country Capacity Known sales Notes

Signet Solar Germany 20MW Several MW in Germany Despite considerable efforts to achieve bankability including buying insurance, filed for insolvency in August 2010. Seeking investors

Sunfilm Germany 145MW At least 5MW Went into administration in early 2010

ENN Solar China 70MW At least 5.5MW Has some proprietary developments

Suntech China 50MW None known Suntech wrote off its venture in August 2010

Best Solar China 130MW None known Crystalline silicon operations bought by LDK

Moser Baer India 40MW None known May benefit from local equipment requirements for Indian projects

T-Solar Spain 40MW None known T-Solar is still marketing its modules

Green Energy Technology

Taiwan 40MW None known Modules can be bought online

Malibu Solar 40MW None known JV between E.ON and Schüco

Masdar PV GmbH Germany 85MW Has some contracts with India

Has undergone several management changes

Source: Bloomberg New Energy Finance

Table 18: Oerlikon’s Customers

Company Country Capacity Known sales Notes

Astronergy (formerly CHINT)

China 30MW Some, mixed with the company's c-Si product

Has ordered a second manufacturing line

Auria Solar Taiwan 60MW At least some sold to German distributor Sinosol

Auria is a JV between LED maker Lite-On Technology and c-Si cell maker E-Ton Solar

CSG Solar Germany 25MW nominal None known 75% bought by Suntech in September 2008; now run mainly as a research centre

Baoding Tianwei China 46MW Contracts signed in 2009 for 78MW with a Chinese and a Thai project developer; delivery status not known

Made a follow-up order in July 2010

Bosch Solar Energy Germany 40MW At least 1.1MW built in Germany in 2008. Multi-year sales agreements signed in 2008 with developers Ralos and Sunworx; delivery status not known

Acquired as part of ErSol in August 2008; has had low disclosure since

Gadir Solar Spain 40MW None known Claims to be at maximum production in 2010, at 10% efficiency

HelioSphera Greece 60MW At least 2.8MW installed in Germany in 2010; 9MW with Italian distributor Tecnospot in March 2009

In December 2009, planned further 160MW plant in PA, US

Inventux Technologies Germany 33MW About 3MW in small projects around Germany

Further expansion was planned for 2010; unclear if this has been achieved

Source: Bloomberg New Energy Finance


36

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Research

Dean Cooper +44 (0)7747 700 842

Peter Davey +44 (0)20 7634 4764

Gurpreet Gujral +44 (0)20 7634 4771

Nick Mellor +44 (0)20 7634 4762

Werner Riding +44 (0)20 7634 4772

Brock Salier +44 (0)20 7634 4765

Sam Woodward +44 (0)20 7634 4756

Sales Team

Charles Bendon +44 (0)20 7634 4736

Jonnie Cox +44 (0)20 7634 4763

Sims Farr +44 (0)20 7634 4739

Tommy Horton +44 (0)20 7634 4738

Caspar Shand Kydd +44 (0)20 7634 4735

Trading

Cliff Banyard +44 (0)20 7634 4742

Lee Hunter +44 (0)20 7634 4753

Darren Knight +44 (0)20 7634 4752

David Mackay +44 (0)20 7634 4751

Nick Screech +44 (0)20 7634 4741

Operations

Mike Dack +44 (0)20 7634 4734

Documents

Cleantech Apollo Solar Energy Techzhf.hanergythinfilmpower.com/uploadfile/2017/0914/201709141117… · The dominant market for Apollo will be in China, the manufacturing hub of the