U.S. Production And Ethiopia Expansion Will Transform Long Term Prospects

Catalysts

About TOYO

TOYO Co., Ltd. produces solar cells and modules for utility scale and other solar power projects serving global markets.

What are the underlying business or industry changes driving this perspective?

• Ramp up to a 4 gigawatt run rate at the Ethiopia facility by October 2025 is set to increase output from a low tariff, lower cost region. This can support higher shipment volumes and potentially lift revenue and gross profit if utilization stays high.
• The move to U.S. module production in the Houston area, aligned with a made in U.S.A., for the USA approach, positions TOYO to supply domestic content in a market with rising electricity demand. This can support pricing power and help net margins.
• Consolidation of the VSUN brand, sales channels and customer base into TOYO unifies a long-standing U.S. utility scale presence under one platform. This can reduce commercial friction, support larger contract wins and benefit earnings over time.
• Reallocation of Vietnamese capacity toward regions not affected by elevated U.S. tariffs increases flexibility to serve high growth markets. This can smooth revenue mix and reduce pressure on gross margin from policy changes in any single country.
• Management’s focus on refining sourcing strategy and cost structure as new facilities mature, including the use of abundant green power in Ethiopia, targets lower unit costs that can help recover prior gross margin levels and support stronger net income.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming TOYO's revenue will grow by 108.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.7% today to 13.3% in 3 years time.
• Analysts expect earnings to reach $215.5 million (and earnings per share of $3.61) by about January 2029, up from $17.3 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 5.0x on those 2029 earnings, down from 13.4x today. This future PE is lower than the current PE for the US Semiconductor industry at 43.7x.
• Analysts expect the number of shares outstanding to grow by 5.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.76%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long-term thesis relies heavily on shifting production to lower tariff and lower cost regions such as Ethiopia and the U.S., but continued changes in global trade and tariff policy for solar products could limit that advantage, which would pressure revenue and keep net margins below the levels analysts are assuming.
• Management is ramping capacity fast, from 1.6 gigawatts shipped in the first half of 2025 to a planned 4 gigawatt run rate in Ethiopia. If global utility-scale demand does not absorb that output at attractive prices, TOYO could face overcapacity, weaker pricing and lower earnings than projected.
• Gross margin is already at 16.6% for the first half of 2025 compared with 19.3% a year earlier, with higher raw material unit costs and product mix weighing on profitability. If input costs stay high or customers continue to shift away from higher margin U.S. destinations, the path back to higher net margins becomes harder.
• Total operating expenses reached about US$30 million in the first half of 2025 compared with US$4.2 million a year earlier, driven in part by new facilities in Houston and Ethiopia and public company costs. If these fixed and semi fixed expenses do not scale efficiently with revenue, earnings and cash generation could fall short of expectations.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $18.0 for TOYO based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $1.6 billion, earnings will come to $215.5 million, and it would be trading on a PE ratio of 5.0x, assuming you use a discount rate of 13.8%.
  
• Given the current share price of $6.17, the analyst price target of $18.0 is 65.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.