Industrial gas producer, Air Products and Chemical’s Inc. (APD) has inked a long-term gas deal with a leading Malaysian photovoltaic manufacturer. Under the terms of the contract, Air Products will supply its SunSource™ Solutions gases such as nitrogen, hydrogen, argon, oxygen, silane, ammonia and nitrogen trifluoride, gases equipment and services to the clients’ crystalline photovoltaic facility in Melaka, Malaysia. Air products stated that the undisclosed California-based customer with manufacturing facilities in Philippines is engaged in the business of crystalline solar module technology and plans to ramp up capacity at its Melaka solar cell manufacturing plant to more than 1 Gigawatt of solar cells per year by 2012. Financial terms of the transaction were not disclosed.
Air Products expects the contract to strengthen the electronic material business under its Electronics and performance material segment, which constitutes about 19% of its total revenue. Through the Electronics and Performance Materials segment, Air Product offers specialty gases including nitrogen trifluoride, silane, arsine, phosphine, white ammonia, silicon tetrafluoride, carbon tetrafluoride, hexafluoromethane, critical etch gases and tungsten hexafluoride, as well as specialty chemicals, services and equipment used in the production of silicon and compound semiconductors, thin film transistor liquid crystal displays and photovoltaic devices. This segment also provides performance materials primarily for coatings, inks, adhesives, civil engineering and personal care products.
Air Products’ Electronic gases continue to be the primary growth driver, with a robust liquid crystal display market generating the maximum demand for electronic gases. The company sees operating margins of 15% from the Electronics and Performance Material segment in 2011.
Gases like nitrogen, oxygen and hydrogen are produced under Air Products’ Merchant Gases segment, which forms about 44% of the company’s revenue. We believe refinery hydrogen, where refiners are required to meet lower sulphur specifications, represents a good opportunity for Air Products. Air Products remains focused on refinery hydrogen, which yields around 30% of its revenue. With an incremental global hydrogen demand in the next 10 years, the company banks on the refinery projects in its pipeline.
Besides, Air Products is also solidifying its position in the emerging markets. The company has recently announced a joint venture based in Sichuan, China to build a hydrogen production facility for PetroChina Company Limited by 2012. This is a huge positive as it is the first time that a state-owned refinery in China has outsourced its hydrogen supply. Oxygen demand is also expected to grow, driven by demand in the emerging markets. Asian infrastructure growth, the Chinese coal gasification and carbon dioxide capture globally provides significant opportunities for oxygen.
We saw a similar contract win by industrial gas supplier Praxair ( China ) Investment Co. Ltd, the Chinese unit of Praxair Inc. (PX) and Air Product’s close peer. Praxair entered into a contract with Hong Fu Jin Precision Industry (Shenzhen) Co. Ltd, the wholly-owned subsidiary of Hon Hai Precision Industry Company Ltd, for supplying nitrogen. The contract strengthens Praxair’s foothold further as a leading industrial gas supplier in the Southern regions of China .
We are encouraged by Air Products’ new contract wins across the industrial gas arena in recent months and believe that it is a reflection of the company’s success across the developing markets of Asia, where Air Products has a strong presence. Currently, Air Products is a short-term (1 to 3 months) Zacks #3 Rank and a long-term (6+ months) Neutral recommendation.
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