AMSC Gets South Korean Contract - Analyst Blog

Power technologies company, American Superconductor Corporation (AMSC), received a contract worth more than $10 million from South Korea's Doosan Heavy Industries & Construction Company Ltd. to supply wind turbine electrical control systems. The company expects to ship the electrical control systems to Doosan in the period between the second half of 2011 and the first half of 2012.

American Superconductor is focusing on developing the offshore wind market in Asia, which is witnessing frenzied growth with the mushrooming of multi-megawatt wind energy systems. Per the industry research firm, IHS Emerging Energy Research (EER), global offshore wind accounted for only 2 GW of the world's 158 GW of wind power installed at the end of 2009. However EER predicts this nascent market to enter a period of rapid and prolonged growth, with installations rising sharply to 104 GW by 2025.

South Korean power plant builder, Doosan Heavy Industries & Construction, is a major engineering, procurement, and construction contractor in the global market. The company has so far built over 300 nuclear, thermal, combined cycle and hydro power plants, and is currently building more than 60 power plants around the globe.

American Superconductor offers an array of proprietary technologies and solutions spanning the electric power infrastructure – from generation to delivery to end-use. American Superconductor is a lead player in megawatt-scale wind turbine designs and electrical control systems.

American Superconductor also offers a host of smart-grid technologies for power grid operators that enhance the reliability, efficiency and capacity of the grid, and seamlessly integrate renewable energy sources into the power infrastructure. These include superconductor power cable systems, grid-level surge protectors and power electronics-based voltage stabilization systems.

American Superconductor generates a substantial portion of its topline from its largest customer Sinovel, China's largest and the world's third largest wind turbine manufacturer. Sinovel accounted for approximately 76% of its total revenues for the six-month period ending September 30, 2010. Besides customer concentration, the company is now trading at a considerable premium in terms of forward earnings estimates versus both its industry peers and the overall market. Near-term headwinds in its Superconductor segment and intense competition in the power system business also loom large over the valuation of the company.

Consequently, we advise investors to exit from the Zacks #5 Rank (Strong Sell) company in the near term. Over that period American Superconductor's Zacks #2 Rank (Buy) peers like Rogers Corporation (ROG) and Active Power Inc. (ACPW) look more attractive.