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Canadian Solar is a Good Bet

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Canadian Solar is a good investment option

Canadian Solar (CSIQ) gave its Q1 2015 results, in which the company beat its own guidance on many fronts. Given the company’s outstanding performance in the past, solid project pipeline and widespread geographical presence, I think it’s a good bet in the solar industry.

1) Shipment and Revenues were above its own guidance in Q1 2015 – The total shipment in Q1 2015 was 1.23 GW beating its own guidance of 1-1.03 GW. Net revenue stood at $860.9 million, also above its guidance of $725 to $775 million and ~84% higher than Q1 2014. Gross margin was 17.8%, towards the high-end of its guidance of 16%-18%. During the quarter, the company closed the sale of three solar power plants in Canada and connected four solar power plants to the grid in the UK. The quarter also marked the acquisition of Recurrent Energy, thus expanding its pipeline to 8.5 GW.

2) Canadian Solar is a bankable solar company – Canadian Solar was successful in securing $44.4 million non-recourse construction loan to finance a 10 MW utility-scale solar power project in May 2015. The company also signed another non-recourse, short-term construction loan from Deutsche Bank for $58 million, for the construction of two solar power projects in Ontario. This was the fourth one with the bank, showing the bank’s trust in Canadian Solar. Since installation business is lofty in nature with huge cash requirement, it is good for solar companies to be bankable and have a reputed name in the industry.

3) Potential Yieldco with strong Project pipeline – Canadian Solar has been planning the launch of its yieldco and is building a strong pipeline to support the same. Its late-stage project pipeline reached 2.4 GW and its total early-mid stage pipeline was 6.6 GW at the end of Q1 2015. The company expects to realize C$600 million over the next 6-9 months from its projects. CSIQ has developed and connected approximately 1.4 GW of solar projects till date.

It closed the sale of three solar power plants in Canada, totaling 30 MW and valued at over $162 million. The projects are all late-stage, utility-scale solar projects which are geographically well placed. Given below is the current pipeline of projects for Canadian Solar. This strong project pipeline will support the launch of CSIQ’s yieldco.

MW
Canada 184
US 1054
China 340
Japan 605
Brazil 114
UK 115

4) Robust Outlook for Q2 2015 – The company’s performance has been improving on an annual basis, as can be seen from its robust shipment outlook. The annual shipment guidance increased by 33% since the last year from 3 GW to 4-4.3 GW in 2015. Given below is the Q2 2105 outlook:

Shipment 950-1000 MW
Revenue $570-620 million
GM 13-15%

5) Well Diversified across the geographies – During the quarter there was a strong demand from Japan, China, Europe and Latin America. The company has now achieved a more leveled geographic diversification, as compared to the last year. The Europe sales now account to ~18%, when compared to 84% a year ago. It is good that the company was successful in reducing its European exposure, since the country is now facing a severe downturn. CSIQ is a leading solar energy developer in the US, Japan and Canada, with a growing presence in the UK and China

Q1 2015 Q1 2014
(million $) % (million $) % Inc/ (Dec) (million $) % Inc/(Dec)
US 419.1 48.7 203.4 43.6 215.7 51.47
Asia 289 33.6 234.7 50.4 54.3 18.79
Europe 152.8 17.7 28.2 6 124.6 81.54
Total 860.9 100 466.3 100 394.6

Risk

High Debt – Debt remains like a hanging sword on the solar companies. Even solar companies with good quality solar products have suffered because of high debt problem LDK Solar, Yingli Green Energy. CSIQ needs to be vigilant with its debt levels, to stay safe.

Source: CSIQ IR

Stock Performance & Valuation

The CSIQ stock is currently trading at ~$26, which is 14% lower than its 52 week mid-price range. The company’s market capitalization value stands at $1.38 billion. The decrease in CSIQ prices may be attributed to the slump in the Chinese stock market and falling oil prices in general. The company’s P/S and P/B at 0.5x and 1.9x are lower than the industry average of 1.1x and 2.7x respectively.

Conclusion

Canadian Solar is amongst the largest suppliers of solar panels globally. The company has large manufacturing capacities too and is also one of the cheapest solar panel manufacturers. It will benefit from the increased solar installations, which is expected to reach 50GW in 2015. The company has posted positive EPS growth since the last two years and has given outstanding performances beating its own guidance on many fronts. The company has good fundamentals with low valuation multiples. I think the current weakness in the stock market should be used as a good time to invest in this stock.

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in

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