Canadian Solar Inc

CSIQ Details

Canadian Solar Inc (NASDAQ: CSIQ) is  the world’s leading solar technology and renewable energy company that  is engaged in the business of developing solar photovoltaic modules as well as utility-scale solar power and battery storage projects. It also deals in providing solar energy and battery storage solutions.

Q2FY21 Result Update (For the Quarter Ended 30 June 2021)

• The company has logged a record revenue of $1.43 billion in Q2FY21, up by 105% YoY in line with the guided range of $1.4 billion to $1.5 billion. The total module shipments rose to 3.66 GW, up by 26% YoY, touching top-end guidance range of 3.5 GW to 3.7 GW.  Of the total,  167 MW was shipped to its own utility-scale solar power projects.
• It reported a gross profit of $185 million, down by 5% QoQ, while it was up by 26% YoY. It achieved a gross margin of 12.9% much above the guided range of 9.5% to 10.5% led by higher module ASP, improvement in manufacturing efficiencies, and a greater contribution from battery storage shipments.

Key Data (Source: Company Reports)

Bagged a Contract

CSIQ’s subsidiary, CSI Solar Co., Ltd, on 9 September 2021 has bagged a 350 MW / 1400 MWh contract that includes delivering the fully-integrated battery storage system, EPC as well as long- term maintenance service to the Crimson 1.4 GWh  battery storage project. This particular project is based in Riverside County, California. Axium Infrastructure holds a majority interest of 80% in the Crimson storage project and the balance 20% owned by CSIQ’s subsidiary - Recurrent Energy.

Stake in Crimson Storage Project Sold to Axium Infrastructure

On 8 September 2021, the company’s wholly-owned subsidiary, Recurrent Energy, LLC  sold an 80% holding interest in its 350 MW / 1400 MWh Crimson storage project to Axium Infrastructure and will hold the balance 20% stake. The work at the storage project will commence in Q3FY21 and the commercial operation is likely to begin by the summer of 2022.

Signed Agreements

CSIQ, on 7 September 2021,  entered into long-term operations & maintenance agreements with two solar PV plus battery storage projects in the U.S., viz., the Slate and Mustang projects. These projects were developed by its subsidiary Recurrent Energy and are currently owned by Goldman Sachs Asset Management Renewable Power.

Outlook

CSIQ has a global battery storage project pipeline of 19 GWh of which 2.3 GWh is contracted and/or is in the construction phase. The company estimates total module shipments to stay between 3.8 GW to 4.0 GW in Q3FY21, including around 275 MW of module shipments to its own projects. It forecasts overall revenues to stay between $1.2 billion to $1.4 billion with gross margin to remain in the range of 14% and 16% in Q3FY21.

CSIQ reiterated its guidance on revenue for FY21 which is expected to remain in the range of $5.6 billion to $6.0 billion. CSIQ has also maintained its project sales forecast of 1.8 GW to 2.3 GW and total battery storage shipment guidance of 810 MWh to 860 MWh for FY21. However, it has marginally lowered its guidance on total module shipment for FY21 to 16 GW - 17 GW from 18 GW - 20 GW earlier.

Key Risks

The company’s performance could be adversely affected by the volatile solar power market and industry conditions and may impact its revenues and earnings. Tighter credit markets could reduce demand or prices for solar power products and services that could hurt its expansion and results of operations. Any changes to the laws, regulations, and policies could have an adverse impact on the demand for its products and services.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

We have valued  the stock  using an EV/Sales multiple-based illustrative relative valuation method and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the continued strong growth in demand for solar energy and battery storage, robust project pipeline, and reiteration of FY21 revenue guidance.

For the purposes of relative valuation, peers like Ultra Clean Holdings Inc, Revasum Inc, among others have been considered.

Considering the aforementioned factors, a “Buy” recommendation has been assigned on the stock at the current market price of $34.31 per share, down by 7.2% on 20^th September 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices