Canadian Solar Inc.

CSIQ Details

Canadian Solar Inc. (NASDAQ: CSIQ) is a leading solar technology and renewable energy company globally. It is engaged in the business of developing solar photovoltaic modules as well as utility-scale solar power and battery storage projects and provides solar energy and battery storage solutions.

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

• The company has recorded a 105% YoY rise in net revenue to reach a record $1.43 billion that stayed in line with guidance of $1.4 billion to $1.5 billion. The total module shipments increased by 26% YoY to 3.66 GW of which 167 MW was shipped to its own utility-scale solar power projects.
• It reported a gross profit of $185 million, down 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% supported by the benefits of higher module ASP, manufacturing efficiency improvements, and a higher contribution from battery storage shipments and beyond-module sales.
• The net income attributable to the company declined to $11 million from $23 million Q1FY21 due to the impact of lower gross profit and higher operating expenses, partially offset by the income tax benefit.

Key Data (Source: Company Reports) 

Recent Updates:

• 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.
• Formed Long-Term Energy Storage Agreement with Pacific Gas & Electric: The company’s subsidiary Recurrent Energy, LLC, on 10 August 2021, signed a 15-year Resource Adequacy agreement with Pacific Gas & Electric to deliver 150 MW / 600 MWh of energy storage in phase 2 of the Crimson project that will commence in the summer of 2022.
• Completed Fund Raising: CSIQ, on 27 July 2021, completed the financing facility of BRL 500 million (around US$100 million) with Brazilian banks BTG Pactual and Itaú BBA. The company will utilise the proceeds for the development and construction of solar projects in Brazil.

Outlook

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

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

Meanwhile, the company intends to significantly scale its O&M business with an aim to reach 11 GW of operational solar projects by 2025 that will aid in escalating its portion of stable income.

Key Risks

The company’s performance would be adversely affected by the volatile solar power market and industry conditions and may impact its revenues and earnings. Tight credit markets could reduce demand or prices for solar power products and services that would adversely affect its expansion plan.

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

Technical Analysis

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period) 

Stock Recommendation

CSIQ has delivered 6-months and 9-months returns of ~-15.00% and ~-3.04%, respectively. The stock is trading lower than the average of the 52-week high price of $67.39 and the 52-week low price of $26.80.

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and a 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.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $36.39 per share, down by 2.65% on 8^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