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. It also deals in providing solar energy and battery storage solutions.

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

• Net Revenue Growth of 105% YoY: 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.
• Gross Margin at 12.9%: 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.
• Reduced Net Income: However, the net income attributable to the company declined to $11 million from $23 million in 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)

Formed Long-Term Energy Storage Agreement with Pacific Gas & Electric

The company’s wholly-owned subsidiary namely, 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.

Completed Sale of Solar Projects in Texas

The company’s wholly- owned subsidiary, Recurrent Energy, LLC has recently completed the sale of the two solar projects - Maplewood 1 and Maplewood 2 based in Texas to a leading U.S. annuity and life insurance company. They have a combined capacity of 328 MWp or 250 MWac and the commercial operation of the projects is expected to reach by Q3FY21.

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.  Further, the unwinding of monetary stimulus may result in credit tightening which  could reduce demand  for solar power products and services that could adversely impact its expansion programme and results of operations. Besides, the company’s performance is also exposed to risks of  changes  in laws, regulations, and policies.

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

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Recommendation

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and  a target price  reflecting  a rise of low double-digit (in % terms) has arrived. 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 $36.89 per share, up by 1.82% on 27^th August 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.

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