Canadian Solar Inc

CSIQ Details

Canadian Solar Inc (Nasdaq: CSIQ) is one of the world’s largest solar technology and renewable energy companies. It is engaged in manufacturing of solar photovoltaic modules, provide solar energy and battery storage solutions, and develop utility-scale solar power and battery storage projects.

FY20 Results Performance (For the Period Ended 31 December 2020)

The company has witnessed 32% annual growth in delivery of total module to 11.3 GW that remained in line with guidance with net revenue increased by 9% YoY to $3.5 billion. However, the net income attributable to the company was reduced to $147 million, down by 15% YoY.

Financial Snapshot (Source: Company Reports)

Outlook

The company has a healthy pipeline of 20 GWp of solar project and 9 GWh of an overall battery storage project. Besides, it aims to deliver around 1 GWh of battery storage projects in the U.S. in 2021 to achieve around 10% market share. It is on track with the IPO of CSI Solar with the expected official listing on Q2 2021-2022.

In the meanwhile, CSIQ has reaffirmed its FY21 guidance with total shipment to remain in the range of 18 GW to 20 GW and project sales to stay in between 1.8 GW to 2.3 GW. Overall revenue is expected to remain in the range of $5.6 billion to $6.0 billion in FY21.

Key Risks

The company is witnessing sustained short-term cost pressures with elevated polysilicon prices and continued depreciation of the U.S. Dollar, Euro, Japanese Yen, and other currencies as compared to the Chinese Renminbi that are putting pressure on margin.

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

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

While remaining in correction phase, the stock has corrected beyond 50% retracement level of $41.57 to $39.63 in the first trading session of the ongoing week. The technical indicator RSI with a reading around 45 suggests neutral momentum for the stock.

Going forward, the stock may have resistance around a 38.2% retracement level of $47.61 whereas support could be around a 61.8% retracement level of $35.52.

Stock Recommendation

In 6 months, the stock rose by 1.79%. The stock has made a 52-week low and high of $15.84 and $67.39. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a premium to EV/EBITDA Multiple (NTM) (Peer Average), considering its robust project pipeline of 20 GWp of solar project and 9 GWh of overall battery storage project along with robust growth outlook owing to solar grid parity and rising demand for clean renewable energy, and healthy liquidity position which will aid in tapping long term growth opportunities.

For the purpose of relative valuation, we have taken peers like Cirrus Logic Inc (CRUS.OQ), Cohu Inc (COHU.OQ), Diodes Inc (DIOD.OQ), to name a few. Accordingly, we give a “Buy” recommendation on the stock at the current market price of $39.63 per share, up by 1.1% on 7^th May 2021.

Note: 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 Valuation has been achieved and subject to the factors discussed above.

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