EQUITY REPORT CANADIAN SOLAR 31.12.2021

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Canadian Solar Inc (Ticker:CSIQ)

Introduction:

Canadian Solar Inc., together with its subsidiaries, designs, develops, manufactures, and sells solar ingots, wafers, cells, modules, and other solar power products. The company operates through two segments, Module and System Solutions (MSS), and Energy. The MSS segment engages in the design, development, manufacture, and sale of a range of solar power products, including standard solar modules, specialty solar products, and solar system kits that are ready-to-install packages comprising inverters, racking systems, and other accessories. It also provides engineering, procurement, and construction; and operation and maintenance (O&M) services. This segment’s energy solution products include solar inverters and energy storage systems for utility, commercial, residential, and specialty product applications. Its O&M services include inspections, repair, and replacement of plant equipment; and site management and administrative support services for solar power projects. The Energy segment engages in the development and sale of solar power projects; and operation of solar power plants and sale of electricity. As of January 31, 2020, this segment had a fleet of solar power plants in operation with an aggregate capacity of approximately 880.2 MW and 350 MW for Q3 21. The company’s primary customers include distributors, system integrators, project developers, and installers/EPC companies. Canadian Solar Inc. sells its products primarily under its Canadian Solar brand name, and on an OEM basis. It has operations in North America, South America, Europe, South Africa, the Middle East, Australia, Asia, and internationally. The company was founded in 2001 and is headquartered in Guelph, Canada.

 

 

 

Q3 2021

Global Energy closed 350 megawatts or 1.4 gigawatts hours in battery storage project teams. Delivered a total of $140 million in revenue and nearly 44% gross margin. Most of the profit this quarter was driven by landmark Crimson’s stand-alone battery storage project in California, demonstrating the value creation potential of battery storage projects. As they continue to hold 20% ownership in this project, it will allow them to capture its long-term value creation. The battery storage team is also providing the fully integrated battery storage system, EPC and long-term maintenance service. They expect the project to reach commercial operation by December of 2022.

Besides Crimson, they have a total of 2.9 gigawatt-hours of batteries projects storage projects under construction, and almost 500 megawatts are working backlog. They are also expanding a storage project pipeline in Latin America and other parts of the world. For example, Colombia’s very first utility-scale battery storage project of 45 megawatts and 45 megawatts of power. Columbia has the third-largest population in Latin America, after Brazil and Mexico. The second project in Colombia, a 52-megawatt solar plant.

In Q3, they delivered 3.9 gigawatts of shipments and $1.1 billion revenue. Gross margin improved sequentially by 200 basis points to 15.1%. Driven by continued price increases and partially offset by higher costs.

The operational environment remains very challenging, driven by three key factors.

First, the global logistics bottleneck is continuing to increase transportation costs and delaying shipping schedules. They have signed several long-term contracts we’ve shipping companies to mitigate the impact but averaged shipping costs at 5 times the historical average.

Second, material costs are moving up again across the board. With solar module prices up, by nearly 25% YoY.

And third, power curtailment has not only affected their capacity utilization rates at certain factors but also significantly affected the utilization of energy in terms of upstream manufacturing capacity, leading to the resumption of input price increases since September.

 

In Q3, they delivered $1.23 billion in revenue. Gross margin was 18.6% well ahead of the previous guidance of 14%-16%. Q3 benefited significantly from the Crimson battery storage project sale, as well as higher module pricing. Selling and distribution expenses increased by 21% quarter-over-quarter, mainly due to higher transportation costs, which accounted for three quarters of the sequential increase.

Today, transportation costs account for approximately 80% of selling and distribution expenses. The total amount is more than three times from two years ago.

General and administrative expenses also increased by 21% mainly due to the project loss contingency. Total operating expenses were up 11% and accounted for 14% of revenues. The net foreign exchange loss in the third quarter was $14 million higher than usual, the FX loss was mainly due to the strength of the U.S. dollar relative to a basket of currencies, including the Brazilian Real and Euro, but partially offset by hedging programs. The income tax benefit was $3 million, resulting from the utilization of net operating losses.

Net income, attributable to Canadian Solar shareholders was $35 million or $0.52 per diluted share. Basic and diluted EPS stands at $0.06 and $0.52 respectively.

 

Now, turning to cash-flow and the balance sheet, Working Capital Days increased moderately, as two more days were affected by longer logistics cycles. They expect a FY2021 Capex to be around $500 million below previous guidance. Q3 2021 cash balance is at $1.4 billion. Total debt increased from $2.2 billion to $2.3 billion, mainly driven by an increase in non-recourse borrowings, while net debt to EBITDA, excluding rescued cash, remained stable at 3.7x.

Outlook:

2022 projects:

They continue to grow their global pipeline of projects, which now stand at 24-gigawatts for solar projects, including China Energy and 21-gigawatt hours of battery storage project. With a global on and portfolio now at 5 gigawatts of solar of which half is already operational, an 860 megawatts hours of projects across 9 countries.

For the fourth quarter of 2021, the total module shipments expectation will be in the range of 3.7 gigawatts to 3.9 gigawatts. Total revenue is expected to be in a range of $1.5-1.6 billion.

Q4 2021 gross margin is expected to be reaching 14% to 16 %.

Concerning FY2021, factory storage shipment accounted for CSI Solar expected to be in a range of 840-860 megawatts hour. Project sales in Global Energy are expected to be in a range of 1.5-2.1 gigawatts.

Regarding FY2022, they expect module shipments to be in the range of 20 to 22 gigawatts, reflecting approximately 45% growth from 2021. They expect factory storage shipment to be in the range of 1.4-1.5 gigawatts hours, reflecting 17% YoY growth. And the total project sales will be in a range of 2.4-2.9 gigawatts, reflecting 15% YoY growth. Revenue for the FY2022 is expected to be in the range of $6.5 billion to $7.0 billion, up 30% YoY.

SHARE PRICE – YTD, the stock dropped 44,7%. The share price (31/12/2021) closed at $31,29 per share.

Expected share price: $52,98 per share (+69,3% upside)

 

 

 

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