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CSIQ Investment Thesis

Sep 12 2014 05:14 AM | Guest in Solar Stock Investing
CSIQ

Canadian Solar has the serious potential of being a solar gold mine for an average investor
I won't go into all the details as I have in the past (I've debated explo on this many times), but a few of bullet points;

1) Location (Ontario...right place at right time with domestic content and lucrative FIT's)

2) Location (Japan...established themselves there very early on before tsunami)

3) Location....(US...that's just obvious)

It takes money to make money. CSIQ got a huge head start in very profitable FIT regions. They decided to invest their capital on this, instead of on manufacturing like many others were, which turned in to be a big anchor for some as prices subsequently tumbled. The tumbling prices that also hurt CSIQ, ironically also helped fuel their project success as solar became more affordable and grew.

Construction is a totally different animal than manufacturing. There's engineering of all disciplines, qualified trades people, managers, etc. And they deal with a whole different slew of issues (permitting, utility coordinations, etc.). It takes time to go thru the process and become efficient at it, and every region has its different challenges. The Ontario projects with their very nice margins supported their learning curve. Yes, anyone can probably throw up a solar plant...but to do it successfully is a different thing (Qu used to comment that some plant owners would go the cheap route initially, but the next time would come to them because they wanted it to work). Just like all industries...there are good quality players and then there is the rest. I think CSIQ's portfolio speaks for itself, and since projects are so costly, this is great leverage for getting even more work (especially outside China).

You don't just wake up one day and decide you're going into that part of the business and hit the ground running. There are relationships in every region with multiple entities that must be forged. There are bidding processes, applications and permitting with multiple agencies, etc. that all take a lot of time to go thru...much more time than to build in many cases (Ontario was like that, especially early on...and look at Japan...etc.). You can build and man a manufacturing plant pretty quickly with the latest equipment, but building a successful global project business takes many years.

Will others catch up some day...maybe...will other values of the month outperform long term...maybe/probably. But they're much more a gamble imo due to CSIQ's very visible and very profitable pipeline extending out many years. And based on what they have achieved in the past, I expect them to continue to be successful in their global build-out, as they'll certainly have the financial resources to do so. It's a risk-reward ratio I can truly embrace, and because of the visibility I sleep very well at night regardless of a day to day stock performance, or whatever doom and gloom of the month Gordo and some others may throw out there.

And if I didn't mention it before...location...location...location. A westernized company with cheap CN manufacturing capabilities, with excellent margins and cash flow/ bankability fueling future global growth.
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