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Canadian Solar (CSIQ)

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So Paul Costner of JP Morgan goes Neutral to Underweight on October 22nd and drops target to 15.  Apparently he just couldn't wait until earnings today, now he's going back to Neutral and $17 target.  I have some choice words for that clown.

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19 hours ago, Klothilde said:

So how did the con call go?  How does 2019 shape up for them?  My first impression from glimpsing over projects in operation and 2019 pipeline is that revenue and GP from projects are going down next year and that they may struggle to cover $500M+ in OPEX&NI.  This is just a glimpse from the nursery.  Interested to hear opinions on this.

I just went through the con call in details.

The data points to current module margins of 25% and an ASP of $0.33+/-. The cost to manufacture is around $0.25+/-. The current market prices for cells and wafers would suggest that their costs could fall another 10%. The ASP is being held up by long term contracts that is around 30% of their shipments.

I could see that the spread falls back to $0.04-$0.05 /watt with some of the changes in the EU market ASP and some US manufacturing coming on line. A gradual fall back would generate gross in the $0.05-$0.06 blended range.

Module capacity would suggest the ability to produce for revenue 8.5-9GW in 2019 for revenue. 9GW would generate $450M-$540M.

Projects at 15% margins are currently higher than expected. This is due to lower costs than expected for modules and other components. These savings for past contracts can add $0.10 in gross per watt and margins coming in at the 20-25% range vs the 10-15% range they were looking at during initial bids.  This impact is not going to change as most contracts are a 2 to 3 year projection. $1B in sales would generate  $150M+/-.

 

The total gross could fall  in the range of $600M to $690M. This would push $2-$3 in EPS with potential upside from projects and potential downside from module pressures. I view the lower end of $0.04/watt gross unlikely to be breached for the full year.

Clearly module margins and guidance has the potential to make earnings volatile. 

 

 

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Oppenheimer reiterates Buy and $19

JP Morgan flip flops back to Neutral and $17

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34 minutes ago, Mark said:

Oppenheimer reiterates Buy and $19

JP Morgan flip flops back to Neutral and $17

Those would be reasonable if earnings is $2-$3 based on current dynamics.

 

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4 hours ago, SCSolar said:

The data points to current module margins of 25% and an ASP of $0.33+/-. The cost to manufacture is around $0.25+/-. The current market prices for cells and wafers would suggest that their costs could fall another 10%. The ASP is being held up by long term contracts that is around 30% of their shipments.

Module Shipments = 1590MW (total) - 180MW (projects) - 25MW (system kits, est.) = 1385MW
$440.3M/1385MW = $0.318

$0.25+/- sounds ok, that would imply 21.4% GM for modules which is consistent with the MSS GM of 23.4% (excluding CVD reversal benefit) if we assume a higher GM for the other revenue blocks (including project rights sold).

4 hours ago, SCSolar said:

I could see that the spread falls back to $0.04-$0.05 /watt with some of the changes in the EU market ASP and some US manufacturing coming on line. A gradual fall back would generate gross in the $0.05-$0.06 blended range.

I see a more pronounced spread decline because since Q3 module prices have been falling steeper than upstream components (poly and wafers).

Beginning of July (link) multi wafers were trading at 7 cts and mono-PERC modules at 32 cts (at par with CSIQ's Q3 ASP).

Currently (link) multi wafers are trading at 6 cts and mono-PERC modules at 26.3 cts.

In the worst case the above could translate to CSIQ's spread going down from 6.8 to around 2 cts.

4 hours ago, SCSolar said:

Module capacity would suggest the ability to produce for revenue 8.5-9GW in 2019 for revenue. 9GW would generate $450M-$540M.

Going into 2018 they had over 8GW of module capacity but they will likely end up producing <7GW this year.

7.5GW in 2019 at a spread of 2 cts will get you $150M in GP.

4 hours ago, SCSolar said:

Projects at 15% margins are currently higher than expected. This is due to lower costs than expected for modules and other components. These savings for past contracts can add $0.10 in gross per watt and margins coming in at the 20-25% range vs the 10-15% range they were looking at during initial bids.  This impact is not going to change as most contracts are a 2 to 3 year projection. $1B in sales would generate  $150M+/-.

The total gross could fall  in the range of $600M to $690M. This would push $2-$3 in EPS with potential upside from projects and potential downside from module pressures. I view the lower end of $0.04/watt gross unlikely to be breached for the full year.

Clearly module margins and guidance has the potential to make earnings volatile. 

Projects in operation will contribute around $150M in GP.  Japan and Mexico 2019 COD projects can add up to $100M in GP.

Total gross could thus fall in the range of $300M to $400M.  Not enough to cover OPEX & NI.

The above may sound overly gloomy but if you take into consideration that the module gross margin in Q2 was 14% and a spread of 2 cts at 26 cts ASP means the margin will drop to 8% then it sounds less radical, doesn't it?

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On 11/8/2018 at 1:32 PM, Mark said:

Odds of missing earnings estimates and seeing this thing tank --- 100%?  

You stupid idiot.  Don't you know you're a contrarian?

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What will CSIQs asp be in 2019? It sounded like they have some contracted margins, but for only 3 months out? Anyone know if that refers to beginning in 2019? From the transcript it looked like their 4Q margins are to remain fairly stable q-o-q. 

So I’m wondering if their asp is expected to stay flat or increase, or their cost is expected to decline, or they have contract protection like FSLR.

From what I could tell the big drop in poly prices is helping them out, which will naturally flow through the other upstream components as well. As long as asp stays elevated seems like CSIQ is going to do very well.

Curious to see if some of their higher asp is due to higher efficiency product mix.

 

 

 

 

 

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15 hours ago, Usbstefan said:

What will CSIQs asp be in 2019? It sounded like they have some contracted margins, but for only 3 months out? Anyone know if that refers to beginning in 2019? From the transcript it looked like their 4Q margins are to remain fairly stable q-o-q. 

So I’m wondering if their asp is expected to stay flat or increase, or their cost is expected to decline, or they have contract protection like FSLR.

From what I could tell the big drop in poly prices is helping them out, which will naturally flow through the other upstream components as well. As long as asp stays elevated seems like CSIQ is going to do very well.

Curious to see if some of their higher asp is due to higher efficiency product mix.

ASPs in Q1 and Q2 of this year were 36 and 35 cts respectively.  That was pretty close to the mono-PERC spot pricing in those quarters. Since then mono-PERC has fallen to an average of approx. 26 cts, thus I would expect a similar price level once the legacy contracted volume is worked through.  My guess is they will be approaching 26/27 cts in Q1 or Q2 at the latest.  Cost should be 2-3 cts below imo.

Q1: http://guangfu.bjx.com.cn/news/20180214/881108.shtml
Q2: http://guangfu.bjx.com.cn/news/20180510/896931.shtml
Now: http://guangfu.bjx.com.cn/news/20181115/941878.shtml

 

 

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I am curious how the Q4 expectations accommodate the sale of plants in October with $307M in revenue versus the margin of 26%?

The value for those plants recorded in investment in affiliates was about $266M. The profit would be $41M or 13.5%.  Just to track it down, plants left are Mustang, Roserock, and NC102. Total 340MW. This does match accounting for it in Q3 as at the time of October 31, 2018.

Side note: The investment in affiliates would reduce by $266M, borrowing at 80% of it or $212M, cash transaction of some $93M. Not bad for what recently was considered the garbage assets.

Finally, the market cap of CSIQ is the market cap of SunPower. Enough said.

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Just looking at the transcript the 265MW sale reduced short-term debt by $172M.  So the equity stake in $266M was about $90M or 33%, not 20%. Cash would be closer to $130M just from this transaction, that is a huge cash injection. 

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I think they will monetize some further Japanese plants to prep up gross profit.  Maybe the american plants are not booked under revenue but the difference of sales volume to asset value is recorded under "other income".

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Cancellation of the buyout offer made little impact on a share price at this point. CSIQ from a distance seems to have best results among solars listed. Is the stock at risk of depressed price or growth looking into 2019?

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24 minutes ago, dydo said:

Cancellation of the buyout offer made little impact on a share price at this point. CSIQ from a distance seems to have best results among solars listed. Is the stock at risk of depressed price or growth looking into 2019?

With 2 big hedge funds behind us, looking for 20s in 2019.

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On 11/28/2018 at 9:16 AM, Mark said:

With 2 big hedge funds behind us, looking for 20s in 2019.

We have another big fund joining CSIQ - Morgan Stanley (2,959,560 shares) as of 11/29/2018... https://fintel.io/so/us/csiq

Edited by MVA

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15 hours ago, MVA said:

We have another big fund joining CSIQ - Morgan Stanley (2,959,560 shares) as of 11/29/2018... https://fintel.io/so/us/csiq

What a total Arse Qu was to retract his offer mere days before posting a great quarter.  

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3 minutes ago, sunnypease said:

What a total Arse Qu was to retract his offer mere days before posting a great quarter.  

What are you talking about??  Having a position in CSIQ from a much higher level, I'm GLAD it didn't go through--I think the share price will go well above $20 in the next 2 years!  It was a lowball offer, and I'm glad he didn't get the company on the cheap!

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1 minute ago, solarpete said:

What are you talking about??  Having a position in CSIQ from a much higher level, I'm GLAD it didn't go through--I think the share price will go well above $20 in the next 2 years!  It was a lowball offer, and I'm glad he didn't get the company on the cheap!

I'm saying he could have announced the retracting of the offer during the ER, allowing his current holders to benefit.

As it was, every body had a panic when it was retracted.  I had my mother in the stock, as a green / good investment.  And was simply punished.  I think I'll go buy some Peabody Coal.  (ok not)

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1 hour ago, sunnypease said:

I'm saying he could have announced the retracting of the offer during the ER, allowing his current holders to benefit.

As it was, every body had a panic when it was retracted.  I had my mother in the stock, as a green / good investment.  And was simply punished.  I think I'll go buy some Peabody Coal.  (ok not)

I suspect they (Qu/Lion Point/Luminous and maybe Morgan Stanley) wanted to 1) get the bad news out of the way so it didn't overshadow the good quarter and 2) shake out any weak hands and traders, so that a stronger, more dedicated shareholder base was in place so they could more easily run this up to $17+.  Don't get me wrong, I hated that whole thing at the time, but I didn't sell any and it worked out well for me.  I'll be trading around a core position for the next year at least and am hoping these hedge funds and MS and Qu are greedy pigs who are envious that FSLR is trading at $44 and want to work this thing up far and fast.  

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On 11/30/2018 at 5:18 PM, Mark said:

I suspect they (Qu/Lion Point/Luminous and maybe Morgan Stanley) wanted to 1) get the bad news out of the way so it didn't overshadow the good quarter and 2) shake out any weak hands and traders, so that a stronger, more dedicated shareholder base was in place so they could more easily run this up to $17+.  Don't get me wrong, I hated that whole thing at the time, but I didn't sell any and it worked out well for me.  I'll be trading around a core position for the next year at least and am hoping these hedge funds and MS and Qu are greedy pigs who are envious that FSLR is trading at $44 and want to work this thing up far and fast.  

Hi Mark -

  Well I truly am psyched & happy that you have managed some recovery here with CSIQ.  You really deserve great rewards for choosing maybe the most important place to put your money.  To enable this green revolution that our world desperately needs.  Good work!

Matt

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