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Canadian Solar (CSIQ)

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It seems like the disagreement here is current situation vs future situation.  

Robert is taking the approach of carefully counting each contribution to gross margin & conversion of debt into equity and cash.  The thesis is that value will increase along the balance sheet.  Meanwhile Klothilde is pointing towards a future that looks maybe even more difficult than current conditions.  

Klothilde... Do you agree that CSIQ module margins may improve if poly prices come down? Given the current 50% margins -- production will likely increase to grab those profits.  As for system margins, it seems that the question is either the margins are good, but the tax equity carry is watering the margins down.  Or that margins are just not that great.

FSLR system margins were good -- and investors have been celebrating a future contract pipeline in the US.  Why would it be different with CSIQ?

Edited by sunnypease

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14 hours ago, SCSolar said:

 

I would look at growth overall. They must be seeing something to be at 10GW end of 2018 and JKS is . When they are at 8.1MW of module at the end of 2017.  These numbers suggest 9GW in 2018 and with a 15% growth rate 2020 would have  11.9GW shipped.

1400MW for Projects and 10500  for revenue.

Module gross = $425-$525M mean $475

For projects using your cost point of $0.72 and an $0.85 ASP they gross $0.13/watt. 1400*.013=$182M gross.

Total gross $657M.

$675-$500=$175 midrange

 

 

Thanks, those numbers would give us a path towards $2 in EPS.

Next question is how realistic you think those numbers are on a scale from 1 to 10.  I would give it a 3, how bout you?

You are pulling the old trick "expand shipments while keeping OPEX flat".  Has it worked for CSIQ over the last years?  And you are proposing a 40% expansion on the project front, right at the time when my eyes are seeing a thinning pipeline for the next coupla years.  Also we need 15% margins for both projects and modules.  Do you see the required balance in supply and demand both at modules and projects to give us those margins?

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14 hours ago, sunnypease said:

It seems like the disagreement here is current situation vs future situation.  

Robert is taking the approach of carefully counting each contribution to gross margin & conversion of debt into equity and cash.  The thesis is that value will increase along the balance sheet.  Meanwhile Klothilde is pointing towards a future that looks maybe even more difficult than current conditions.  

Yes, that's what the clinch is about.  There's no question that there's great value in project assets and legacy pipeline, but we also need to look at future fundamentals.   Over the next quarters CSIQ will use profits from the "past" to spice up their numbers and mask current difficulties.  The ability to smoothen out EPS through controlled project monetization is a great advantage for them.  Investors should just be aware of the difference between past and future and not take Q4 EPS as a proxy for future profitability.

14 hours ago, sunnypease said:

IKlothilde... Do you agree that CSIQ module margins may improve if poly prices come down? Given the current 50% margins -- production will likely increase to grab those profits. 

I don't think module margins will increase noticeable just from poly coming down.  What the market is telling us right now regarding the value chain (poly-wafer-cell-module) is that the steps wafer, cell, and module have excess capacity at a run rate of 100GW/year while the poly step is tight at this run rate.  Now if the market softens in Q1 and poly comes down in price because of that, at the same time you will have the excess capacity in the other steps exacerbated as well.  Meaning the downstream steps won't have the pricing power to benefit from lower poly but will be forced to pass the savings on to their customers because the competition will be increased.

The only way for module margins to improve from market conditions would be from increased market demand (e.g. a run-rate of 140GW) that provides tightness in the downstream steps.  I don't see that happening... :-(

14 hours ago, sunnypease said:

FSLR system margins were good -- and investors have been celebrating a future contract pipeline in the US.  Why would it be different with CSIQ?

To the contrary.  FSLR has made a conscious decision to ramp down their project business because they see future profits mainly in module manufacturing and not projects.

My personal philosophy in a nutshell:  Projects suck.  High risk - low margin.  Yeay!!!

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2 hours ago, Klothilde said:

Thanks, those numbers would give us a path towards $2 in EPS.

Next question is how realistic you think those numbers are on a scale from 1 to 10.  I would give it a 3, how bout you?

You are pulling the old trick "expand shipments while keeping OPEX flat".  Has it worked for CSIQ over the last years?  And you are proposing a 40% expansion on the project front, right at the time when my eyes are seeing a thinning pipeline for the next coupla years.  Also we need 15% margins for both projects and modules.  Do you see the required balance in supply and demand both at modules and projects to give us those margins?

8-

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Good job Gordan.  Woo woo!

Klothilde, thanks for your reply.  I was speaking of poly increasing supply to meet demand.  Should happen, right?  

You spoke also of another issue: increasing capacity of module/cell/wafer in the face of flat or not ramping fast enough demand.  One thing to note here is the 1st tier vs others.  Over the past year JKS and I think also CSIQ have been able to get higher prices for their modules than the pvinsights listed rate.  Also JKS/CSIQ tend to sell their inventory ahead of capacity build out.  

Every year China blows everyone out of the water with their installation roll out.  US way is to talk a lot and do nothing.  China way is to talk little & do a lot.  And the good thing is that the Chinese seem to pay good prices for their modules. A couple of groups have announced some big capacity expansion projects.  

I wonder if you see Mark & crew @ First Solar as ahead of the curve & so their move to lock in prices for a few years out is influencing your view of the supply/demand balance.  Are you looking at S&D numbers for MW for the coming years?

A few weeks ago you had said the PB is a good measure for value.  Here we are talking about the now & less about the future.  Do you think things have improved on this front?

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6 hours ago, Klothilde said:

The ability to smoothen out EPS through controlled project monetization is a great advantage for them.

????  I'd say the uneven money flow from projects is a disadvantage, as it makes it nearly impossible to predict EPS with any accuracy.  The exact quarter in which a given project gets sold appears to be pretty random to me at this point.  And it's always hindsight.  That's why I don't think the market assigns a high PE to that portion of their revenues.

Mind you, selling projects at random intervals is better than just puttering along with cell/module profits of a couple of dimes every quarter--but I wouldn't call it a "great advantage."

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6 hours ago, Klothilde said:

My personal philosophy in a nutshell:  Projects suck.  High risk - low margin.  Yeay!!!

Hmm.  Margins on just cell/module don't seem to be any better, though?

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