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Canadian Solar (CSIQ)

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Guest spiritcraft

The question is who fu*** who.

As long as everyone has a smile on their face, who cares? :) Tanzania? Who among us thought we would be talking about that market a year or two ago. Things are changing fast.

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Guest nanofrogfish_spf

Tanzania? Who among us thought we would be talking about that market a year or two ago. Things are changing fast.

No doubt! This supports the following statement from an article in REW, which I've posted before;

Jigar Shah, partner at Inerjys Ventures, says this will continue and predicts “robust” global job growth in the solar industry in 2013. “The volumes are going to go up substantially next year,” Shah said. “The pricing signals that were provided this year were so low, that there’s at least 40 or 50 countries in the world who haven’t done a lot of solar who are earnestly looking at awarding contracts in the first quarter of next year and having construction completed by the end of 2013. You’re starting to see an extraordinary proliferation of solar based on the pricing that was indicated by manufacturers in 2012.”

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I thought I mention this since I wrote about collective 800MW of projects in Ginsu China by Trina. This mou was signed in December. There was a lot of talk about Chinese companies, blowing things out of proportion. Those MOUs are really grassroots category, and may never take off, but as en example Solarzoom by 2030 expects 130GW in China alone. That is an average of 7GW per year. I think that would also have to be bumped to 10GW per year in a short while. http://www.ne21.com/news/show-35807.html

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Guest nanofrogfish_spf

Great find Odyd...thanks It looks like they plan on having the first 30MW finished by the end of the year. What’s interesting, is that the cost of 330 Mil yuan ($53 Mil.) for the 30MW comes out to less than $1.80/W (I assume it's DC, or about $2.20/W AC). Then it looks like they will be installing about 100MW to 150MW per year from 2014 to 2017/18 as part of this contract with Shufu County. Not sure how prices were negotiated throughout the 3-5 year period, but at $1.80/W that's about a $900 Mil. total investment. I don’t have much in my for profits from Chinese projects right now, so even if the margins are lower, it’s still a bonus to what I’ve modeled...and I’m sure there will be more of these to come...

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Guest nanofrogfish_spf

In Q2, CSIQ net debt was $372.8 Million, and Net Debt to Equity was 84.5%. and btw, it's one of the best of the solar 11...

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In Q2, CSIQ net debt was $372.8 Million, and Net Debt to Equity was 84.5%. and btw, it's one of the best of the solar 11...

Exactly. That's what I meant with that it did not seem right. I've never seen any of these companies talk about other things than net-debt-to-equity ratios. But looking up debt ratio it seems to use total liabilities, not considering the type and working capital structure. The standard net-debt-to-equity ratio is a more stable financial health measure that can be used in combination with looking at working capital health. With pure debt ratio Trina would have 325%, while their net-debt-to-equity ratio is 52%. Trina is considered finanically healthy, which would not be indicated if 325% was used.

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Guest nanofrogfish_spf

I see that the “other” analyst covering CSIQ just raised their 2013 EPS estimate from 15c to 52c, with the average 2013 EPS now at $1.15. I haven’t paid attention to their revenue estimates before, but the guy with the $1.77 EPS has a revenue estimate of $2.26 Bil. (just slightly above mine btw), while the other analyst has it at $1.26 Billion!... That number may be accurate if they only sell about 300MW’s of non-utility modules for the year...but I’m pretty sure they’ll pass that target in the 1st quarter. No wonder their estimate is only at 52c..LOL.

The analysts will probably be playing “catch-up” the rest of the year. I don’t follow the other solars much, but I assume that a similar pattern is or will be happening with them.

Concerning Project Margins, Potter said this in the last CC;

I have said for the Canadian pipeline in total, it will be over 20% gross margins and the TransCanada project we've said, we expect those to be over 25% gross margin. We also have always said over $300 and over $800 million. We expect better than those numbers and when we have the final contracts for the SkyPower projects, we’ll have a much better idea what those numbers will be.

So I have the following question for the board...Since the SkyPower projects had a “purchase price” of $185 Mil., when Potter talks about 20% margins is it based on the total $800+ Mil. revenue, or just on the $615+ Mil. that the actual work is based on? And since I believe the SkyPower projects will recognize revenue/costs on a percentage of completion basis, how does the purchase cost get recognized?

My modeling was done based on the $615 Mil at 20% GM., I wasn’t sure at the time so I wanted to be conservative. But I am starting to second-guess myself and think maybe I should have based the 20% gm on the $800 Mil. instead...same situation with the SunEdison projects...

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Guest Klothilde

Development costs or project acquisition costs are always booked under project COGS for each individual project. So the 20% is based on the 800 Mil. figure.

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Guest nanofrogfish_spf

Development costs or project acquisition costs are always booked under project COGS for each individual project. So the 20% is based on the 800 Mil. figure.

Thanks, the more I thought about it, the more I realized I probably should have based it on the total revenue amounts.

That number may be accurate if they only sell about 300MW’s of non-utility modules for the year...

Looks like they don't need to sell any modules at all to meet that low-end guidance number...

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Development costs or project acquisition costs are always booked under project COGS for each individual project. So the 20% is based on the 800 Mil. figure.

Acquisition costs are capitalized. Assets increase by 185M, cash is debited, liability is credited (for the mix to cover the transaction). Construction loans are amortized as any loans would, prepaid assets are credited for it. Another words all of it is capitalized until it is sold When it comes to a sale thus revenue recognition, appropriate percentage of the sold project will receive its proportionate cost. So percentile of the asset (165M) will be reduced by the portion sold. So if the 10% of the project is sold, accounting treatment will see 10% reduction of the asset, that will go into cost of sale, and if 20% is the margin therefore is based on this amount: Revenue from 10% sale of the asset-( 10% acquisition costs+ 10% of development costs (interest included) )=20% margin

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However fundamentally one must ask a question of value creation. If that question was to be answered by me CSIQ would be at the top of the list. The company has transitioned itself from manufacturer to a developer. Sine developer mode has profitability in living example of FSLR, using the benchmark model of stock price, seems that value has not been recognized. Now if you use the Trina model of returning to profitability, where manufacturing gross margins are not silenced by noise of the inventory adjustments forced by ASP drops, and in fact further savings can be exuded, still as a leader CSIQ is holding on its own because they are seen to benefit from it. More so as their manufacturing mode will be split for internal and third party sales. This clearly offers further expansion of margins than any status of a supplier would. IF you consider this in your decision, you are doing it on your own risk of course. The reason why I am so explicit on my non-recommendation stance, I write articles which are published and featured on finance sites and well recognized media industry-related outlets. I do not need any liability chasing me. I am not being rude, I hope you understand.

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Guest nanofrogfish_spf

I wanted to get back to my original topic of my pre-earnings 2013 EPS estimate, so I thought I would start a new thread for a clean, fresh start. It also gives me an opportunity to update (raise) my EPS numbers based on recent conversations...I wasn’t applying stated GM’s to the full project contract amounts (I had erroneously deducted “purchase costs” before calculating GP).

So here is an updated re-posting, with some added info on my best guesstimates at this point in time... (I’m hoping to generate a little more interest this time than the last posting, as that one only got an anemic 1400+ views....):

I’m going to stick my neck out here before earnings and give my EPS “guesstimates” for CSIQ in 2013...I’m working on developing a tool that will be useful in helping to predict approximate future profits based on the downstream model. Of course a lot of the outcome depends on what happens with the other half of the business, and that’s a little less visible). I’m sure I’ll be revising these on March 12th as more data points become available.

2012 was a tough year for EPS predictions...not much real data to go on, and costs/ASP’s/demand were constantly changing. But assuming 2013 is a year of pricing stabilization and rebound, and demand approaches the 40GW mark, then the EPS picture (at least in CSIQ’s case), becomes a lot clearer. This year, over half the revenue and margins from projects are fairly visible, and there is more data available on the rest (such as export data). So now I can just let the “spreadsheet do the talking”, without so many blind assumptions needing to be made every quarter.

I’ve just recently updated my project tracking spreadsheet. On the US projects, it was never (and still isn’t) very clear on how many they were developing vs. joint venture (and even what % on the joint venture). Based on the Stratus Solar news, which is a big junk of their US portfolio, I lowered both my 2013 and 2014 revenue estimates for the US projects by 50c/W in each year, just to be extra-conservative on the mixes and percentages. I also got a little more conservative on non-utility sale GM’s, and spent more time breaking out fixed vs variable (shipping) operating costs.

For reference, the following assumptions were used in my model;

1) Numbers do NOT include forex gain/loss or taxes.

2) Numbers do not include 1-time provisions (if any) for LDK settlement (should be taken in Q4).

3) CSIQ non-utility module shipments are 1.65GW.

4) Q1 numbers assume revenue from both finished TransCanada projects are realized in Q1 (one may have been realized last quarter, and would lower Q1 EPS number by about 30c/share).

5) quarter-by-quarter will vary with timing/percentage of revenue recognition...my model is based more on a “smooth curve” (a miss one quarter would be made up the next, and vise-versa).

5) EU outcome is not worst-case scenario, and huge trade war does not start...even with the worst case scenario that significantly impacts shipments volumes, 2H earnings for CSIQ would still be positive.

I have the following EPS numbers modeled for this year;

Q1 – $0.08 EPS

Q2 – $0.11 EPS

Q3 – $0.92 EPS

Q4 – $2.03 EPS

2013 Total = $3.13 EPS

2013 Revenue = $2192 Million ($1123 from utility scale projects)

Also, this is VERY PRELIMINARY, but with present know projects 2014 looks like this;

Q1 – $1.15 EPS

Q2 – $0.88 EPS

Q3 – $0.73 EPS

Q4 – $0.29 EPS

2014 Total $3.05 EPS

2014 Revenue = $2055 Million ($914 from utility scale projects)

These are conservative estimates in my opinion, and all the numbers are positive. In my estimates, CSIQ never even turns an operating profit from the non-utility scale side of the business... losses range from 78c (Q1) to 45c (Q4)...this is what I call the “Power of the Projects”. So there is definitely plenty of upside to these numbers by year’s end, as I expect the module side of the business to actually be profitable in the 2H.

I wouldn’t expect the 2013 numbers to change much, barring delays on the revenue recognition side. The 2014 numbers are still being filled in, and I’ll update after we get more visibility on the current size of the US project pipeline, amongst other updates and clarifications...

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Guest sc_solar

Thanks again Nano. You do alot of digging and its most appreciated. I am sure you put alot of time into that and many of us get to enjoy the benefits. I am very interested in CSIQ 2 half as well as Macro dynamics of the industry which in particular you Odyd, Spirit, Explo and others have provided. I have taken note at the 2 analysts who have raised EPS guidance for CSIQ for the year and are moving in your direction. Thats great. Love the spreadsheet calculations...I think your 2014 will be considerably higher as thy announce more this year. At this point 1/4 through 2013 most projects announced subsequent will probably not hit the bottom line earnings till 2014. Which means 2 half of 2013 (already pretty much known) and all of 2014 could be something really special!!! Have a great weekend all!!!! :)

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Guest ILOVEPV

looking from another angle I'm seriously surprised that CSIQ stocks is trading so low. All my multiyear experience with stock market tells that the market almost ALWAYS takes in advance all possible good or bad scenarios. Even a small advantage of JKS that we are realizing only now was baked in with a blow out rally from 2 to 10 i.e. IN ADVANCE. Normally news for a wide public is an outdated info for the wall street. Either all prognosises are wrong as they were wrong several years ago or this is a rarest ever opportunity for making big bucks. On the other hand we are watching the same situation with SOL. We already got a guidance in Q3 CC, we already understand a size of projects and possible benefits from unique company position among her peers and the stock is still in low 2s while should have been in the same range as TSL at least.

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Guest littleguyintucson

CSIQ has had a habit of over promising and under delivering. Their track record on margins and profits even during good times was always far lower than Yingli or Trina. When they start showing margins on par with the best of breads and show the project pipeline, then they will likely to show price growth. Guidance for this quarter does not re-enforce the margin growth. Those that showed margin growth, had appreciable stock price growth.

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Guest MichaelZhao

looking from another angle I'm seriously surprised that CSIQ stocks is trading so low. All my multiyear experience with stock market tells that the market almost ALWAYS takes in advance all possible good or bad scenarios. Even a small advantage of JKS that we are realizing only now was baked in with a blow out rally from 2 to 10 i.e. IN ADVANCE. Normally news for a wide public is an outdated info for the wall street. Either all prognosises are wrong as they were wrong several years ago or this is a rarest ever opportunity for making big bucks. On the other hand we are watching the same situation with SOL. We already got a guidance in Q3 CC, we already understand a size of projects and possible benefits from unique company position among her peers and the stock is still in low 2s while should have been in the same range as TSL at least.

I had the same confusion here. Why CSIQ having a so low market cap??? It's market cap should at least as big as or close to TSL. IMO.

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CSIQ has not outperformed over time, but in certain scenarios they do outperform. 2013 is such a perfect CSIQ storm, even without considering the projects (which is 50% of 2013 sales and extremely lucurative). There can only be one of three explanations:

[*]Market does not see the 2013 perfect storm coming

[*]Market does not care that CSIQ will blow the roof in 2013, since their strength is more opportunistic (subsidies prices - glut prices driven) than fundamental (in-house production excellence)

[*]I'm wrong about the perfect 2013 storm

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Guest spiritcraft

or 4. Wall street has no idea as yet and is in the dark regarding CSIQ, it's peers and even PV in general.

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Despite my allocation targets, I'm still basically all in SOL, but I moved some of it into CSIQ (less than half of target still). Relatively speaking I cannot see CSIQ have a bad ER (especially guidance).

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Guest nanofrogfish_spf

After CSIQ pulled back with the rest of the solars a few weeks back, it’s been in kind of a lower volume “wait and see” mode leading up to the earnings release. I seriously doubt that the overall “market” has put as much time and effort in as I have modeling and continually tweaking this year’s EPS expectations. And it’s not like my model is based solely on trying to predict what ASP’s and costs are going to be for the next 9 months, since over half of it is very visible both on revenue and margins.

I’m guessing that the biggest reason for the “wait and see” is the Q4 numbers itself…probably over a dollar loss. And this is on top of a string of bad quarterly reports with most below expectations. So many don’t want to hold too much or accumulate before earnings (gun-shy at this point). And judging by some the comments this is the prevailing opinion…CSIQ therefore has to prove itself first. But I also don’t see the massive shorting and take-down that has preceded the previous releases.

But the market has been responding more to the outlooks than the Q4 numbers (just look at FSLR with good Q4 but bad outlook, and opposite TSL and YGE bad Q4’s but “not-so-bad” outlooks). And with the really big earnings coming in the 2H, I think many are waiting for the “expected” drop early Monday, and as long as the outlook is pretty good think they can buy in at that time. And if both of the recently finished TransCanada projects are recognized in Q1 (instead of the possibility of 1 in Q4), then they have a very good chance of a break-even or better 1st quarter.

And btw from my observations the “market” is wrong about stuff more than it’s right (excluding their short-term manipulations which shouldn’t really count if you’re a long term investor).…that’s why you so often see the huge movements both up and down after earnings are released...the market is surprised. I’m sure there will be bad stuff in the release that you can focus on, especially when it comes to the Q4 numbers, but I’m pretty sure there will be a lot more good than bad when it comes to the Q1 and 2013 outlook.

Boss, keep in mind that my preliminary $3.00 “EPS” is BEFORE forex and taxes (not sure how to model the tax part, and they always seem to somehow lose money on forex part), so in reality it’s probably closer to the $2.00 level with all things considered which isn’t too far from Nomura’s estimate of $1.77, so it’s not like I’m making this up (although I really think the $3.00 EPS or better is very doable AFTER forex/tax, but this depends on the profitability of the non-utility sales which I have much less visibility on at this point, so for now I’ll keep it conservative. And btw Boss, I feel the same about your SOL’s 2013 EPS estimate as you do about mine… :)

But until Monday morning this is of course all just speculation…

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Guest ILOVEPV

I see the only potential obstacle for PV solar stocks to thrive big time: a general market collapse that can happen any given time. When everything tanks/sinks PV solars can not become big winners THOUGH you never know - theoretically speaking should their earnings go up exponentially they can attract a lot of new investors and share price will follow. A typical example of this contrarian move is educational stocks behavior (e.g. COCO, APOL, etc.) during last 2008 dramatical downfall.

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Guest nanofrogfish_spf

or 4. Wall street has no idea as yet and is in the dark regarding CSIQ,

spirit, this may be the best explanation...keep in mind there are only 4 analysts that officially follow CSIQ (per their website), and only 2 that even give earnings estimates. Now look how many Trina has...probably 15 to 20. To me, that is the biggest reason for the valuation discrepancies between the 2...but as CSIQ's outlook improves and generates more interest, I can see this changing quickly (why would any analyst that follows TSL not also follow CSIQ?...it makes no sense now (although maybe it did a year or 2 ago).

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Guest spiritcraft

I seem to remember that there were may analysts following CSIQ before the ASP crash. I am sure they will come again. It will be interesting to see who is on the call. In the grand scheme of things, no one knows about this sector. It has never been hot really, it has been downplayed as a fad but that will change. If CSIQ does as well as many think, I can see a 2009 like rise as a potential outcome.

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Guest Lepv123

for 2013! So how come JKS rose soo much? This is a no brainer to start accumulating CSIQ down here. I'm hoping for at least $10 by Jan 2014. What do you guys think? I think this stock has become a great longterm play! Thanks for all those that have contributed info!

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Guest nanofrogfish_spf

They'll certainly have plenty to talk about...be curious to see how many analysts sign up for this one... Some updates I'm looking for tomorrow; - current size of US pipeline - some type of update on the CS-SKY joint venture - update on China projects - update on ELPS production capacity - info on ResidentialAC and CommercialAC volumes and margins - what's up with the LDK arbitration award - year end MW guidance and cost/W targets - Q1 MW/GM guidance (of course) - and wouldn't it be nice if they gave some type of full year revenue and EPS guidance, and catch everybody by surprise???

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Guest nanofrogfish_spf

Pretty much as expected so far, other than the lower Q1 and full year shipment guidance. Based on comments in the release, looks like they are going to focus on downstream, and only sell modules in the higher margin markets...based on shipment data they were doing pretty well...must not be shipping anything to china. Also, made a comment about "returning to profitability on a full year basis"...and not "by the end of the year". It was good they verified all the Skypower project revenue would be % of completion basis...15 going on simultaneously! The CC will be very interesting indeed...

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