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dydo

Quarterly Estimates

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1 hour ago, sunnypease said:

I thought we all were impressed by and accepting the Downgate hill analysis? 

https://seekingalpha.com/article/4108224-canadian-solar-rare-bargain-hiding-plain-sight

He put the value of CSIQ's module business at zero.

I'll include his results here:

  • A large portfolio of operating and utility scale solar projects on balance sheet – $9.30/share;
  • A global development company – the pipeline of projects not yet operating that CSIQ will derisk and sell over time to third parties, generating a developer margin – $6.60/share;
  • A hard to replicate, derisked pipeline of solar power projects in Japan – $14.20/share;
  • The company’s solar module manufacturing business – the third largest in the world (to which we assign almost no value despite the material upside potential); and
  • Proceeds from a potential settlement of the ongoing Section 201 trade case and Deferred Tax Assets – $4.70/share.

 

Module manufacture provides the inputs to the other pieces of the business, so in that way the ability to produce at a certain price is important to his model.

 

I have never liked the sum of the parts analysis. The only time this type of analysis makes sense is when assets are current assets and someone is looking to do a hostile takeover to break apart the company. In those cases the acquiring company is looking to buy the company a a deep discount to the sum of the parts so that they can turn around and sell the assets individually. Thus the sum of the parts never lines up with share value, otherwise all companies would trade at book value plus. 

 

The analysis from Downgate Hill, takes a view of values for items to be built over 4-5 years and tries to apply a value that they  believe the company should get today instead of a value based on executions over the next 4 to 5 years. In a stable growth industry that is a fair assessment. In a volatile upstart industry where boom bust overcapacity and price wars are prominent, that type of analysis is highly flawed.

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I liked the clarity of the investment in affiliates brought in the article, which I have not seen anywhere before. I was impressed with the amount of detail and some observations or facts I did not know. The math? I was not big on it and I also do not like to break things down and never did in a past by sections of operational strategy.  An article as a whole was huge and rich in detail and enjoyed reading it.

My comparison does not have a personal bias, it takes the same balance sheet items and compares them across companies. Quoting the reply to my comparison and use the article written by someone else does not help feedback on my comparison.

One can choose to ignore that little of equity produced by JKS is paid with 3 times versus massive FSLR equity is paid with 1.67 times. I started comparing those numbers because I could not find a relationship between the value of JKS and value of CSIQ on market, and I thought that FSLR was going to be fully valued at one point. There is no discovery in the fact that other industries receive values in a triple of what FSLR does, by not being much more technologically advanced, with exception their tech stays indoors.

The investment is sound when a company can pay for its own actions, and produce own cash flow.  My table is trying to capture it.

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My only feedback, and I think it remains, is that previously we discussed that much of the value of CSIQ as being hidden in it's systems business, both operating & future.

Klothilde seemed to be discussing the comparative value of the two company's module businesses.

Odyd, the numbers that you posted are also insightful. 

As for 4-5 years timeframe, I believe Downgate hill was planning on much of this hidden value to be revealed over the next 6 months.

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17 minutes ago, dydo said:

The math? I was not big on it...

Dydo or Robert, not sure how you prefer.  Could you maybe give a few spots where you think his math is flawed?  Is it the use of discounted cash flow that is questionable?

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9 hours ago, sunnypease said:

Dydo or Robert, not sure how you prefer.  Could you maybe give a few spots where you think his math is flawed?  Is it the use of discounted cash flow that is questionable?

It is a bias view that stock is worth $40 or $35.  I did not like how sales of plants were calculated. Value for Japan sale was way beyond optimistic, no debt? how. I like what I did in my table. Solar investing is about not losing money first, second how long the company can go on third, can they make a profit, and can they improve in time. My table is a fact, the article is an interpretation of one.

 

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On 10/9/2017 at 8:56 PM, dydo said:

Klothilde those are good points, but isn't true that procurement of parts is already covered by results of net income? FSLR needs capacity but CSIQ  does not. The gross margin would be down and so would be the net income. I separated capacity built as it is different than regular capex or up keep. 

Fair enough, we have different view points on this subject.

Two further feedback points about your table.  I went over CSIQ's Q2 balance sheet and found the line items "Financing liabilities" ($412.2M) and "Liabilities held-for-sale" ($211.4M) that you don't take into account in your calculations though imho they may impact both project asset value and debt.  I'm not  all that deep into CSIQ's numbers and consider their project accounting intricate and intransparent so these points are intended as questions.

On page F-22 of their annual report they say that in cases where they sell minority stakes of projects to 3rd parties the total project assets stay on the balance sheet and the minority claim is accounted for under "Financing liabilities".  Seems to me then that in order to reflect the net shareholder ownership of project assets you would have to deduct the $412.2M in financing liabilities from the $2526.9M in total project assets (?)

On page F-37 of their annual report they break down "Liabilities held-for-sale".  Seems these are the liabilities of the project companies whose assets were classified under "Assets held-for-sale" and that consist primarily of long-term project debt.  So wouldn't you have to add those $211.4M or a large chunk thereof to your debt figure of $2443.8M ?

THX

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4 hours ago, Klothilde said:

Fair enough, we have different view points on this subject.

Two further feedback points about your table.  I went over CSIQ's Q2 balance sheet and found the line items "Financing liabilities" ($412.2M) and "Liabilities held-for-sale" ($211.4M) that you don't take into account in your calculations though imho they may impact both project asset value and debt.  I'm not  all that deep into CSIQ's numbers and consider their project accounting intricate and intransparent so these points are intended as questions.

On page F-22 of their annual report they say that in cases where they sell minority stakes of projects to 3rd parties the total project assets stay on the balance sheet and the minority claim is accounted for under "Financing liabilities".  Seems to me then that in order to reflect the net shareholder ownership of project assets you would have to deduct the $412.2M in financing liabilities from the $2526.9M in total project assets (?)

On page F-37 of their annual report they break down "Liabilities held-for-sale".  Seems these are the liabilities of the project companies whose assets were classified under "Assets held-for-sale" and that consist primarily of long-term project debt.  So wouldn't you have to add those $211.4M or a large chunk thereof to your debt figure of $2443.8M ?

THX

Hi Klothilde, thank you for your input.  That's right, I missed both of those factors and I appreciate you pointing them out. When both are included, it becomes apparent that using a First Solar's ratio of the market paying for its liquidity represented by market capitalization, CSIQ receives double the valuation versus the one of the FSLR and CSIQ would be worth only $7 if the metric was the same.

I guess the burden of the debt has lasting effects., and the equity extraction from the balance sheet is rather limited when all points are considered. FSLR is certainly a financial powerhouse dwarfing all other companies, and JA Solar appears to be the only undervalued party in my model. Perhaps it is futile to use FSLR as a benchmark, but it is certainly obvious that when used FSLR would be the only clear option for an investment. Thank you for your feedback.

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