Canadian Solar Inc (NASDAQ: CSIQ) is a leading solar technology and renewable energy company globally.

Q2FY21 Result Update (For the Quarter Ended 30 June 2021)

• The company has logged a revenue of $1.43 billion in Q2FY21, up by 105% YoY that stayed in line with the guided range of $1.4 billion to $1.5 billion. The total module shipments rose to 3.66 GW, up by 26% YoY. Of the total, 167 MW was shipped to its own utility-scale solar power projects.
• It reported a gross profit of $185 million, down by 5% QoQ, while it was up by 26% YoY. It achieved a gross margin of 12.9%, much above the guided range of 9.5% to 10.5%.
• The net income attributable to the company was reduced to $11 million from $23 million Q1FY21 due to the impact of lower gross profit and higher operating expenses.

Key Data (Source: Company Reports)

Bagged Contract

CSIQ’s majority-owned subsidiary, CSI Solar Co., Ltd, on 9 September 2021, has closed the 350 MW / 1400 MWh contract to offer the fully-integrated battery storage system, EPC and long term maintenance service to the Crimson stand-alone battery storage project in Riverside County, California.

Outlook

CSIQ reiterated its guidance on revenue for FY21 which is expected to remain in the range of $5.6 billion to $6.0 billion. CSIQ has also maintained its project sales forecast of 1.8 GW to 2.3 GW and total battery storage shipment guidance of 810 MWh to 860 MWh for FY21.

However, it has marginally lowered its guidance on total module shipment for FY21 to 16 GW - 17 GW from 18 GW - 20 GW earlier.

Key Risks

The company’s performance could be adversely affected by the volatile solar power market and industry conditions. Tighter credit markets could depress demand or prices for solar power products and services, hurt its expansion and results of operations.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

In the last month, the stock of CSIQ Inc. has returned more than 15%. The price of CSIQ Inc. is encountering tough resistance in the USD 44.10 to USD 46.70 range, with the momentum oscillator RSI hovering around 72.82, signalling a possible pause in the upward momentum from current levels. The next major support level is now at USD 37.60, and prices may challenge it soon.

Stock Recommendation

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average) considering lower ROE and decreased EBITDA margin.

For the purpose of relative valuation, peers like JinkoSolar Holding Co Ltd (JKS.N), Maxeon Solar Technologies Ltd (MAXN.OQ), among others have been considered.

Considering current trading levels, technical analysis, and risks associated a “Sell” recommendation has been assigned on the stock at the current market price of US$42.65 per share (Time: 9.59 AM, Washington DC,USA) as on 1^st November 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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