Canadian Solar suffers $129m reversal in quarterly fortunes

With Canadian Solar CEO Shawn Qu hospitalized after an accident earlier this month – as revealed by the Chinese-Canadian solar manufacturer today – ward visitors may want to avoid letting him glimpse his company’s first-quarter figures.

It was left to acting chief executive Yan Zhuang to describe the opening three months of the year as “a one-time bump in our record” as investors digested a quarter-on-quarter turnaround in fortunes that saw the US$111.6 million profit banked at the end of last year become a US$17.2 million loss.

In fairness to the Ontario-based company, the explanation that the rapid reversal of fortune was the result of a rush of highly profitable PV project sales from October to December appears justified.

Whether the latest update constitutes a blip, however, will depend on how successful the company is in realizing its stated plans to sell off its 3.4 GW portfolio of “late-stage” utility scale projects by the end of next month. The confirmed sale of an 80% stake in the company’s 483 MW Brazilian portfolio and 134 MW and 68 MW project sales in the U.S. and Mexico, respectively, will help in that regard.

Manufacturing downtime

There were some improvements to be seen in the figures but they were all in the wrong areas, as operating, selling and general and administrative expenses fell on Q4 last year. Elsewhere, however, gross profit fell from US$271 million to US$107 million, the volume of panel shipments came in from 1,951 MW to 1,575 MW, net revenue almost halved from US$901 million to US$485 million and gross margin retreated from 28.3% to 22.2%. Yan’s comment that all those figures came in ahead of forecasts smacked a little of desperation.

The report mentioned an “enterprise resource planning” system upgrade that cost five days’ worth of activity at “several manufacturing facilities” and also noted the effect of the Chinese New Year on the first-quarter figures, neither of which explanations is likely to win over any disgruntled shareholders.

Anyone who underestimates the effect of President Trump’s escalating trade war with Beijing on the global solar industry may wish to note the foreign exchange figures reported by the Canadian manufacturer, with the appreciation of the renminbi against the dollar turning a fourth-quarter FOREX gain of US$7.3 million into a US$8.5 million loss in the latest figures. And that came after a US$8.5 million foreign exchange reverse in the first quarter of last year.

Forecasts

Canadian Solar is nevertheless set to press head with plans to expand its annual manufacturing capacity, albeit to a much more modest extent than its major Chinese peers, with cell output to rise from 6.3 GW to 7.8 GW next month, and 9.3 GW by the end of the year. Module capacity will rise in similar stages, from 8,880 MW to 9,130 MW and 11.2 GW by the end of December. Analysts may note, however, the plans are accompanied by a footnote stating they are “subject to change based on market conditions”.

Shareholders wondering how much of a blip the figures represent will note Yan has predicted module shipments will rise to 1.95-2.05 GW in the current quarter and that total revenue is expected to reach US$970-1.01 billion.

With Canadian Solar having recently announced completion of the biggest module supply deal in its history – for 1.8 GW of high efficiency panels to EDF Renewables North America – perhaps Qu’s convalescence will not be too painful after all.