Canadian Solar (CSIQ): Financing of Growth Still a Major Concern
Posted on August 13, 2008
This morning Canadian Solar (CSIQ) reported exceptional earnings results (on accounting basis of course), and yet I still remain convinced that the company will need to dilute shareholders significantly in the year ahead in order to meet their lofty 2009 expectations. As such, if financing cannot be obtained at reasonable prices (i.e. the stock price is not hyped up by Wall Street brokerage firms), the company will not be able to meet expectations.
Notably, in the company’s earnings press release the CEO stated:
“Our cash position is now excellent as well as our financial ratios. We have adequate resources for all of our planned H2 2008 capital expenditures and working capital purposes.”
Interestingly, management is comfortable with the cash position for 2008, but what about 2009, which is right around the corner? Can the cash position of a mere $180 million or so (and $140 million in debt) possibly finance expected shipments of 500MW+ in 2009, a more than doubling of current shipment capacity?
The answer is that there no possible way $180 million will be enough to meet these shipment expectations, especially given the fact that the company can’t produce the total 500MW in-house, and as such will be forced to buy a major portion of materials for its projected shipments from other suppliers. My opinion is that the company’s projections are simply ludicrous, in light of the fact that if they plan to meet these numbers, they will need to raise at least $500 million+ in order to pre-pay suppliers for raw materials. The prospects of continued financing will keep pressure on the stock.
In sum, as stated in the past, the accounting treatment for many solar PV businesses, like CSIQ, significantly overstates current profitability and dramatically understates future financing needs. As more investors recognize this game, the stocks will continue their decline. It should be noted, though, that the prime beneficiaries of CSIQ’s unprofitable expansion will be LDK and JASO, two companies from whom CSIQ purchases supplies (I believe CSIQ is JASO’s biggest customer). So in theory, whenever CSIQ raises money it will go into the pockets of LDK and JASO, benefiting shareholders of those companies. But a further analysis of JASO and LDK, is beyond the scope of this post.
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In my opinion, CSIQ having enough cash for all the expansion on 2009. However in 2009, they might need cash to expand for 2010.
Listen to the Webcast, everything is ready for 2009, no cash needed.
The earning report says they are making good money from the core business and reach their goals. Don’t understand your comments in regards the money will go to their vendors.
Thanks for your comments. Please refer to our past write ups on solar companies for an understanding of why earnings does not equal “making money” and how the cash-flow works in this business (i.e. vendors of raw materials, like LDK, get paid up-front from CSIQ, while module makers, like CSIQ, get paid very slowly from customers). The accounting numbers do not tell the true story here and are misleading. CSIQ has huge cash needs and $180 million will surely not be enough to meet their projections of 500MW in 2009.