Canadian Solar’s 1Q13 Financial Result Evaluation: Rise in Gross Margin Lead to Decrease in Loss

published: 2013-07-04 21:09 | editor: | category: Analysis

Canadian Solar Co. Ltd. released the outstanding 1Q13 financial report on May, 28th. The financial report showed that the net revenue in the first quarter was USD$263.6M, a 10.6% decrease compared to that from previous quarter and a 19.1% drop compared with that in 1Q12. The amount of module shipment reached 340MW, which was about the same as that in 1Q12. But it decreased 64MW in contrast to previous quarter. While both sales revenue and shipment quantity decreased slightly, the gross margin increased from 5% in 4Q12 to 9.7%, which’s ranked second place in gross margin among the large first-tier Chinese manufacturers. . With the net loss dropping down to USD$3.9M, Canadian Solar has become the first-tier Chinese manufacturer with the least net loss. 

Below are the major reasons that EnergyTrend believes Canadian Solar can continue elevate the gross margin:

The leading region diversification strategy 

Europe once was the major PV market in the world. However, due to the economic recession, PV market demand has continued to shrink in Europe. Surprisingly, it turned out that Asia’s PV market demand grew significantly this year. Impacted by the “Renewable Energy Special Measures Act”, Japan’s installation amount is likely to rise significantly. In 1Q13, sales to European markets represented 24.7%, a 42.6% decline compared with that in 1Q12. Several factors such as punitive tariff led to fewer orders in Europe and thus the proportion of Europe’s revenue in the overall revenue will continue to decrease. And sales to Asia and all other markets represented 57.4% of net revenue.. In addition, the amount of modules shipped to Japan this quarter accounted for 24.5% in the total amount of shipment, a 75.9% increase compared with that last year. Yet, the margin in Japan is high enough, which means that the Japanese exchange currency loss shouldn’t have that big of an effect. By entering the Japanese market in the early stage, Canadian Solar will continue to be benefited from the increasing demand in Japan in order to maintain higher gross margin.

From pure module provider to total solution provider 

The total solutions business in 4Q12 accounted for 12.8% in the total revenue and it rose to 19.2% in 1Q13. Canadian Solar’s utility-scale project pipeline now stands over 780MW DC, with approximately400MW (DC) in Ontario, Canada, 255MW (DC) in USA, and 125MW (DC) in Japan. Furthermore, the construction of a 30MW power plant in China will be completed by the end of this year or the beginning of next year. The completion of many other solar power projects will continue to bring outstanding revenue to Canadian solar. It’s forecasted that the three projects that are about to be opened in Canada will each bring revenue of USD$60M to Canadian Solar, which shows that Canadian Solar is on its way to transform to total solution business model. And their goal is to raise the proportion of total solution business in the total revenue to 50%.

With the power plant business growing, they have accumulated many resource accesses. Aside from the outstanding performances in Japan, USA, and Canada, Canadian Solar has started to put more effort into Chinese market. The recent loan agreement of RMB270 million (approximately USD$44.1M) signed with China development bank will be used to finance the construction of a solar project and its ancillary  in West China. Apart from the development in Asia, they have also expanded toward emerging markets such as South America. In order to strengthen South America’s sales network, they recently announced that they will build new sales and business development offices in Brazil. To look into 2Q13, the amount of shipment is expected to reach 380-420MW. Because Canadian solar entered the Japanese market at a relatively early stage compared to other large manufacturers, and Suntech that used to have an advantage in the Japanese market have started to fade out, the proportion of Canadian Solar’s modules shipping to Japan is likely to continuously increase, which will elevate the gross margin to 9%-11%. Combining all of the following advantages – the stable development of total solutions business, leading development in emerging markets, revenue focus shifting from Europe to Asia, and rise in the amount of shipment, Canadian Solar will continue to hold a competitive advantage in the revived PV industry.

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