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Canadian Solar offers dim view for 2019, says to look to 2020

SNL Image

Workers at a solar project in India in 2018.
Source: Associated Press

Canadian Solar Inc. offered a downbeat outlook for the start of 2019, saying revenues in the first quarter will likely fall by at least two-thirds year over year even as the global solar market enters what is expected to be a period of considerable growth.

Chairman, President and CEO Xiaohua "Shawn" Qu said sales will slow as the solar panel manufacturer and power plant developer works on factory and technology system upgrades and the appreciation of the Chinese yuan against the U.S. dollar creates what is likely to be a "sizeable" foreign-exchange loss. Profits should improve after the first quarter, Qu said, but full-year revenues could still decline due to low solar panel prices and a drop in project sales.

Canadian Solar on March 21 said it expects first-quarter revenue in the range of $450 million to $480 million compared to $1.42 billion a year earlier. The company said the accelerated sale of certain power plants late last year would reduce project sales revenue and profit in 2019.

"We have been hearing a lot about strong global demand outside of China. So, frankly, I was a bit surprised by [the] Q1 guidance," Philip Shen, managing director and senior research analyst at ROTH Capital Partners, said on Canadian Solar's earnings call. Solar installations are expected to increase by 18% globally in 2019, according to IHS Markit.

Qu said the "pullback" in the company's 2019 outlook "is not a reflection of the long term growth profitability of our core business."

The company has a pipeline of late-stage projects that totals around 2,900 MW, a majority of which is expected to be sold in 2020 or later, and Qu encouraged investors to "look into 2020 rather than dwell [on] 2019."

"Overall, while we expect 2019 financial results to be lower than 2018 due to ... timing issues ... this does not change our view on the long-term health, growth and profitability of our core business," Qu said in a news release.

For the fourth quarter of 2018, Canadian Solar reported net income attributable to shareholders of $111.6 million, or $1.81 per diluted share, compared to net income a year earlier of $61.4 million, or $1.01 per share. The S&P Global Market Intelligence consensus estimate for fourth-quarter 2018 earnings was 85 cents per share, which was based on responses from four analysts.

Canadian Solar shares were down 18.71% at $19.20 at 3:13 p.m. ET on March 21.

Despite 2019 guidance that "disappointed," analysts at Oppenheimer & Co. raised their price target for Canadian Solar to $22 per share.

"We continue to see [Canadian Solar] as having an industry-leading cost structure for modules, compelling product portfolio, and robust global sales infrastructure, and expect it to continue making prudent decisions on where to sell and protecting margins, most notably limiting China sales to [around] 10% of volume," the Oppenheimer analysts wrote in a note after the earnings call.

Also on March 21, Canadian Solar said it increased the size of its board to six members with the appointment of Lap Tat Wong, also know is Arthur, as an independent director. Wong is also an independent director at Daqo New Energy Corp., a polysilicon producer. Polysilicon is a raw material in solar panels.