Asia weighs on Canadian Solar's Q1

Canadian Solar beat its guidance for shipments and revenue, and turned in its third consecutive quarter of profitability, but nevertheless disappointed investors – with shares trending sharply down in early trading Friday.

In a conference call, chief executive Shawn Qu noted that demand in China during the first quarter was significantly weaker than expected – a theme echoed earlier this week by Hanwha SolarOne.

Qu expects demand of at least 11GW-12GW in China this year, although “the possibility” of the country reaching its 14GW target remains in play.

Qu also acknowledged that permitting for projects in Japan – which Canadian Solar has identified as a key future downstream market – has come slower than expected. The company has recently “short listed” buyers and EPC contractors for its first batch of projects in Japan, totaling 11MW, and will "soon" be able to announce the start of construction at the first 1MW project.

“Though that sounds like a humble start, it allows us to establish the market benchmark of project transaction value and EPC cost for our future projects in Japan,” Qu says.

All told, Asia accounted for 50.4% of Canadian Solar’s revenues during the quarter – down from 57.4% during the same quarter last year.

Construction of utility-scale projects also struggled in Ontario, where the company is headquartered, given the brutal North American winter of 2013-14.

Canadian Solar notched up 27.4% of its revenues from its downstream “Total Solutions” business, against its 50% target for the year. That, however, is an improvement on the 23.4% contribution the unit made in fourth-quarter 2013.

At 14.7%, the company’s gross margin took a modest hit due to a “small” fire at a cell plant in China.

Those challenges aside, Canadian Solar turned in a reasonably strong quarter, with module shipments at 500MW, compared to 340MW during the same quarter last year, and revenue at $466.3m, compared to $263.6m.

Although net income dropped to $3.8m from $20.9m in Q4 2013, it nevertheless represents the company’s third straight quarter of profits, and compares to a loss of $4.4m in the comparable quarter last year.

Investors often treat solar companies harshly during the early months in a calendar year, given the inherent slowness of the market in many core geographies due to weather.

Qu said he expects “reasonably strong global market demand growth” in 2014, with “healthy” performances from the company’s four core markets – Canada, the US, Japan and China.

Canadian Solar maintained its full-year shipment guidance of 2.5GW-2.7GW, while noting that it has recently expanded its module capacity to 3GW.

With a factory in Ontario, Canadian Solar would have an advantage should the US ramp up its tariffs on Chinese PV kit this year.

Canadian Solar’s US-listed shares were down more than 8% in pre-market trading on Friday, and after a spectacular performance in 2013, are down more than 15% year-to-date.

However, among PV suppliers which perform the majority of their manufacturing in China, it still has by far the largest market capitalization – with a value more than double that of Yingli, the world’s largest module supplier.

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