Canadian Solar Inc. (CSIQ) teamed up with Suzhou GCL Photovoltaic Technology Company Ltd., a subsidiary of GCL-Poly Energy Holdings Limited to build a 600 MW capacity wafer plant in Suzhou, China. GCL-Poly Energy Holdings Limited is China's largest polysilicon producer, and one of the world's leading wafer suppliers.
The new wafer plant is in-line with Canadian Solar to attain self sufficiency in wafers. The total capital expenditure for the first phase of the project is approximately $77 million, which is expected to be financed 33.3% through the registered capital and 66.7% through debt. Under the terms of the agreement, GCL will contribute 90% of the registered equity, and Canadian Solar will contribute 10%.
Canadian Solar expects the new plant, once operational, to help further lower manufacturing costs from the first quarter of 2012 and expand gross margins. The company by securing a captive source of high-quality wafers can support the increased demand levels for high-quality solar module products in solar markets worldwide.
Canadian Solar remains on track to expand its annualized capacity for solar cells to around 1.3GW to 1.4GW by mid-2011. In addition, Canadian Solar also plans to announce a joint venture to build a 600MW solar cell facility that will enable it to reach approximately 2GW of internal solar cell capacity during the first quarter of 2012. The company is also on track to reach 2GW of annualized capacity for module lamination by mid-2011. As a result, the company is on track to achieve a 2GW 'virtual vertical integration' from wafer to cell and module at the beginning of 2012.
Canadian Solar is a low-cost, vertically-integrated solar module producer with predominantly China-based manufacturing assets. The prospects for Canadian Solar look favorable given the company’s geographically-diverse customer base, ongoing capacity expansion programs, improving operating efficiencies and material cost savings through its vertically-integrated production structure.
However, in the near term, Canadian Solar’s shipments were impacted by higher solar cell prices that put margins under pressure. Additionally, the benefits of its ongoing cost reduction program were offset by higher wafer prices, vis-à-vis expectations, on the spot market, higher polysilicon prices and higher non-silicon materials costs, including silver paste. The company presently retains a short-term Zacks #5 Rank (Strong Sell). We have a long-term Neutral recommendation on the stock.
In May this year, Canadian Solar reported an adjusted EPS of 44 cents in the first quarter of fiscal 2011, beating the Zacks Consensus Estimate of 41 cents. Canadian Solar generated revenues of $443.4 million, ahead of the Zacks Consensus Estimate of $424 million. Solar module shipments in the reported quarter totaled 244 MW versus 185 MW in the first quarter of 2010.
Canadian Solar is a vertically-integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications. With operations in North America, Europe and Asia, Canadian Solar provides premium quality, cost-effective and environmentally friendly solar solutions to support global, sustainable development. The company mainly competes with Suntech Power Holdings Co. Ltd (STP) and Westinghouse Solar Inc. (WEST).
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