Canadian Solar hits highest-ever quarterly profit at USD55.8mn in 2Q14

Momentum will apparently keep going into 1H15F.

Canadian Solar reported its highest-ever quarterly net profit for 2Q14F at USD55.8mn, with 3Q14F guidance suggesting further increases from here, and it is seen that the momentum will be continuing into 4Q14F and 1H15F.

According to a research note from Nomura, beyond 1H15F, however, earnings could depend on whether the company would retain some of its projects on the book for a potential YieldCo exit.

Such an exit, not in Nomura's numbers, could have meaningful upside to earnings potential; albeit could increase lumpiness of recognition.

Here’s more from Nomura:

We expect CSIQ to report sequentially rising earnings in both 3Q14F and 4Q14F, to reach new record quarterly earnings levels.

Policy update in China enabling a higher quota for utility projects and/or an improved financing environment for distributed installations should kick-start China’s demand, potentially putting current uncertainty behind us.

CSIQ has noted that it will evaluate a YieldCo-like vehicle for better pricing of its project pipeline.

We do not yet include this into our numbers but such a move could provide meaningful upside to our earnings.

CSIQ has underperformed the MSCI China by 24.4% over the past three months, on market concerns about softer-than expected demand from China and continuously weakening ASPs.

On our new estimates, CSIQ currently trades at 2014F P/E of 6.6x (EPS: USD3.80), P/B of 1.7x (BVPS: USD14.55) for a ROE of 35.5% and a ROIC of 21.8%.

We value CSIQ’s projects business on an NPV basis and value CSIQ at USD45.

However, we do not yet assume a YieldCo-like structure for exits which could potentially enable much higher NPV.