Tuesday, November 17, 2009

Canadian Solar -- Serious Questions

Canadian Solar (CSIQ) reported improving results and would have you believe that the trend is up and away. After all we are solving the world’s energy crisis. What they do not point out is that despite the corporate name they hardly have any operations in Canada. Most of their revenues come from Europe (well over 85% last quarter) but most of their manufacturing is in China. The revenues in Asia are anaemic. Asia needs to become energy efficient also so you have to wonder about the marketing strategy.

Speaking about marketing there is no discussion on how they manage the distribution channel. Is it direct sales, distributors or some form of agency agreement? How do they know they are making the right deals. There are other competitors out there also distributing. You cannot rely on the market place just beating a path to your door.
The earnings release headline trumpets an 87% increase in revenues Q3 over Q2 but they neglect to mention YOY is a decrease.

Accounts receivable net of doubtful at Sep 30 stood at $227 million which is still larger than the entire quarters revenues which are supposedly 87% greater than the comparable quarter. They are not collecting their receivables.

Value added tax recoverable doubles to $31 million or 15% of the quarters revenue. Just seems huge if you know what I mean.

Short Term borrowings triple to $322 million which explains where all the cash is coming from. No explanation about their banking relationships or structure.

Payables have jumped from $30 to $157 million. When your payables are equal to 50% of the quarter’s revenues you have to wonder about operating difficulties and tough guy’s knocking loudly on your door.

Accrued warranty costs jump 40% to $14 million. No explanation about warranty issues, policies or any other danger signals.

All this was enough to drive the stock to its 52 week high. Hmmm. Where is the SEC in all this.