Over a month ago, Macquarie slashed its rating on Canadian Solar (CSIQ) and said it had lost credibility in management due to another EPS revision lower due to currency exchange losses. Today, that credibility takes another hit along with the price of its stock. The company announced after the bell today that it has been issued a subpoena by the SEC related to sales transactions last year. As a result, they’re delaying their earnings results which were due tomorrow and are retaining outside counsel and forensic accountants to review the transactions in question. The company may revise Q409 numbers and defer them to Q1/Q2 2010 to recognize sales only after receiving full cash payment from certain customers and to account for certain return of goods after the quarter end.
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While the company will delay issuing official Q1 earnings results, they did announce that they shipped an estimated 186.4MW during the quarter which is below the previous guidance of 189 – 191MW. CEO Shawn Qu, didn’t comment on the SEC subpoena, but did comment on the record shipments during the quarter.
“Market demand was very strong in the first quarter. We reached record-high shipment levels in Q1, which we believe demonstrates the success of our diversified sales channels and our strong brand name recognition. Our performance also reflects the advantage of our flexible vertical integration model, which allowed us to quickly tap our suppliers in order to capture sales opportunities. On the other hand, the unexpected depreciation of the Euro combined with a higher ratio of external purchased cells put pressure on our margins. We have taken steps to stabilize and improve our margin structure.”
Looking ahead to next quarter and the full year, the company sees strong demand continuing. They see shipments in the range of 170 – 180MW for Q2 and see the 2nd half being stronger than the first despite feed-in-tariff cuts in Germany. They are raising their full year guidance from the previous 600 – 700MW to 700 – 800MW.
Shares of CSIQ were halted after hours, then slammed after resuming trading, down close to 30% at one point. They have since recovered some and are down around 15% and hanging in around the $10 level which is an important support area around the July 09 lows.
It’s always difficult to say how these accounting irregularity cases affect a stock, but in most cases it’s a big weight for awhile. Fundamentally, this is a company that is still a top China solar play especially if you factor out the recent forex hits which it plans to hedge against better in the future, but it’s probably best to remain on the sidelines until better visibility into forex and accounting issues.