Do These Anti-Dumping Decisions Mean It's Lights Out for Canadian Solar?

Keystone Solar Farm in Pennsylvania. Source: Canadian Solar.

More likely than not, if you've heard anything about China in the financial media recently, it's had to do with the wild ride its stock market has been on. But those with an eye on the solar industry are looking even closer at Chinese suppliers of solar panels following recent announcements from the Canadian and U.S. governments.

How will this affect Canadian Solar -- one of the more profitable Chinese PV manufacturers? Let's take a look.

Surveying at the fieldRecently, the Canadian International Trade Tribunal recently released its findings that Chinese companies exporting photovoltaic, or PV, modules into Canada have been involved with dumping and subsidizing; consequently, anti-dumping duties have been established for the next five years. Additionally, the U.S. Commerce Department, also acting to discourage unfair trade practices, adjusted its anti-dumping and anti-subsidy rates on PV modules imported from China.

There are a number of Chinese PV suppliers, and as the solar industry continues to thrive, investors have turned to these suppliers as a way of gaining exposure to the solar industry. Although there's a considerable disparity between these companies, Canadian Solar stands out as one of the more recognizable names in the space.

According to market research company IHS, the top three suppliers in 2014 were all Chinese companies. Canadian Solar is only third in terms of total PV sales globally behindTrina Solar Limited (NYSE: TSL) andYingli Green Energy.The rankings shouldn't bother Canadian Solar investors, though, because Canadian Solar is the most profitable of the three companies.

CSIQ EPS Diluted (TTM) data by YCharts.

I'm having deja vuYogi Berra wasn't addressing the solar industry when he voiced his immortal perspective on "deja vu," but it applies here nonetheless. The recent Canadian and American decisions to impose tariffs is nothing new for Chinese PV suppliers. The Commerce Department began imposing duties on Chinese imports back in 2012 in response to a 2011 complaint from American company SolarWorld. This subject resurfaced last December when the Commerce Department revised its anti-dumping duties on solar panels made in China and anti-subsidy duties on PV modules made in China, further expanding the duties to imports from Taiwan.

So, how have these three fared since October 2012, when the Commerce Department announced its final decision to impose duties? Canadian Solar has shined the brightest. CSIQ Chart

CSIQ data by YCharts.

Although the other two outpace Canadian Solar in PV sales, it is clear which company has managed to keep its costs in check -- a boon to both its bottom line and share price.CSIQ Operating Margin (TTM) Chart

CSIQ Operating Margin (TTM) data by YCharts

Where to from here?Canadian Solar doesn't seem to be too concerned with the Canadian government's decision to impost the anti-dumping duties. According to pv magazine, a company spokesperson said, "As we have a module factory in Canada, with 500 MW production capacity per year, most of our modules supplied to Canada markets are produced locally." The remaining 2,500 MW of total annual solar module manufacturing capacity are located in China.

Even though Canada and the United States are two of its largest markets, it's difficult to gauge just how much of an impact the anti-dumping duties will have. Canada accounted for 40% of the company's net revenue in 2014, and the U.S. accounted for 20%, but this can be misleading. This revenue is not solely based on PV sales, and thus, not subject to anti-dumping duties. Whereas in the past, the sales of solar modules had been the main source of revenue for the company, management has made clear that it believes its future success depends upon its ability to diversify into its total solutions business. Solar module sales have declined from 88.5% of net revenue in 2012 to 55.5% of net revenue in 2014; its total solutions business has risen from from 28.6% of net revenue in 2013 to 44.5% of net revenue in 2014. Furthermore, the company is successful in many markets beyond Canada and the U.S. -- it recently announced a joint venture with two other companies to develop a 500 MW solar power facility inMaharashtra, India. When finished, Canadian Solar plans to further expand its presence in the country by developing a second 500 MW project in Jharkhand with the same two companies.

The imposition of anti-dumping duties may have even less consequence for the company should their plans to follow the lead of many other renewable energy companies be realized. Commenting on the possibility of forming a yieldco, Dr. Shawn Qu, Canadian Solar's chairman and CEO, said, "We have been reviewing various options to structure and potentially list our downstream business and we are now planning to form a yield co vehicle, in order to maximize value creation for our shareholders over the long term."

A Foolishly bright takeawayIs this the beginning of the end for Canadian Solar? Not by a long shot. China and the U.S. have been sparring for years now regarding anti-dumping and anti-subsidizing duties, and in that time, Canadian Solar has been able to achieve and maintain profitability. In all likelihood, the latest announcements will not impair its ability to continue to do so in the future.

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