In the U.S., solar energy is downplayed – even derided – by the current administration. Yet, solar generation of electricity is flourishing worldwide, even in the U.S. This article will look at why China-based JinkoSolar (JKS) currently has and is likely to keep its leading position in the sector.
Jinko’s largest project to date is the recently opened Noor Abu Dhabi solar plant, for which it supplied the panels. This 1.18-gigawatt single-site project is, for now, the world’s largest (I’m not sure why oil and gas states do large solar projects, but they do. Maybe it’s simply because they have lots of money, sun, and land).
The Abu Dhabi solar panel project. Source
The Abu Dhabi project is impressive, but Jinko, with a presence in over a dozen countries or more, is now involved in solar electricity generation around the world, especially utility-scale and commercial markets.
JinkoSolar crushed second-quarter earnings projections
The stock surged in late August (it has since given back all of the gains and more) after reporting strong second-quarter earnings, beating projections. Adjusted earnings were 71 cents per share, beating the expected 26 cents, while revenue was $1 billion, beating the expected $931 million. Shipments were up 11.5% from the previous year.
Adding to the optimism, CEO Kangping Chen said he expects 2019 to be a banner year for the company as emerging overseas markets reach gigawatt level installations.
Over the last few years, however, Jinko has had a rough go of it. Despite an average annual 28% revenue increase over the last five years, the stock is down almost 40%. Over the same period, earnings per share posted a modest annual gain of 6.1%. The stock currently trades around $16.
Despite record modular shipments and revenues in 2017, Jinko’s stock price fell sharply in 2016 as the market correctly anticipated deteriorating margins, lower profits, and larger negative cash flows. The CEO blamed the poor metrics on higher material costs and OEM issues.
The stock bounced after 2016, but then declined again in the first half of 2018 due to tariff and Chinese economic concerns surfaced.
A sizzling solar sector is now attracting investors
Reasons for solar’s outperformance include falling material and installation costs, better technology, and the newly realized benefits of pairing solar with storage – a booming market. Storage, of course, makes solar energy dispatchable on-demand 24/7 – negating critics’ biggest argument.
Also, solar costs, even unsubsidized, are now reaching grid parity in some markets. As costs continue to fall, things will only get better for solar.
This is why two-thirds of new electric generation facilities are now renewable ones with solar and wind leading the charge (pun intended). New renewable generation facilities such as solar are cheaper, simpler, and faster to put online. Even with ultra low-interest rates, utilities are passing on new large fossil fuel facilities.
Renewables are now winning the economic battle with fossil fuels. Fortune even had a piece on how it may already be game over for fossil fuels.
JinkoSolar, being the top panel manufacturer, is in an excellent position to benefit from this mega trend.
JKS’s Financial metrics are a mix – but mostly positive
Trailing 12-month sales are $3.8 billion, while annual sales growth has averaged 28.7% for the last five years. The trailing P/E is 9.7, and the forward P/E is 6.1. Earnings growth Q/Q is up 19.8% over last year. This is all bullish for the company
Jinko seems to be working through its 2017 OEM issues and now sees improved net profit and cash flow numbers.
The stock price is currently around $16 – 35% below its 52-week high – possibly making the company a valuation buy.
On the negative side: Jinko’s total debt to equity continues high at 2.45 (perhaps not unusual for a fast-growing manufacturing company) and cash flow issues remain.
Investors also need to recognize that Chinese companies operate under unique conditions. A centralized government can make arbitrary decisions without notice and accounting numbers for Chinese companies at times have proven unreliable.
JinkoSolar is international, has a strong pipeline, and now offers advanced panel technology
JKS has rapidly expanded from its China base in recent years. The company is now in China, the United States, Japan, Germany, the United Kingdom, Chile, South Africa, India, Mexico, Brazil, the United Arab Emirates, Italy, Spain, France, Belgium, and other countries. There are seven production facilities worldwide including one in Jacksonville, Florida.
Jinko’s business is booming and the order book looks good. Second-half shipments were up 21.2% year over year. Q3 and Q4 shipments are also expected to be up, with Q4 possibly setting a record for the company. 2019 is also coming on strong.
At one time, JinkoSolar was known as a mass producer of cheap, low-efficiency polycrystalline modules. No longer; the company now offers more efficient monocrystalline modules and other innovations.
The company’s new Cheetah line, for example, has efficiencies of up to 24.2% and is 70% of second-half 2018 orders. The Cheetah PERC 60M/72M is Jinko’s bid to help achieve grid parity. For readers interested, here is an introductory YouTube video on how Cheetah works.
Jinko claims its Swan Bifacial Module has more power, is lighter weight, and is easier to install. The Swan product is intended to be used for IPP/PPA and grid parity environments which maximize kWh yield and PV plant performance.
The Eagle brand panel is polycrystalline, but has low degradation in hot and/or humid environments.
Jinko offers several products tailored to the unique conditions found around the globe, from the tropics to the Arctic.
Although solar is less than 2% of global electricity generation today, its scalability and ubiquity (the sun shines on almost everyone) bode well for the future.
With the cost of solar-generated electricity now approaching that of fossil fuels, expect solar to continue to take market share. JinkoSolar, as a sector leader, is in a prime position to benefit.
Climatic change concerns due to fossil fuel’s greenhouse gas emissions will increasingly dog the fossil fuel sector, adding even more impetus to the transition to renewables.
JinkoSolar, with its leading position in panel manufacturing, at this point appears to be one of the winners.
Disclosure: I am/we are long JKS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclosure: Investors should do their own research and exercise due diligence before investing in JinkoSolar or any other company mentioned in this article. Renewable energy is a new field, and although I like JinkoSolar at its current price, the future is never certain.