Jinko Solar (JKS: Charts, News, Offers), is a Chinese manufacturer of solar modules, cells, silicon wafers and ingots based in the Jiangxi and Zhejiang provinces. The company’s stock tripled its May 2010 IPO price due to explosive earnings that caught all analysts by surprise. The company, which trades on the NYSE, announced a Q3 profit of $1.75 per ADS, far higher than the Street’s consensus of 0.96 per ADS. Its revenue rose to $215 million, topping expectations of $153.3 million. It then offered optimistic guidance for the next quarter, expecting revenues of $210-$220 million, much higher than the analysts’ average of $162.4 million. What’s more stunning is its gross margin reaching an unprecedented 33.5% this quarter, in comparison to the 26.9% last quarter and the 15.8% a year ago. On Monday, the stock jumped as much as 24% during regular trading to the $35 range. Even at an elevated price, the calculated forward P/E for the stock is 8.32, with an undervalued PEG ratio of 0.46, a rarity for a Chinese stock. Has the flare of solar hype returned to the markets?
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The management team of Jinko, which has a market cap of over $3 billion USD, still owns 54% of the company’s equity, which suggests dedication towards continued growth despite a tripled stock price. There are also seven mutual funds that list Jinko as a main holding. The company has been serious about expanding its global footprint – last month, it established its first American office in San Francisco. Jinko, like its solar peers, reports product shipments in terms of the potential MW (megawatts) that their solar cells and modules can generate. In this context, the company shipped 134.8 MW in Q3, an anticipates 130-140 MW to be shipped in Q4. While these numbers certainly are encouraging, the company has room to grow – its in-house cell and module production capacities have upper limits of 300 and 450 MW, respectively. Its core products are Monocrystalline and Multicrystalline Ingots and Wafers, Solar Cells and Solar Modules. Higher quality, more conductive Monocrystalline silicon products tend to be more expensive than the cheaper, Multicrystalline ones, but the company produces both in accordance to customer specifications and needs. The company’s aforementioned 33.5% gross margins separate it favorably from the solar pack, as its main competitors have seen their margins shrink rather than grow this past year.
Solar power, along with wind energy, has long been touted as the clean successor to current energy solutions. However, during the global financial crisis, many companies and investors were forced to rethink their rosy vision of a clean Utopia in favor of the grittier reality of emerging markets inevitably dependent on cheaper fossil fuels and coal energy. In the nasty period between the second half of 2008 and the first half of 2009, solar stocks fell across the board in an awful bust reminiscent of the dot-com bubble of 2001. However, unlike failed Internet startups, solar stocks actually have a future in developed, first world nations seeking cleaner energy alternatives. The key variable is the economic health of these nations and their recovering spending power.
For example, the United States, South Korea and Germany have all signed solar technology incentive programs into law to encourage businesses to adopt solar energy. Germany consumes over half the world’s supply of solar modules, which convert sunlight into electricity. In early 2010, Jinko established a subsidiary in Munich to cash in on this market, in addition to a Rotterdam, Holland warehouse to expand its European operations. In the United States, large areas of land in the arid west are being purchased by major corporations in order to create large scale solar power plants. Jinko’s baby steps into California suggest that the company is looking into similar American investments as well. CEO Kangping Cheng stated confidently of his company’s future, “We expect to continue our strong momentum in the fourth quarter and believe we are well positioned to become a leader in the solar industry.”
At the end of last year, the company had more than 440 solar customers from China, the Netherlands, Germany, the United States, India, Belgium, Singapore, South Korea, France, Spain, Israel and others. The company is one of the larger Chinese solar businesses, and competes against Trina Solar (TSL: Charts, News, Offers), Yingli Green Energy (YGE: Charts, News, Offers) and Suntech Power (STP: Charts, News, Offers). Compared to its peers, it has the highest price-to-book ratio by far, suggesting high hopes for the company and a possible free fall if the company takes an unexpected turn for the worse. As it stands today, however, Jinko Solar is a highly lucrative triple wager on a recovering global economy, an undeniably powerful Chinese economy and a resulting paradigm shift towards solar and wind power.
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
