JinkoSolar Stumbles on Covid Challenges, But Longer-Term Future Remains Bright

Key Takeaways:

• JinkoSolar blamed Covid disruptions for a 10% sequential decline in its first-quarter revenue, but added such challenges should be ‘short-term and manageable’
• Company forecast it will sell 35 GW to 40 GW of capacity this year, implying it is taking market share from rivals

By Doug Young

Quite a few messages are emanating from two new announcements by JinkoSolar Holding Co. Ltd. JKS. The bottom line seems to show a company that is emerging as one of the world’s leading solar panel makers, following more than a decade of jockeying among a crowded field that is only now consolidating around a few major players.

That’s quite significant, since the sector looks set for explosive growth in the next decade as countries race to reduce their carbon footprints by installing increasingly efficient solar and wind power.

JinkoSolar’s leading edge in the sector was on display in its first major announcement on Wednesday, when it said it had developed a solar cell with a record conversion efficiency of 25.7%. This announcement is obviously just a tad boastful, since solar cell conversion rates are improving constantly. The company even notes the previous record of 25.4% was set just last October. But each incremental improvement still makes solar that much more attractive to power plant builders than traditional coal- and gas-fired plants.

Jinko touches on that topic in its other major announcement, which was its more routine quarterly financial report released on Thursday. Among other things, Jinko noted that Russia’s invasion of Ukraine looks set to accelerate the installation of solar power as western countries try to wean themselves off the oil and natural gas that are Russia’s biggest exports.

That dependency has been on regular display throughout the war, as European countries repeatedly condemn Russia’s invasion, but then continue to buy its natural gas. Two of those countries, Poland and Bulgaria, learned the hard way that it’s hard to have it both ways when Russia abruptly turned off their natural gas supplies earlier this week.

“In Europe, the Russia-Ukraine war has highlighted the need for solar energy, with incremental demand expected within the year and further steady increases over time,” said JinkoSolar Chairman and CEO Li Xiande in a statement accompanying the results.

Jinko shares have done relatively well on the string of new signals, starting with a 2.3% rise after it preannounced some financial results a week ago. They gained another 10% after the record-setting conversion rate announcement. The stock actually fell on Thursday after the final results announcement, most likely on some profit taking after the earlier run-up. All said, the shares are up about 5% over the last week. They are also up 15% year-to-date – not something that many U.S. listed Chinese companies can say these days.

Valuation-wise, JinkoSolar and U.S.-listed peer Canadian Solar CSIQ seem to still trade at a discount to their Chinese peers listed elsewhere as well as their non-Chinese peers, as U.S.-listed Chinese stocks carry a delisting risk related to a U.S.-China dispute. The company’s U.S.-listed shares trade at a price-to-earnings (P/E) ratio of 15, based on 2023 profit forecasts, while Canadian Solar trades at just 8. By comparison, U.S. leader First SolarFSLR trades at a ratio of 32. China-listed rival Trina Solar (688599.SH) also trades at a higher P/E ratio of 23, again based on 2023 projected earnings.

Growing market share

All that said, we’ll spend the second half of this space looking at Jinko’s latest results that seem to show it continuing to gain market share in the rapidly growing sector. We’ll start with some big picture numbers that saw JinkoSolar forecast the world would see 250 GW of new solar power installation this year, up by more than a third from the 183 GW installed in 2021.

The company forecast it would sell between 35 GW and 40 GW worth of capacity, implying it has about 15% of the global market. Here we should point out that market share figure may be slightly high, since the company’s forecast for its own sales this year includes solar wafers, cells and modules, rather than just finished products. But a similar formula shows Jinko had about 13.6% of the global market last year, meaning its share is growing as the industry consolidates.

Those numbers, combined with the company’s position at the leading-edge of improving efficiency, seem to bode well for JinkSolar over the longer term. The short term was slightly less impressive, however, with the company shipping 8.4 GW worth of panels in the first quarter, up 56.7% from a year earlier but down 13.4% from the previous quarter. Its first quarter revenue also fell 10% sequentially to 14.8 billion yuan ($2.2 billion).

“Epidemic prevention and containment policies in China since March have resulted in logistics congestion and sharp reductions in transport capacity, which further increased cost pressures,” Li said in the announcement. Jinko is somewhat diversified in its production, with facilities outside China in the U.S., Vietnam and Malaysia. That’s an important factor to avoid anti-dumping penalties against China-produced products that have been a common practice in the U.S. and Europe over the last five or six years.

But the bottom line is that Jinko still produces a big proportion of its output in China, where many companies have been thrown into a state of chaos due to frequent and unexpected lockdowns as part of the country’s “zero Covid” policy. While such disruptions are clearly causing some pain in the first and second quarters, Jinko said the overall impact should be “short-term and controllable.”

The other noteworthy figure in the report was Jinko’s gross margin, which dropped to 15.1% in the latest quarter from 17.1% a year earlier. The company blamed its own falling efficiency on high material costs, a reference to the soaring cost of polysilicon over the last year. But those prices appear to have peaked, with Daqo New EnergyDQ, one of the world’s top polysilicon producers, reporting a week ago that its average selling price in the first quarter fell to $32.76 per kilogram from $33.91 per kilogram in the previous quarter.

In terms of profit, JinkoSolar’s latest net income fell to 29 million yuan from 221 million yuan a year earlier, though most of that looks related to changes in the fair value of some of its debt. At the end of the day, the report seems to mostly continue recent trends, showing Jinko emerging as a leader in a consolidating solar sector set for accelerating growth fueled by improving technology and countries eager to wean themselves off fossil fuels.