JinkoSolar Clouded By Double Downgrade From Morgan Stanley

JinkoSolar Holding Co., Ltd. JKS shares are being hammered on Friday against a double downgrade by Morgan Stanley. The lowered opinion was based on weak prognostication for the company's first-quarter results.

Q1 Net Profit To Be 50 Percent Lower Than Consensus

Analysts Sheng Zhong and Simon Lee see a 52-percent downside from consensus estimates for the first quarter net profit, impacted by lower margin. According to the analysts, the lower margin was the result of lower ASP and slower cost reduction due to a high polysilicon price and higher OEM fees.

The analysts believe the next 1–1.5 years will be even tougher, with extensive new capacity rolling out for the purposes of upgrading technology and lowering production costs. Meanwhile, the demand is gloomy from the uncertainties of policies worldwide, the analysts added.

Accordingly, the analysts believe a majority of manufacturers will find it hard to achieve break-even in the second half of 2017 and 2018.

Lowering Estimates Drastically

Morgan Stanley lowered its 2017 earnings estimate for JinkoSolar by 92 percent to a loss of 45 million yuan and the 2018 bottom line estimate to a loss of 28 million yuan from a profit of 311 million yuan previously. The sharp cut was attributed to overwhelming pressure from price wars and margin squeeze expectations.

The firm forecasts gross profit margin at around 11 percent for 2017 and 2018 from 18 percent in 2016.

Morgan Stanley said it thinks the consensus is too high for JinkoSolar, as well as for GCL-Poly Energy Holdings Ltd. GCPEF and Canadian Solar Inc. CSIQ.

Double Downgrade

As such, Morgan Stanley enacted a double downgrade to Underweight, while it lowered its 12–18-month price target to $16.40, reflecting lower earnings and multiples.

The firm noted that JinkoSolar has run up, mainly due to the Abu Dhabi project announced on May 24. However, the company has a mere 20-percent stake in the project and the PPA is low, the firm added.

Reasoning that mono c-Si is showing strong growth and momentum through market share gains from multi c-Si, the firm said it is Overweight on Longi and Daqo New Energy Corp DQ. Meanwhile, the is Underweight on GCL Poly, which is the most negatively impacted due to it being the largest c-Si player. The firm has also turned Underweight on Canadian Solar.

At time of writing, shares of JinkoSolar Holding were down 3.82 percent at $20.64.

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