JinkoSolar Finds Rare Bright Spot In New Saudi Tie-Up

Key Takeaways:

• JinkoSolar is forming a $1 billion joint venture with two local partners in Saudia Arabia with annual capacity of 10 GW of solar cells and 10 GW of solar modules
• The tie-up comes as Chinese solar companies expand their manufacturing globally, and as Saudi Arabia diversifies its economy beyond energy

By Doug Young

Solar panel giant JinkoSolar Holding Co. Ltd. JKS has become the latest to jump on a Chinese export train that’s increasingly passing through the Middle East with a stop in Saudi Arabia, the region’s richest country that also has big clean energy ambitions.

The leading Chinese solar panel maker on Tuesday announced its formation of a $1 billion Saudi joint venture making cutting-edge solar products with two local partners. One of those, Renewable Energy Localization Co., is billed as the country’s “national champion in the manufacturing of renewable and green energy technologies,” and is wholly owned by Public Investment Fund, the country’s sovereign wealth fund. The other is Vision Industries Co., a Saudi investor focused on green energy technologies.

The tie-up ticks a number of boxes for both JinkoSolar and the Saudis and is part of a recent growing love affair between Chinese manufacturing and Saudi Arabian money.

From Jinko’s perspective, the new plant will add to its global network of manufacturing facilities whose solar panels would steer clear of growing Western protectionism against Chinese products. For Saudi Arabia, the massive facility will help it achieve its own aims for green energy production, and also vault it into the global leagues for solar manufacturing by leveraging Jinko’s cutting-edge N-type solar cell technology.

The announcement comes as China’s solar sector, which supplies more than 80% of the world’s panels, gets burned by a bloody global price war that’s the direct result of overcapacity built up in China over the last decade. Both the U.S. and EU have called on China to scale back or end the strong government support behind the buildup, which they say distorts global markets and puts their own manufacturers at a disadvantage.

The U.S. has gone one step further by raising tariffs on imported Chinese solar cells to 50% from the previous 25% starting next month. The EU has yet to take any similar action, though it recently launched anti-dumping tariffs against Chinese electric vehicles (EVs) for similar reasons. 

JinkoSolar’s new joint venture announcement breathed some much-needed life into its embattled U.S.-traded stock. The shares rose 7.3% in Tuesday trade, though they remain near a four-year low on concerns about the price war and protective tariffs. Analysts are also quite bearish on the company – a rarity for firms from this kind of high-growth emerging sector. None of the four polled by Yahoo Finance recommend the stock, with one rating it a “hold,” while two rate it “underperform” and one calls it a “sell.”

That kind of bearishness is reflected in JinkoSolar’s price-to-earnings (P/E) ratio that stands at just 3.3 – the kind of multiple you’d expect from an old industry category like textiles or steel with low margins and limited growth potential. That ratio is at the bottom of the solar heap, trailing the 5.8 for Canadian Solar CSIQ and well behind multiples of 23 for both China’s Longi Green Energy(601012.SH) and U.S.-based First Solar FSLR.

Major New Capacity

The new Saudi plant looks quite large, based on its $1 billion investment and planned annual capacity for 10 GW of solar cells and another 10 GW of solar modules. That would substantially boost JinkoSolar’s current capacity that stood at about 70 GW at the end of last year for N-type cells, considered the industry’s most advanced and the new joint venture’s main focus.

“This partnership is another major milestone in the execution of our globalization strategy, and will further help us optimize our global manufacturing and marketing infrastructure, as well as enhance our global competitiveness,” said JinkoSolar Chairman Li Xiande.

The Saudi plant will complement JinkoSolar’s other overseas manufacturing facilities in the U.S., Malaysia and Vietnam, and is part of a broader trend by Chinese solar companies to do more manufacturing offshore. Jinko is the first major company to come to Saudi Arabia, though Longi, which has plants in Vietnam and Malaysia, has said it could consider building facilities in the Middle Eastern nation as well as the U.S. Rival Trina Solar (688599.SH) has plants in Thailand and Vietnam, while JA Solar (002459.SZ) manufactures in Malaysia.

While Southeast Asia has become popular among Chinese manufacturers in general, Saudi Arabia’s nascent rise is much more recent. That owes in no small part to the country’s use of its huge cash reserves to diversify its economy beyond oil and gas into emerging industries like new energy and gaming. Chinese PC giant Lenovo LNVGY announced a similar tie-up in May to build a major manufacturing facility in Saudi Arabia in partnership with Alat, another entity managed under Public Investment Fund.

While the latest news brought some much-needed relief to JinkoSolar’s shares, it’s hard to see investors getting too excited about the company anytime soon, at least based on its financials. Its revenue rose 43% last year to 119 billion yuan ($16.4 billion) on booming global demand and a near doubling in its annual shipments. That growth is expected to grind to a halt this year due to the overcapacity and price wars we’ve previously mentioned, with analysts expecting revenue to actually fall slightly from last year’s levels.

The company’s margin and profit trends don’t look too encouraging either, again, due to the price wars. JinkoSolar reported a gross margin of 11.9% in this year’s first quarter, down more than 5 percentage points from 17.3% in the year-ago period. The company’s first-quarter profit also sank to 609 million yuan from 789 million yuan a year earlier, and analysts expect its annual profit this year to fall by more than half from 2023.

At the end of the day, this new joint venture is a small bright spot for JinkoSolar, though it won’t make any meaningful contribution to its business for at least a year until new production begins. The company’s ultra-low valuation could also provide some incentive for investors who think its shares are oversold. But from a business perspective, we’ll probably need to wait at least another year or more before the company has a more positive story to tell.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.