JinkoSolar Holdings' (JKS) third quarter filing is its second quarterly report since its initial public offering (IPO) on May 13, 2010. The offering price at $11.00 per American Depository Share (ADS), was a bargain compared to the current price of above $30 per share. Among its peer group, JinkoSolar is ranked 20th in last-12 months revenue and 13th in market capitalization. At nine times forward earnings the company trades at a 31% discount to its peer group. While the short interest is substantially below the industry average it has continued to increase as the share price has risen.
The company’s ranking has improved in two of our rankings and declined in three rankings. The company ranks in the bottom half of its peer group on four metrics, including: operating cash flow-to-net income, free cash flow-to-net income, selling, general and administrative (SG&A) and debt-to-equity. Debt-to-equity has declined from 22nd to 24th as the market capitalization has more than doubled. The company ranks near the top in two metrics: cash conversion cycle and gross margin.. While free cash flow-to-net income has dropped from 15th to 22nd due to substantial capital expansion.
The company provided necessary documents prior to its IPO as required by the SEC. Quarterly information provided for the third and second quarter filing was inadequate. Full financial statements were not provided; a cash flow statement was not included. Operating cash flow is not disclosed when it is significantly negative. As a result we have downgraded to D’s the company’s disclosure and key performance indicators ratings. It appears that the company did the minimum in its required registration statements and less than that in its quarterly filing. No update on progress towards solving material weakness was provided.
By our calculation capacity utilization has continued to improve. Module capacity utilization increased to 113.8% in the third quarter of 2010 from 86.9% in the second quarter and 23.3% in the first quarter. Cell capacity utilization increased to 161.8% in the third quarter of 2010 from 112.5% in the second quarter and 67.7% in the first quarter. While wafer and ingot capacities have continued to be above 100% for 2010. The company says, full year sales are expected to be $500 million to $525 million. Total product shipments of 395 MW to 415 MW are expected for 2010. Module shipments of 195 MW to 205 MW are also expected for 2010.
The operating cash flow for the third quarter was not disclosed. We have estimated a significant negative operating cash flow of ¥322.6 million. The primary driver behind the negative operating cash flow is an increase of ¥353.5 in recievables. The operating cash flow for the second quarter 2010 was stated in the earnings release. The company has not disclosed the third quarter or first quarter 2010 operating cash flows.
Because the company does not provide its cost of goods sold for solar modules either annually or quarterly, calculating a meaningful cost per watt is impossible. JinkoSolar provides its revenue for each of its products and services on an annual basis and for the first quarter of 2010; thus it is possible to calculate revenue per watt for the first quarter of 2010 and not the second quarter or third quarter. The company’s lack of clear concise disclosures concerns us.
Disclosure: No positions