JinkoSolar Holding: Good GARP Gambit
Summary
- JinkoSolar Holding Co., Ltd. deserves a buy recommendation. This is contrary to the consensus hold ratings of SA authors and Seeking Alpha Quant AI.
- Jinko’s TTM revenue CAGR of more than 140% makes it a growth stock. The 3-year average revenue CAGR of Jinko is 35.31%.
- A non-GAAP Forward P/E of 16.05x makes JinkoSolar a growth-at-a-reasonable-price stock.
- The solar panel market is worth $78.5 billion and is growing at 25.6% CAGR.
- Low profit margins are worthy if they contribute to high double-digit revenue growth rate.
Eloi_Omella/E+ via Getty Images
The high price of coal and oil is why the $78.5 billion solar panel market is growing fast. I suggest you should go long on JinkoSolar Holding Co., Ltd. (NYSE:JKS). My thesis for JKS is not congruent with the hold consensus ratings it received from Seeking Alpha authors and Seeking Alpha Quant AI. I maintain the non-GAAP forward P/E of 16.05x makes JKS a growth-at-a-reasonable-price (or GARP) stock.
The TTM revenue CAGR of JKS is 148.88% and its 3-year revenue CAGR is 35.31%. I checked, and JinkoSolar has no recent acquisition that could be responsible for this huge revenue jump. The chart below explains my buy thesis for JKS.
Seeking Alpha
JinkoSolar Holding is growing faster than its solar power-centric peers. Its 5-year revenue CAGR of 22.46% is higher than SunPower’s (SPWR) 15.83% and First Solar’s (FSLR) 2.34%. JKS should be on the radar of GARP investors. Jinko’s 22.46% 5-year revenue CAGR is lower than the 25.26 CAGR of the solar panel industry. I expect it to eventually improve because of the high TTM 148.88% revenue CAGR. The forward 3-year CAGR estimate is now 38.61%.
Jinko reported impressive Q3 beats last October 28. The stock still lingers below $52. My fearless forecast is that Jinko will again beat Q4 estimates. The Christmas shopping season sales boost could also apply to solar panels. The November/December months are usually when employees/managers get their Christmas bonuses and 13th month pay.
Why JinkoSolar’s Annual Sales Are Soaring
The low-margins approach of Jinko is likely why it’s enjoying a revenue CAGR higher than 20%. Management is not afraid to run on 15.43% gross margin and 0.2% net income margin. Growth before profit is an effective way to outpace the competition. Selling low-cost solar panels increases the Jinko brand’s international appeal. A low-margin approach helps poor Filipinos like me build affordable residential solar energy installations.
JinkoSolar is a trusted brand here because of its affordable Photovoltaic panels. The solar setup that powers our ref, electric fans, and desktop PC I am authoring this article on, was built using 200-watt Jinko solar panels.
Motek Moyen
A global expansion is easier when customers in developing countries like the Philippines can buy sub-$100 Jinko 200-watt solar panels online. It is worth investing in JKS because online e-commerce sites like Lazada sells sub-$200 Jinko 560-watt Tiger Neo solar panels. The exchange rate is $1 = 57.26 Philippine pesos. My point is that Jinko as a growth stock is justified. It is selling cheap solar panels to attract more customers.
It is Jinko’s long-term tailwind that it caters to tightwads like me. The solar power-centric companies should stop their affluent-centric pricing. My fearless forecast is that JinkoSolar can make it big in the U.S. and Europe if it starts flooding those markets with sub-$200 560-watt Tiger Neo panels. The average per-watt cost of monocrystalline solar panels in the U.S. is $1 to $1.50. Compare this to Jinko’s offering to Filipinos, 4,500 pesos ($78.79) for a 200-watt panel. We get $0.393 per watt on Jinko solar panels.
Global Presence Plus Low Adoption of Solar
The low-margin approach is probably why Jinko has customers in 160 countries. The global presence is why I rate JinkoSolar as a buy. The future scenario is Jinko’s high revenue CAGR can only get higher when it starts deep penetration of the United States and Canada. Jinko has factories in the United States.
JinkoSolar.com
The net income margin of Jinko will probably stay below 2% for the next five years because of its low-margin international expansion. I maintain that high growth at the expense of margins is justified. Perhaps Jinko’s Eagle brand of high-quality panels and batteries for the American market would eventually boost the low profitability of JinkoSolar.
The screenshot below convinced me Jinko’s solar storage products look like they are large enough to be used in data centers, government agencies, and military/corporate environments.
jinkosolar.us
Go long on JKS while it trades below $60.There’s still very low adoption of solar-sourced electricity. As of 2021, solar contributes less than 5% of global electricity. This fact is why JinkoSolar has high growth potential. Its low pricing approach to solar panels will eventually pay off. Bundling affordable solar panels with residential and industrial Energy Storage Systems or ESS batteries is going to be efficient, like selling cheap razors and higher-margin blades.
Downside Risk
The low net margin and the global marketing/ad expenses toward promoting the Jinko brand are long-term headwinds. Do not expect JKS to start paying dividends within the next five years. The management’s willingness to sell 200-watt panels for less than $0.40 per watt pricing is not going to make the company notably profitable soon. I do not expect JKS to jump above $70 soon because of the less than 1% net income margin.
JinkoSolar’s profitability will eventually improve after it is done conquering the world through cheap solar panels. Six years ago, JKS enjoyed a net margin higher than 8%.
Piotroski F-score is my top metric when evaluating stocks. I am happy to report that JKS has an F-score of 5. It is fairly- valued and efficient. The screenshot below shows JKS has a higher F-score than SNPR, FSLR, and other solar-centric stocks.
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My Verdict
The low-margin approach of JinkoSolar is appealing in developed and developing countries. This business tactic is likely why JKS enjoys a revenue CAGR higher than 20%. If you are one of those GARP investors, kindly consider adding JKS to your portfolio. Bear the long-term pain of very low net income and just enjoy the high double-digit revenue CAGR.
My expectation is that Jinko will eventually package its cheap solar panels with higher-margin products like solar charge controllers, enterprise-class long-term storage batteries, and hybrid inverters. Jinko has complete solutions/packages for residential, industrial, and solar power plants.
Jinkosolar.com
JinkoSolar is a China-based solar energy company. It is unlikely to get included in the U.S. list of banned Chinese companies. Cheap solar panels do not threaten the national security of America. JKS is a buy because JinkoSolar is freely operating sales offices and factories inside America.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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Comments (12)
evergreengavekal.com/...
which is $9 EPS
... and the company has just demonstrated a scalable path to matching even the IBC panels' performance -- at a massively lower production cost.
www.pv-magazine.com/...That said, Jinko is going to remain aggressive in securing its global market share (likely 16% for 2022) and it is obviously balancing its product performance premium against its profit margins for the sake of carving out a larger long-term footprint.On a more fundamental level, the intrinsic economic value of any panel manufacturer is strictly a matter of the amount of energy the company's overall output can convert at a given price point. So I **always pay attention to the equity market price of energy production capacity** (i.e., what amount of energy production capacity am I buying when I purchase a panel manufacturer's shares?). Right now, a single JKS ADR (underlying 4 common shares Jinko Holding) buys the voting rights and profit claims on 500 Wp of integrated panel production every year (based on lowball estimated 60% of 42.5 GWp expected 2022 shipments that includes JKS' 58.6% Jiangxi Jinko stake). Other publicly traded PV plays, MAXN, FSLR and CSIQ are expected to ship 2.3 GWp, 9.3 GWp and 21 GWp, respectively. If these numbers hold up, you get, based on current market valuation and production guidance:$100k USD of JKS = 1 MWp 2022 production
$100k of MAXN = 0.22 MWp 2022 production
$100k of FSLR = 0.052 MWp 2022 production
$100k of CSIQ = 0.91 MWp 2022 productionThere are, of course, subtle differences between these companies' focus on panel manufacturing so that the numbers can skew (a little bit) in terms of valuation based on energy production capacity (e.g., JKS and CSIQ are also battery storage providers/distributors and CSIQ also has a project development business -- none of which is taken into account in the above numbers). While the production-ownership approach to valuation does not speak to day-to-day market sentiment, I argue that it is a sound long-term framework of analysis since these are still energy companies after all, and their value is ultimately governed by the amount of electrical energy their products can convert at a given price point.
While it's true that efficiency gains should drive down I_t whenever they drive down the material-input cost per Watt, this relationship is usually complicated by market premiums assigned to high-efficiency devices. One of the key things people really should think about here is the impact of efficiency gains on the I_t contribution from balance of system costs (e.g., racking, tracking, connectors, install labour, etc.), where increasing efficiency drives this number down a lot. Imagine two separate 4.5 MWp installations, Installation A uses 10,000 lower-efficiency 450 Wp panels weighing 40 kg apiece*. And installation B uses 7,500 higher-efficiency 600 Wp panels weighing 30 kg apiece. Even if the B panels sell for a 33% premium over the A panels, there is still a 25% savings on (typically) two-thirds of the overall installation cost ... if you imagine a base rate of 24 cents per Wp for panel A with a fixed cost of 66 cents per Wp for panel A BOS, the net result is that I_t ends up 9.5% cheaper for the panel B installation, all other factors being equal.
Likewise, the reduction in panels/racks/trackers required for higher-efficiency panels also reduces the maintenance and operations factor, M_t -- This is actually where I see the biggest LCOE impact of higher efficiency panels, especially with panel lifetimes regularly exceeding 40 years duration. Under the PPA model, it's the M_t that contains most of the economic risk, so the financing cost of higher-efficiency installation is likely to be significantly lower than a lower-efficiency installation in an unfettered marketplace.SIMPLIFIED LCOE EQUATION
corporatefinanceinstitute.com/...* - the panel weight factors aren't important to this back-of-napkin calculation, but they will (likely) impact both the install costs and the O&M costs for tracking devices.
