JinkoSolar Profits Soar, But Company Still Lacks Investor Respect

Summary

• JinkoSolar said its majority-owned, China-listed unit’s profit and adjusted profit rose up to 159% and 428%, respectively, last year.
• Even after a recent big rally in its stock price, the company’s U.S.-listed shares still trade at a P/E ratio that’s about a half to a third of its peers.
• JinkoSolar’s U.S. stock really does look quite undervalued and could be a good investment.

Robert Way

Despite its status as one of the world's 10 largest solar panel makers, JinkoSolar Holding Co. Ltd. (NYSE:JKS) seems to hold the title of "least-respected" in its class. At least some of that dubious distinction could owe to the company's inability to be more precise in some newly released preliminary fourth-quarter financial results. The numbers look quite healthy overall but are also quite vague when one considers the quarter ended nearly a month ago.

We don't usually begin by looking at company valuations, but in this case, the difference between JinkoSolar and its peers is quite striking. The stock currently trades at a forward price-to-earnings (P/E) ratio of just 10, which is quite low for a company whose profits and revenue are both growing by triple-digit amounts as the broader industry booms. The ratio was far lower just a month ago, but rose after a 42% jump in JinkoSolar's share price since the start of the year.

By comparison, U.S. giant First Solar (FSLR) trades at a forward P/E ratio of 35, while JinkoSolar's domestic peer Trina (688599.SH) trades at 23 times. U.S.-listed peer Canadian Solar (CSIQ) trades at a similarly low 10 times, indicating an earlier delisting threat stemming from a dispute between the U.S. and Chinese securities regulators may have depressed both U.S.-listed companies' shares. But that dispute was largely resolved in the second half of last year, meaning it should be less significant now.

Interestingly, JinkoSolar's majority-owned China-listed unit, the similarly named Jinko Solar Co. Ltd. (688223.SH), currently trades at a forward P/E of 29, which is more similar to the global peers. That discrepancy led the parent JinkoSolar to use its China-listed company to raise 10 billion yuan ($1.5 billion) last year through a convertible bond issue to finance two major new projects.

All that said, we'll return our attention to the U.S.-listed JinkoSolar's latest announcement which contained some preliminary full-year profit data for the Shanghai-listed Jinko Solar, which released its own simultaneous Chinese announcement. The Shanghai-listed Jinko Solar is 58.6% owned by the U.S.-listed JinkoSolar, and is one of the U.S.-listed company's primary assets.

According to the announcement, Shanghai-listed Jinko Solar expects to report net income of 2.66 billion yuan to 2.96 billion yuan for all of 2022, representing a 133% to 159% rise over the previous year. The company previously reported a 1.68 billion yuan profit in the first three quarter of the year, which means it expects to post a profit of about 980 million yuan to 1.28 billion yuan for the fourth quarter.

That brings us back to our comment at the outset of this review wondering why the fourth-quarter profit range is so big considering the period had already ended for about three weeks when the company made the announcement. Some might guess the company may still be deciding whether to record some of its non-cash gains or losses for the quarter, which would affect the final profit.

But a forecast in the same announcement saying Jinko Solar expects to post an adjusted profit of 2.5 billion yuan to 2.8 billion yuan for 2022 is similarly vague, even though adjusted profit typically excludes such gains and losses. Of course, we're being just slightly sarcastic in attributing the company's low P/E ratio to this kind of vague accounting. The reason for the big gap probably lies somewhere else, perhaps in the delisting threat we previously mentioned.

Accelerating profits?

The latest data show that the Shanghai-listed Jinko Solar's profits could even be accelerating a bit - a trend that could continue this year due to an expected drop in the price of polysilicon, the main ingredient used to make solar panels. What's more, Jinko should benefit from continued strong worldwide demand for solar panels, especially from the west, which is looking to wean itself from fossil fuels to slow global warming and also lessen its reliance on Russian oil and gas.

As we've already said, Shanghai-listed Jinko Solar's full-year profit forecast translates to 133% to 159% growth from 2021 levels. The company's profit grew 132% in the first three quarters of the year, which implies that the growth rate accelerated in the fourth quarter.

On an adjusted basis, the Shanghai-listed Jinko Solar's profit grew by an even larger 371% to 427% in 2022, according to the latest announcement. That compares with 418% adjusted profit growth in the first three quarters of the year, implying the growth on an adjusted basis likely slowed in the fourth quarter.

So, there are a bit of mixed signals about how the growth trended in the fourth quarter. But regardless of that, such massive growth is certainly a broadly positive signal. Investors seemed to like the announcement overall, with JinkoSolar's U.S.-listed shares rising 5% in the three trading days after it came out.

Truth be told, JinkoSolar and its peers are all sitting quite pretty right now. In addition to strong global demand for their products, they are also likely to see significant reductions in polysilicon prices in the year ahead, which should help to reduce their costs.

After rising sharply for the last two years, polysilicon prices finally topped out in the second half of last year. Prices in early January were already more than 50% below their peak last August. They continued to plunge this month, falling by a third in the first three weeks of 2023, though some expect the January declines to be temporary.

We should also note that the declines are for polysilicon purchased in the spot market and that JinkoSolar and the other major panel makers all have longer-term supply contracts whose prices are more stable.

We'll close with a quick summary of New York-listed JinkoSolar's latest financials, which show its revenue rose 128% to 19.5 billion yuan in the third quarter, while its profit nearly tripled to 550 million yuan. The company forecast fourth-quarter module shipments of 13 GW to 15 GW, which would be up 30% to 50% from a year earlier - a relatively big slowdown from the 117% shipment growth in the third quarter.

At the end of the day, JinkoSolar's U.S. stock really does look quite undervalued and could be a good investment given the many macro factors currently working in its favor and receding U.S. delisting risk. Now, investors just need to discover that.

Disclosure: None

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Comments

[engineeringeddie]

This table of year-end PV price-per-kWh-energy-production calculations tells quite a story: docs.google.com/...

Several factors apply in the discounting of Chinese PV in Western financial markets. One factor we rarely discuss is the narrative Western markets are telling themselves about the PV industry vs. the narrative the rest of the world understands.

There are, broadly speaking, two financial market narratives about solar photovoltaics, the Euro-American-saviour narrative and the paradigm-shift narrative:

1) The saviour narrative is that roughly 1 billion people in the Euro-American sphere of influence provide the world's moral, financial and technological leadership in greening the economy by using their wealth to gradually subsidize PV adoption (with a weird emphasis on individual consumers' rooftop systems for some reason). This narrative says that the carrot for this mighty public support will be copious PV factory jobs for the people who'll lose their drilling and mining jobs. This narrative has a tendency to imagine the PV industry's future as a particular consequence of what happens in America and posits China as an obstacle to desired progress. The narrative has quite a hold on people -- even those who should know better. I've had posters on this site repeatedly explain to me that what the PV industry in China has accomplished doesn't really matter because China will be collapsing any day now and U.S. manufacturers will swoop in and dominate the sector.

2) The paradigm-shift narrative is that roughly 5.5-7 billion people in the world who have struggled to secure massive sources of energy for industrialization and quality of life improvements can now leapfrog costly, insecure and geopolitically-dangerous legacy systems to implement dirt-cheap, safe and linearly scalable energy infrastructure. This opportunity does not require long-term subsidization, but merely leverages prior Chinese investments in manufacturing and supply chain management that unlocked the scaleup potential of renewables as an economic (emphasis) and environmentally manageable (nice-to-have) option. This narrative does not really require noble sacrifices from heroically virtuous people -- it just imagines a kind of basic self-interest driven outcome.

The first narrative is principally concerned with symbolic victories and perceived virtue and assigns an extraordinary market premium to these things. It will happily reward "convincing" predictions of success as much, if not more than material accomplishments. This kind of self-image projection narrative tends to have no material limit to its hype ceiling, but is vulnerable to dramatic-performance degradation. Notice that Tesla's loftiest valuation collapsed (somewhat) after its cult of personality hero-narrative started glitching, even though its actual underlying business continued to perform well. The Euro-American saviour followers are looking for Western companies who will reinforce the idea that "people like me" will save the world and thereby dominate the alternative energy industry. This is how a company like Meyer Burger ended calendar 2022 with 64 times the value of JKS based on a market-capitalization-to-energy-devices-produced ratio (link at top of this post).

The second narrative is concerned with the trajectory of outcomes (better, worse, same). For them, the proof is in the pudding. Longi investors in China don't respond to Li Zhenguo's (plausible) predictions of a global 1 TWp annual production target in 2030 and they don't expect him to provide viral click-bait on the daily, nor do they care if he can be categorized as more or less virtuous than Al Gore. They look at his firm's present day investment in a single 100 GWp wafer plant and ask themselves about its consequences. They are not asking if the underlying investment positions correctly against a particular geopolitical narrative, they're asking if the story can actually scale. On the flip side, Jinko Solar's narrative in New York does not link to a particular Euro-American climate-hero narrative. Xande Li doesn't perform on the Internet or offer a new weekly predictions of hand-wavy technological utopias. Jinko Solar is not offering a triumphalist narrative, but it is offering a paradigm-shifting narrative -- one that can actually scale. I've done the math and it's even odds that this company will be providing more end-use energy to people around the world than Exxon Mobil by 2032. The Western markets haven't the slightest clue what Jinko Solar or the rest of the Fab Four are doing, where it is heading, or what that means for the world.

[i_am_seeker_2]

@engineeringeddie Interesting post, thanks. Hard to believe that JKS "will be providing more end-use energy to people around the world than Exxon Mobil by 2032" but stranger things have happened (e.g., look at Amazon's sales trajectory or, back in the day, Walmart's!).

Who besides JKS and Longi are the "Fab Four"? Trina? CSIQ?

[engineeringeddie]

@i_am_seeker_2 the bigger-than-Exxon realization flows from the fact that solar PV manufacturing is an energy production integrator. Each year's deployed production continues to produce useful energy for another 30 years on average with no additional inputs (modest degradation in output must be accounted for, of course).

In the link below, I model the energy-production effects of Jinko Solar (entire enterprise) on a decelerating forward growth rate (for sake of being conservative) with a terminal production velocity of 175 GWp per year in 2031. I forward model Exxon Mobil on substantially better than trend production growth through 2031 before putting it into slow decline (as demand is met by cheaper PV and wind sources). Jinko surpasses Exxon by 2034 in this particular scenario, which I think is probably far too pessimistic on Jinko and too positive on Exxon.
docs.google.com/...

For the sake of constraining the model, I close down both companies in 2050, which provides a revealing picture of the 75-year provision of energy from both between 2006 and 2080 in such a scenario.

Now repeat this scenario with the rest of the Fab Four (Longi, JA Solar and Trina), and probably add Canadian Solar, which also has a feasible path to 100+ GWp per year scale. That's to say nothing of the investment premium differential placed on oil & gas firms vs. PV firms. Consider the two (current) sets of Price-per-kWh-per-year of useful energy produced per year. The average oil and gas company is valued at more than 10 times the average PV company for the same amount of useful energy production.

OIL & GAS Companies:
docs.google.com/...

PV Companies:
docs.google.com/...

The market is simply clueless.

[Motek Moyen]

@engineeringeddie wow. just wow. you are a much better writer of unique angles. you should apply as a contributor here at SA. we need your insights. i have been using solar hybrid setup since 2015 but you could become the best solar-centric author here at SA.

[Motek Moyen]

thank you for this one. i like JKS. my solar panels are now mostly JinkoSolar, not bosca.

[Who Dat?]

@Motek Moyen
Who do you use to do the install with JKS panels?

[Motek Moyen]

@Who Dat? i did it myself for our refrigerator, desktop PC, laptops and lights. i have a snadi hybrid inverter for the 24volt system. the main batteries are electric cycle solid gel. the alternative batteries are old 2SM car sealed lead acid.