Company Overview: JinkoSolar Holding Co., Ltd. (NYSE: JKS) manufactures and sells silicon wafers, solar cells and solar PV modules to China and international markets. The company is vertically integrated in manufacturing solar modules with components such as solar cells and silicon wafers were sourced in-house. Besides, it also sells silicon wafers and solar cells separately to external customers.
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* ROE is on TTM basis as on September 30, 2020
JKS Details
JKS has a wide geographical reach with worldwide customers. It has manufacturing facilities in China, the US (Florida), and Malaysia. Further, JKS operated with 14 overseas subsidiaries as of December 2019. Out of the total revenue in FY19, North America accounted for 26%, followed by Asia (25%), China (17%), Europe (17%), and Rest of World (15%). JKS caters to marquee customers in the PV industry, some of them are Swinterton Builder, NextEra, Sustainable Power Group, Green Light Contractors etc.
Figure 1: Solar Modules accounted for about 96% of Total Revenues in FY19
Source: Company Reports
Ramping-up Monofacial Modules: JinkoSolar’s Tiger Monofacial module technology which was launched in October 2019 saw rapid adaption for utility and rooftop installations. The technology provides highest conversion efficiency of 22.30% compared to standard mono PERC. It is also capable of generating peak power output of 610Wp.
In comparing cost, N-Type Mono modules achieved the lowest levelized cost of electricity at $2.74/ kWh as against $3.01/ kWh by standard mono PERC. The company used mono wafer to make Tiger Monofacial modules. They were predominantly manufactured in-house. As of December 2019, JinkoSolar had integrated annual capacity of 15.0 GW for silicon wafers (including 11.5GW for mono wafers), 10.6 GW for solar cells and 16.0 GW for solar modules.
As mentioned in the Q3 FY20 presentation, JKS plans to manufacture about 99% of its PV modules imbedded with mono wafer technology by 2020 (up from 74% in 2019 and 44% in 2018). In connection to this, JinkoSolar is ramping-up mono wafer production capacity to 20 GW by 2020.
The Tiger Pro Modules received wide acceptance in the market and JinkoSolar already received orders exceeding 2 GW as of October 2020.
Figure 2: JKS is Ramping-up Tiger Monofacial Modules Using Mono Wafer Technology:
Source: Company Reports
Historical financial trend:
JKS commenced operations with manufacturing of monocrystalline silicon wafers and multicrystalline silicon wafers in 2008. It had forayed into manufacturing of solar cells in 2009 through acquisition of Zhejiang Jinko. Through technological advancement, the company’s P-type and N-type solar wafers reached higher level of energy conversion efficiency. As mentioned in Q3 FY20 presentation, the company is expected to achieve market share of 15% by 2020-end as against 12% in 2019. Its revenue achieved CAGR of 17.8% in last four years (on RMB basis).
Figure 3: Five-Year Historical Financials:
Source: Company Reports
With new offerings and increasingly commitment in the next gen technology for silicon wafer manufacturing, JKS reported upward trending revenues. Profitability surged on the back of volume growth despite increasing selling and shipment costs.
Figure 4: Key Financial Highlights
Source: Company Reports
FY19 Financial Performance
JKS experienced strong volume growth in all segments. Overall revenue grew by 18.7% in FY19 over last year (on RMB basis). Increase in module volumes was partly offset by lower selling price resulting from oversupply of solar modules in the market.
Figure 5: Strong Volume Growth Across All Segments:
Source: Company Reports
Margins benefited from increasing level of integration. The company moved-up the value chain rapidly in solar modules resulting in lower production costs. Its EBITDA margin surged to 9.6% in FY20 (vs. 5.9% in FY18). Reversal of anti-dumping duty contributed to margin increase. However, JKS continue to face intense competition from upstream players. Prices of solar modules have been declining globally due to oversupply and slowdown in the growth of solar power products in recent periods. Market prices further affected by declining prices of silicon feedstock. The company’s net profit more than doubled in FY19 even with increase in selling and general administrative expenses and impairment expenses.
Q3 FY20 Update
JKS is among the top three players accounting for 80% of global mono wafer capacity. As the industry is undergoing consolidation, JinkoSolar is projected to increase market share to 15% by 2020-end. Module shipments grew from 3.3 GW in Q3 FY19 to 5.1 GW in Q3 FY20. Its YoY profitability is not comparable as the company exited from solar power project businesses in 2018 and in November 2019. Its two overseas solar project assets were reported under discontinued operations. JKS reported operating profit margin of 6.2% in Q3 FY20, up from 5.1% in Q2 FY20.
Figure 6: Shipments Growth and Operating Profit
Source: Company Reports
It had healthy cash balance of RMB 5,774.7 million (US $850.5 million) as of September 2020 representing 11.5% of total assets. Its subsidiary raised about US $458 million towards listing in Shanghai Stock Exchange STAR Market. JKS took additional debt during the quarter ending September 2020 and overall debt remained elevated. Debt to equity stood at 2.53 times in Q3 FY20 as against 2.13 times in Q3 FY19.
In the recent press release dated December 15, 2020, JKS announced senior management changes to comply with the listing requirements of its Jinko Solar Co., Ltd. ("Jiangxi Jinko") on the STAR Market. Its Chief Executive Officer, Chief Marketing Officer, Chief Operating Officer, Chief Human Resources officer and Chief Technology Officer resigned from JKS to move to Jinko Solar Co., Ltd. with their respective roles. Mr. Xiande Li, Chairman of JKS, has been appointed as a Chief Executive Officer of JKS. The company mentioned that these changes have no material effect on the business operations.
Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 39.59%. Guolao Investments and D. E. Shaw & Co., L.P. holds the maximum interest in the company at 5.38% and 5.20%, respectively.
Figure 7: Top 10 Shareholders
Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)
Key Metrics: JKS showed QoQ sequential growth in EBITDA margin to 6.2% in Q3 FY20. Its profit margin was below to industry median showing effects of intense competition and falling average selling prices of modules. Its cash conversion cycle is broadly in-line with industry. Debt levels remained elevated due to sizeable capex and rapid technological advancement in silicon wafers.
Figure 8: Key Financial Metrics
Key Metrics (Source: Refinitiv, Thomson Reuters)
Outlook: As mentioned in the Q3 FY20 presentation, under the new government, the US plans to spend over $2 trillion over the next four years towards clean energy. In Europe, the government announced plans to increase GHG reduction target from 40% to 60% below 1990 levels by 2030. China targets to become carbon neutral before 2060. These developments may boost the global demand for installation of solar panels. As per the company report, demand for global solar have been increased to 132 GW in 2020 more than the initial estimate of 111 GW. The company’s CEO in Q3 press release cited that JKS plans to reach production capacity of silicon wafer, solar cells and module capacity to 20 GW, 11 GW and 30 GW, respectively by 2020-end. The management has guided module shipments to increase to 18.5 GW-19.0 GW for FY20.
Figure 9: Management Guidance
Source: Company Reports
Key Risks: The technological advancement, market oversupply and decline in silicon feedstock prices has put pressure on average selling price of modules. JKS is expecting prices to continue to slide as economies of scale will reduce the unit price. Roll-back of various government incentives may post threat to the business-like expiration of production tax credits in the US, FIT cut by Japanese government, etc. Further, the ongoing trade tension between the US and China may increase the import costs and impact margins. Operations may also be affected by various anti-dumping policies by countries. The company’s projected capex of $350 million may further widen debt levels of JKS and affect financing flexibility. JKS is exposed to concentration risk with top five suppliers accounting for 55.9% of total silicon purchases as of December 2019.
Figure 10: Key Valuation Metrics
Key Valuation Metrics (Source: Company Reports)
Valuation Methodology: Enterprise Value to EBITDA Multiple Based Relative Valuation (Illustrative)
Enterprise Value to EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
Stock Recommendation: JKS has provided returns +170.88% in the past three months and touched 52-week high price of $90.20 in October 2020. The stock is currently trading ~30% lower than the 52-week high, thereby providing an opportunity for accumulation. On the technical analysis front, the stock has a support level of ~US$51.68 and a resistance level of ~US$70.69. We have valued the stock using EV to EBITDA multiple-based illustrative relative valuation method and have arrived at a target price of low double digit-upside. For the purpose, we have taken peers like Canadian Solar Inc. (NASDAQ: CSIQ), Daqo New Energy Corp. (NYSE: DQ), and First Solar Inc. (NASDAQ: FSLR), etc. Given the company’s vertically integrated operations, commitment in technology advancement in silicon wafer, and rapidly growing revenues, long-term view, and potential upside, we give a “Buy” recommendation on the stock at the current market price of US$63.250, up 17.78% versus previous close on December 15, 2020.
JKS Weekly Technical Chart (Source: Refinitiv, Thomson Reuters)
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