JinkoSolar Holdings Company Ltd

JKS Details

JinkoSolar Holdings Company Ltd (NYSE: JKS) is one of the largest solar module manufacturers in the world with an installed capacity of 22 GW for mono wafers, 11 GW for solar cells, and 31 GW for solar modules, as of 31 December 2020. The company has a market capitalization of ~US$1.5 billion as of 24^th May 2021.

Result Performance – For the Financial Year Ended 31 December 2020 – (FY20)

For the year ended 31 December 2020, the revenue jumped by 18.1% YoY to $5,384 million led by an increase in the shipment of solar modules, which was partially offset by a fall in the average selling price of solar modules. Gross profit for the full year increased by 13.6% to $945.8 million. However, the gross margin for FY20 witnessed a decline to 17.6% from 18.3% in FY19 due to the intense competitive market of solar modules and increase in costs of raw materials. The substantial increase in sales and relatively moderate rise in operating expenses contributed the company to register a rise in EBITDA by 20.6% to $464 million. However, an increase in net interest expense, net exchange loss (including change in fair value of foreign exchange derivatives) and others caused operating income to post a moderate growth of 3.2% to $274 million for FY20. Meanwhile, annual shipments for FY20 stood at 18,771 MW, up 31.4% YoY. However, Non-GAAP net income was reported at $146.9 million, down 1.2% YoY.

Key Data (Source: Company Reports)

Recent Updates

On 18 May 2021, the company announced the change of its chief financial officer, to abide by the business requirements of the Shanghai Stock Exchange's Sci-Tech Innovation Board in relation to the proposed listing of its principal operating subsidiary, Jinko Solar Co., Ltd. on the STAR Market.

Risks:

The company is exposed to the risks of government regulation if unfavourable for the operations of the business. Further, it is open to guarantee liabilities that would arise if debtors default in covering the same. In line with this, the company periodically requires funds, at rates as per the company’s policy, for operations and future growth perspective, which otherwise will impact the company. Besides, the company is also exposed to various types of market risks including interest rate risk, foreign exchange risk, credit risk and liquidity risk.

Outlook:

As per the management, the ultra-high efficiency modules are leading the industry to rapidly move towards grid parity, which is favouring the company immensely. In addition, the flagship product, Tiger Pro Series, continues to innovate which is expected to provide a strong base for the company’s future growth. Further, shipments of large-size products have been gradually improving, and it is expected that ~50% of total shipments will be led by Tiger Pro series in FY21 (Total Shipment: 25.0-30.0 GW). Besides, the company has developed diversified solutions for residential, C&I, and utility customers in eight major markets around the world and has shipped the energy storage products to the Middle East and Africa. These initiatives and developments are expected to accelerate further growth for the company.

In the meanwhile, the company has provided guidance for Q1FY21 wherein it expects total revenue to come in the range of $1.18 billion to $1.30 billion, gross margin to be in between 12% and 15% and total shipment in the ambit of 4.5-5.0GW.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

After a strong closing in the previous week, the stock has given a softer close for the ongoing week but the close is not exceeding the 50% of the bull candle of the previous week, and hence it could be a sign of continuation of an uptrend. The technical indicator RSI with a reading around 40 suggests neutral momentum for the stock.

Going forward, the stock may have resistance around the 50% retracement level of $51.05 whereas support could be around $30.00.

Stock Recommendation:

The stock has made a 52-week low and high of $15.12 and $90.2, respectively. The stock rose by 49.7% in 9 months and declined by 50.3% in 6 months.

Considering the aforesaid facts, we have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms). We have applied a slight discount to EV/EBITDA Multiple (NTM) (Peer average) considering the rise in Cash conversion cycle and higher Debt/Equity ratio at 2.73x in FY20 vs Industry median of 0.36x.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of US$33.27 per share, down 2.41% on 24^th May 2021.

Array Technologies, Inc.

ARRY Details

Array Technologies, Inc. (NASDAQ: ARRY) is the world’s largest manufacturers of ground-mounting systems used in solar energy projects. The product line includes an integrated system of steel supports, electric motors, gearboxes, and electronic controllers. The company has a market capitalization of ~$1.9 billion as of 24^th May 2021.

Result Performance – For the First Quarter Ended 31 March 2021 – (Q1FY21)

For Q1 FY 2021, the revenue of the company fell 44% YoY to $245.9 million, primarily led by a reduction in the amount of ITC safe harbour-related shipments. Further, gross profit plunged 63% YoY to $43.9 million on the back of lower volume in the quarter, resultantly, gross margin contracted to 18% from 27% in the pcp, led by a fall in revenue to absorb fixed costs, increased margins on the 2020 safe harbour shipments, higher input costs due to rise in commodity prices and elevated freight costs. Operating expenses for the period increased to $30.8 million compared to $17.1 million in the pcp because of a $6.2 million increase in equity-based compensation, one-time costs related to follow-on offerings and higher costs incurred on product development and international growth initiatives. Meanwhile, net income for the period stood at $2.9 million compared to $73.7 million in the pcp.

Key Data (Source: Company Reports)

Recent Updates

• On 11 May 2021, the company announced the signing of the agreement with Nucor Corporation (Nucor) to manufacture certain components of its solar tracking system and co-development future components for Array’s next-generation products. Nucor will provide Array with torque tubes and rolled steel for Array’s manufacturing of clamps, foundations and brackets, and other components.
• On 11 May 2021, the company announced the appointment of Jayanthi Iyengar to the Company's Board of Directors, replacing Peter Jonna.

Risks:

The growth of the company is directly associated with the demand for solar energy projects in the global market and, hence, any adverse impact will directly affect the business of the company. The feasibility and demand for solar energy are impacted by cost competitiveness, consistency, and presentation of solar energy systems compared to non-solar renewable energy. Besides, a loss of one or more of the company’s significant clients could adversely impact sales of the company. Importantly, any interruption in the flow of raw materials from international vendors could disrupt the supply chain.

Outlook:

Despite the rise in steel prices and energy costs in recent times, the management is optimistic about the prospect of solar business as it believes that steel prices and shipping costs would normalize once the global economy re-starts post-pandemic led lockdowns. Besides, there have been accelerating efforts to decarbonize and constructive regulatory environment for solar energy. Solar with trackers has demonstrated that it is the lowest cost and most environment friendly form of generation. On 9 March 2021, the company stated the opening of the Array Tech Research Center, a site dedicated to researching, developing, and field testing advanced solar tracker technology.

The management is conducting a review of open contracts to estimate what costs can be passed on to customers, and hence, it has postponed the release of guidance for 2021. However, it expects to provide guidance once it completes the review of open purchase orders, commodity and shipping prices remain stable for a longer period to use them to develop a forecasted value for the year. In Q1FY21, it invested in a technology company that has the potential to phenomenally slash the cost of installing trackers.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

It was second time that the stock touched the level of $13.05 in the previous week and gave stronger closing thereby forming a ‘Double Bottom’ pattern which is towards confirmation of bullish trend reversal. However, the stock has given a softer closing for the ongoing week at $15.56 which is still above 50% of the body of bull candle of the previous week. The technical indicator RSI with a reading around 33 and a flattish curve at the end, suggests flattening of momentum.

Going forward, the stock may have resistance around the 23.6% retracement level of $22.92 whereas support could be around $13.05.

Stock Recommendation:

The stock declined by ~65.4% in 6 months. It has made a 52-week low and high of $13.22 and $54.78, respectively.

Considering the aforesaid facts, we have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight premium to its EV/EBITDA Multiple (NTM) (Peer Average) considering recent cost cutting initiatives taken by the management and management thinking to pass on the additional cost of the product to customers.

However, the investors should closely track the risks such as the rapidly evolving and competitive nature of the solar industry and sustained government regulations.

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of $15.56 per share, down by 3.47% on 24^th May 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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