Sunrun Inc.

RUN Details

Sunrun Inc. (NASDAQ: RUN) is one of the leading solar energy players in the U.S with the entire focus on the residential solar systems. It provides home solar, battery storage, and energy services to its customers present across 175 cities in 22 states and Puerto Rico. Given the backdrop of increasing utility costs and the aging grid, Sunrun provides opportunities for affordable clean energy with energy independence.

Q3FY20 Results Performance (For the Period Ended 30 September 2020)

The company has logged a strong performance in the quarter ended 30 September 2020 as volumes grew strongly by 40% QoQ and 2% YoY coupled with a healthy increase in battery installations by more than 45% YoY. Further, the company witnessed a rebound in its net customer margins during the period under consideration. Megawatts deployed (MW) during the quarter significantly increased to 109 MW, an increase of 40% QoQ. However, annually the same grew by 2% YoY.

Meanwhile, the company reported a 3% YoY decline in revenue during the quarter to $209.8 million considering an increase in Customer agreements and incentives revenue by 19% YoY was  offset by a 20% YoY decline in solar energy systems and product sales revenue. However, the company posted an uptick in net income attributable to common stockholders at $37.4 million from $29 million a year earlier.

Source: Company Report

Reinforcing its Leadership Position in Home Solar And Energy Services Market

The company has been successfully maintaining its leadership position as it is a pioneer in residential solar service. The company enjoys a strong competitive edge given its industry-leading customer acquisition platform, customer experience capabilities, and extensive financing experience. To further solidify its position across US, the company in October 2020 has completed its acquisition of Vivint Solar. This has enabled the company in enhancing its portfolio strength with the highest number of solar assets globally with more than three gigawatts of solar energy and more than 500,000 customers.

Moreover, it is launching Brightbox, its rechargeable solar battery system, across its markets in the US. As of 30 September 2020, the company has already deployed more than 13,000 Brightbox systems in the country. Also, the company has entered into an agreement with Southern California Edison (SCE) wherein it will provide five megawatts of new energy capacity by 2023. All these initiatives undertaken by the company provide visibility on the growth momentum.

Outlook

The company expects that the positive momentum built in Q3FY20 will sustain in Q4FY20 on the back of likely improvement in net customer margin with megawatts deployed to grow by more than 10% QoQ in Q4FY20. The company has earmarked of increasing the net customer margins to over $8,000 per leased customer in Q4FY20. In line with this, the company expects the growth to further accelerate in 2021 owing to improved cost structure and higher net customer margins. In a move to further reinforce its leadership position in the renewable energy space the has completed the acquisition of Vivint Solar which has resulted in boosting its overall customer base to over 500,000.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

EV/Sales 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

The company has a healthy balance sheet as reflected by  its decent  liquidity position with cash, including restricted cash, increased by $8.1 million from the prior year to $657.6 million at the end of 30 September 2020. Further, its net earning assets recorded a healthy growth of 15% YoY during the period to $1.7 billion.

We have applied EV/Sales multiple Based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). The stock has an immediate resistance of US$82.38 and support of US$49.28.

Considering its sustained focus on maintaining leadership position in home solar and energy services in the United States, growing customer base, strong performance in Q3FY20, strong liquidity position, and decent growth outlook with an improved cost structure, we give a “Buy” recommendation on the stock at the current market price of US$60.33, down by 4.83% on 23^rd  February 2021.

RUN Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

JinkoSolar Holding Co., Ltd.

JKS Details

JinkoSolar Holding Co., Ltd. (NYSE: JKS) is the solar module manufacturer. It has created a vertically integrated solar product value chain, with an integrated annual capacity of 20 GW for mono wafers, 11 GW for solar cells, as well as 25 GW for solar modules, as of 30^th September 2020.

Strong Demand Scenario

It was mentioned that policy support from the major economies is expected to help future demand.  The company stated that the industry consolidation is accelerating at the backdrop of the challenging macroeconomic environment. Notably, market share of the company is projected to further step up to ~15% for the full year 2020, as compared to ~12% in 2019.

Q3FY20 Result Performance

The company has reported a healthy increase in the module shipments during the quarter, up by 14.5% QoQ and 53.8% YoY. Resultantly, the overall revenue of the company grew by 3.8% QoQ and 17.2% YoY. In Q3 FY 2020, the company’s revenue stood at US$1,292 million. In line with increase in revenue, gross profit rose to US$220 million. As of September 30, 2020, the company was having RMB6.40 billion (or US$943.3 million) in the cash and cash equivalents and restricted cash, as compared to RMB6.85 billion as of June 30, 2020.

Financial Snapshot (Source: Company Reports)

Outlook

For the full year 2020, the Company is estimating total solar module shipments to be between 18.5 GW to 19 GW. By the end of 2020, the company is anticipating annual mono wafer, solar cell and solar module production capacity to reach 20 GW, 11 GW (including 800 MW N-type cells) and 30 GW, respectively.

Valuation Methodology: P/CF Based Relative Valuation (Illustrative)

P/CF 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

Over the last three months, the stock witnessed a fall of ~24.8%. The company is expecting significant increase in the demand next year as well as bottleneck of raw materials in the third and fourth quarter this year might gradually improve.

We have applied P/CF multiple Based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). The stock has an immediate resistance of US$55.82 and second resistance of US$68.38.

Thus, we recommend a ‘Buy’ rating on the stock at the current market price of US$50.410, down by 3.61% on 23^rd February 2021.

JKS Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

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