A Look at JinkoSolar's Earnings

A Look at JinkoSolar's Earnings

JinkoSolar released earnings on November 18 and soundly beat expectations.

Year to date, JinkoSolar shares are up an astounding 834%. During the same time period, fellow Chinese solar producers Canadian Solar and Trina Solar are up 1,330% and 535% respectively.

One reason for the spectacular rally is due to the fact that most solar stocks have come off depressed stock prices. The low starting prices were caused by substantial industry oversupply and falling average selling prices.

With most third quarter earning reports out, it seems that industry oversupply and falling average selling prices are now a thing of the past.

Leading Chinese solar companies JinkoSolar, Canadian Solar, and Trina Solar are all seeing growing margins and increasing visibility.

The third quarter numbers
JinkoSolar earnings were $1.44 per share with revenues of $320.7 million. This beat expectations of $0.45 earnings per share and $302.2 million in revenue.

Revenue was up 11.2% sequentially and up 47.6% year over year.

The company shipped 518.9 megawatts, which was a 6.1% sequential increase and a 54.8% year-over-year increase.

Guidance was upbeat, with 2013 module shipment guidance now at 1.7GW-1.8GW from a previous guidance of 1.5GW-1.7GW.

The conference call
JinkoSolar has an extremely low cost of production at $0.50 per watt.

The low cost per watt allows the company strong margins. One takeaway from the conference call was that those margins are increasing. Third quarter gross margins increased to 22.3% from 17.7% in Q2 and 5.8% in the third quarter of 2012.

Management cited increasing solar module average selling prices, or ASP, as the primary reason for improving margins.

For Q3, JinkoSolar's solar module ASP was $0.63 per watt compared to $0.60 per watt in Q2.

In the conference call, management predicted that solar module ASP would continue to trend higher meaning that JinkoSolar superb gross margins may continue rising.

Another point of note is that JinkoSolar's pipeline now has 700 megawatts in utility-scale projects and 400 megawatts for distributed systems. The margins in the downstream business of utility-scale and distributed systems are very healthy with gross margins around 60% and net profit margins of 30%.

The bottom line
The Chinese solar sector is thriving again in part due to the recent actions of the Chinese government, which often plans strategically for the long term. The solar sector is a strategic priority, and the Chinese government wants solar companies to do well.

In order to combat industry oversupply, in September the Chinese government mandated that no new solar capacity be built; in order to increase demand, the Chinese government increased its total solar installation target by 20% to 12 gigawatts for 2014; and, in order to shore up balance sheets, the Chinese government announced a 50% rebate on value added tax from October 1, 2013 to the end of 2015.

In China, the government sometimes picks winners.

JinkoSolar is one of the unofficial winners because China Development Bank has extended the company a five year $1 billion credit line. The credit line assures that JinkoSolar will survive and grow.

The company itself has a relatively strong balance sheet with $218.7 million in cash and cash equivalents and $392.8 million in debt. JinkoSolar can leverage its balance sheet or tap its credit line to opportunistically acquire other Chinese solar companies that are running at less than full utilization.

With an excellent Q3 earnings report, the long thesis for JinkoSolar and the entire Chinese solar sector is on track.

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