Jinko Solar(JKS) got its start in 2006 as a supplier of recovered siliconmaterials. It is now a vertically integrated solar manufacturer andseller of solar wafers, cells and modules. The company touts its fastgrowth and low-cost advantage from its Chinese operations. (See profile for more details).
JKS debuted on the American stock market in mid-May of this year atits IPO price of $11. This occurred just months after the companywithdrew previous IPO plans. With a steep correction underway in thegeneral market, JKS quickly plunged 23% in 4 days. At the time, it waseasy to dismiss this event as another busted IPO. However, the companycame to market as a profitable entity with a viable business model. By the time JKS had a chance to remind investors and traders of its attractive financials in mid-August, the stock had already more than doubled from its poor start. OnWednesday, JKS completed a recovered from a one-day drop of 11% earlierthis month to set fresh highs. The stock has now almost tripled from its IPO. (Click chart for a larger view).
(Click for larger view)
The earnings announced August 16 certainly got the market’sattention. Average trading volume has more than doubled since then(tripling during a brief steep correction) and the stock has increasedanother 50%. During August’s earnings, JKS raised Q3 and FY10 evenue guidance above analyst consensusexpectations: $145-155M vs. $117M Q3 consensus and $500-525M vs. $419MFY10 consensus. For the quarter, JKS reported a 64% year-over-yearincrease in revenue to $133M “…primarily due to increased global demandfor solar products and a significant increase in the shipments of solarmodules attributable to the Company’s enhanced sales and marketingcampaigns.”
Gross profit increased at an even faster 87% year-over-year rate to$36M. Net income was $27M. However, almost a third of the gross camefrom shifts in foreign exchange:
“The Company entered into foreign currency forwardcontracts with local banks to hedge its exposure to foreign currencyrisks. In the second quarter of 2010, the Company recorded a gain ofRMB74.6 million (US$11.0 million) from a change in the fair value offorward contract derivatives resulting from the depreciation of the Euro and U.S. dollar against Renminbi.”
The yuan’s future appreciation will depend as much on political dynamics as market adjustments, but JKS did not discuss the sustainability of the profits from thisderivative activity. For reference, a year ago, JKS lost money on itsderivative contracts during a quarter in which it reported a loss in net income.
Another concern is the large amount of relative debt. Total debt is$188M but cash levels are only $59M. Total debt to equity is a whopping80. (See Yahoo!finance for details). While total assets are $259M, it seems likely that JKS will soon take advantage of its strong stock price to raise additional capital.
Regardless the uptrend in the stock remains strong and valuations are probably low enough to encourage more buying absent any negative newsflow (forward P/E is 7.9, price-to-sales is 1.8, and price-to-book is2.8). The recovery from a swift and steep correction to today’s freshpost-IPO highs is an encouraging technical signal. JKS’s strong stockperformance places it in good company with this year’s other strongperformers in the solar industry (for a brief review of these see “A ‘Stealth Rally’ In Solar Stocks” and “A ‘Stealth Rally’ In Solar Stocks, Part Two“).
Be careful out there!
Full disclosure: no positions