JKS.US 688223.SHG

The solar panel maker’s shares jumped 11.8% the day after it announced the European launch for a new residential-use solar battery

Key Takeaways:

  • A rally for JinkoSolar shares after its announcement of a new battery for sale in Europe may reflect easing concerns about the company’s geopolitical woes
  • Investors briefly pulled out of the solar module maker’s stock after a raid on its Florida and California offices last month, but came back shortly after

  

By Edith Terry

Their stars may be rising globally, but Chinese solar panel makers remain hobbled in the U.S. due to sanctions resulting from trade frictions between the world’s two largest economies. Most manufacturers are retooling their supply chains to circumvent such sanctions, broadening their geographic footprints and strengthening their financials in the process.

Last week, such efforts by Jinko Solar Holding Co. Ltd. (JKS.US; 688223.SH) showed signs of perking up its shares, which have been stubbornly undervalued despite a recent boom in global demand for its solar panels. The company’s shares shot up 11.8% after its European unit announced it would start sellinga second-generation solar battery storage system for local residential and commercial users.

Jinko’s second-generation high voltage storage battery is part of its new European storage business launched in Germany, Austria and Switzerland in May 2022. The company has yet to break out separate revenue for that business, meaning it probably has yet to make a major contribution to Jinko’s overall revenue pie.

Instead, Jinko’s battery business reflects a pragmatic response to market demand, particularly in Germany, which is Europe’s largest solar power market and was among the first countries to establish feed-in tariffs for solar power in 2000. In 2016, Germany also introduced a feed-in tariff for power from solar batteries that has spurred demand even more.

Such feed-in tariffs allow people and companies that install solar panels for their own use to sell any excess power they generate to the national grid, allowing them to earn extra money on top of getting free power. Spurred by such incentives, three out of four German households now want to put solar arrays on their rooftops to produce their own power, according to a recent survey.

The enthusiastic investor response to JinkoSolar’s somewhat mundane announcement may have little to do with European demand for solar storage products. Instead, it may be more tied to JinkoSolar’s restructuring of its supply chain to mitigate pressures it is feeling in the U.S., one of the world’s largest solar markets. To address Washington’s concerns, JinkoSolar is one of a growing group of Chinese solar panel makers moving some of their production to the U.S.

JinkoSolar was one of the first Chinese companies to make such a move, starting production for the U.S. market outside China as early as 2018 by setting up a facility in Florida. It has also expanded its manufacturing footprint to Southeast Asia by setting up factories in Malaysia and Vietnam.

Such diversification efforts may have heartened investors last week, leading to the big share gain after with the European announcement. But even after that bump, JinkoSolar’s stock still trades at a modest forward price to earnings (P/E) ratio of 7, or about a third of U.S. leader First Solar’s (FSLR.US) 23. JinkoSolar and Chinese peers like Trina Solar (688599.SH) and Canadian Solar (CSIQ.US) are all shining in a similar valuation band, reflecting a broader discount for Chinese solar panel makers that control more than half the world’s market.

Offices raided

Potentially reflecting the risk the Chinese panel makers face in the U.S., Jinko’s Florida and California offices were raided by the Department of Homeland Security on May 10, though no clear explanation for the move has been disclosed to date. The factory in the city of Jacksonville keeps JinkoSolar’s finished products closer to its U.S. customers, even though their components come from Southeast Asia, according to the factory’s executives.

JinkoSolar isn’t the only Chinese company to face risks in its U.S. business. More than 1,000 shipments of solar energy components from China were stuck in U.S. ports last November for closer inspection by U.S. customs officials, though they were mainly made by JinkoSolar rivals like Trina and Longi (6010122.SH), neither of which manufacture in the U.S.

Following the U.S. move, Trina announced in January that it would move its solar wafer manufacturing for the U.S. market to Vietnam, while Longi announced in March it would build a solar panel factory in the U.S. state of Ohio with U.S. solar power plant operator Invenergy.

Despite such moves, shares of Jinko and its peers have large remained in the doldrums, even as many reported robust first-quarter earnings on strong demand, coupled with easing prices for polysilicon, the main ingredient used to make solar cells.

Jinko’s quarterly shipments rose 72.7% to 14.49 GW, with revenue up 58% year-on-year to 23.33 billion yuan ($3.4 billion). The company’s net income soared more than 27 times to 788.7 million yuan from 28.9 million yuan a year earlier, with its gross margin rising 2.3 percentage points over that period to 17.3%..

Chairman Li Xiande attributed the margin improvement largely to strong sales for the company’s top-line N-type modules, which sell at a premium to other products. Li said that N-type cell capacity would be 70% of the company’s total production by the end of 2023, and such cells were likely to make up 60% of total module shipments by the second quarter.

On an investor call in April, Jinko CFO Li Pan said that the shipments to the U.S. were gradually resuming as Homeland Security released products that were previously held up. Jinko incurred first-quarter charges of 300 million yuan to 400 million yuan related to the product detainments, creating a 1.5% to 2% impact on gross margin, Li said.

Unpredictable U.S. policy will continue to weigh on Chinese solar panel-maker stocks, as will an expected decline in photovoltaic prices, and high costs for some materials like the lithium used to make solar batteries. But diversification efforts by JinkoSolar and its peers should help to improve their prospects to protect against such risk.

JinkoSolar’s stock continued to rise after last week’s announcement, and is now up nearly 15% over the last two trading days on heavier-than-usual volume. Only time will tell if the rally can be sustained this time, after previous similar rallies fizzled in the past. But at least the company seems to be making the right moves to lower its risk in the important U.S. solar market.

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