Can JinkoSolar’s share price heat up post-earnings?

JinkoSolar’s [JKS] share price made a bright start to 2021, but its stock performance has run out of energy in recent months. The Chinese solar panel giant’s shares closed 23 June at $38.37, 40% down year to date.  

In late January, JinkoSolar’s share price was soaring, reaching as high as $76.53 during intraday trading on 27 January, before a rapid cooldown set in. A bleak February saw JinkoSolar’s share price crash to $38.08 on 8 March, 38.5% down for the year so far and a massive 50.2% down from its late January highs.

JinkoSolar’s share price declined even further from there, bottoming out at $30.26 on 10 May. The stock failed to post any significant gains until June, the early days of which saw JinkoSolar’s share price rally to $46.21 on 11 June, before falling again over the next two weeks.

  

Despite these recent struggles, JinkoSolar’s share price had a fruitful 2020, which saw it gain more than 170%, and the stock’s 23 June close is still 127% above its level in the year-ago period. Investors will be keen to see whether the company’s upcoming earnings announcement can lighten up a worrying run for the beleaguered solar stock.

 

Rising costs

JinkoSolar is expected to announce first quarter of 2021 earnings before markets open on 25 June. Zacks Equity Research expects sales of $1.20bn, an increase of 0.03% year-over-year, while earnings are expected to fall 97.4% year-over-year to $0.01 per share.

If accurate, these figures would suggest a 16.7% fall in sales from the fourth quarter of 2020, which saw $1.44bn revenue on 5,774 modules shipped. However, JinkoSolar’s operating profit was down in this quarter, falling 86.3% from $80m to $11m in the fourth quarter, despite gross profits increasing 4.9% over the same period to $231m.

Should the 90.9% reduction in quarter-to-quarter earnings per share (EPS) materialise (down from $0.11 in the fourth quarter), JinkoSolar shareholders will wonder what the reasons are for the company’s stagnating performance.

  

One factor in the company’s first-quarter of 2021 results is likely to be the rising price of polysilicon, a key component in solar panel manufacture. Polysilicon’s price increased 160% between the start of the year and June. It is only just beginning to stabilise as large-scale projects begin to be pushed into 2022 because of the price hike.

JinkoSolar’s bottom line could be affected by the price hike. Solar panel providers’ prices have increased only fractionally, so profit margins could be impacted in both the upcoming and following sets of financial results.

The first quarter of 2021 also saw the company make massive investments that will not yet have made its mark on the top line in time for the earnings call. JinkoSolar began work in January on a huge 20GW-capacity solar cell factory in Chuxiong, Yunnan, the world’s largest individual cell manufacturing facility.

The first 10GW of the factory’s capacity was expected to be operational from April 2021, and this might move the dial on the next quarter’s results. However, the considerable investment will only register as a sunk cost.

The Chuxiong plant forms part of a raft of expansions set to make JinkoSolar the world’s third-largest producer of solar modules, according to Seeking Alpha. Data from Infolink suggests that JinkoSolar was the second-largest shipper of solar panels in 2020.

 

Funds in the sun

Enterprising Investors believes that now is a good time to buy JinkoSolar as it leads the industry’s consolidation, according to a Seeking Alpha article. Prices in the sector are low at present, as a result of sell-offs following extreme growth during 2020 and a consequent slowdown in 2021.

  

This is perhaps why thematic ETFs like the Invesco Solar ETF [TAN] have struggled of late. The fund is down 18.21% in the year to date (through 23 June), despite gains of 133.8% over the past 12 months. JinkoSolar was the 11th-largest holding in the fund, comprising 1.61% of the fund on 22 June.

The Chinese renewables sector, specifically, is faring slightly better. The KraneShares MSCI China Clean Technology ETF [KGRN] gained 4.8% in the year to 23 June, with gains of 118% over the preceding 12 months. JinkoSolar was the 24th largest holding in the fund as of 23 June, with 1.42% of the fund’s net assets.