JinkoSolar Q1 Earnings Miss Ests - Analyst Blog

JinkoSolar Holding Co. Ltd. JKS reported first quarter 2014 results with adjusted earnings per American Depositary Share ADS of 20 cents (adjusted earnings of 5 cents per share), much lower than the Zacks Consensus Estimate of 41 cents. The company, however, reversed its year-ago adjusted loss per ADS of 56 cents (adjusted loss of 14 cents per share) in the reported quarter. Each “ADS” represents four ordinary shares.

Earnings in the quarter came on the back of JinkoSolar's wide geographical expansion.

Lower-than-expected earnings nonetheless evoked a negative market reaction with the shares losing 3.0% to close at $25.08 on May 27. Share prices, however, recovered 4.5% to close at $26.21 on May 28.

Quarterly Performance

JinkoSolar's revenues in the reported quarter were $323.9 million, beating the Zacks Consensus Estimate of $308.0 million by 5.2%. The top line decreased 8.0% sequentially but increased 73.1% year over year.

The sequential decline was due to lower solar modules shipped — largely a seasonal factor. The year-over-year improvement in total revenues was driven by the increase in shipments and higher average selling prices ("ASPs") of solar modules. In addition, the increase in electricity revenues from solar projects boosted sales.

Gross profit in the quarter was $77.7 million, resulting in a gross margin of 24.0%. This compares favorably with the gross margin of 12.7% in the first quarter 2013 but shows a slight decline from 24.7% in the fourth quarter 2013. The significant year-over-year improvement in gross margin was attributable to increased operating efficiency, continued cost reductions for the company's polysilicon and auxiliary materials and higher ASPs. The company also enjoyed higher margins on solar project electricity revenues.   

Total operating expenses in the quarter amounted to $45.0 million, up 0.4% sequentially and 70.4% year over year. The year over year increase reflects higher shipping and warranty costs along with higher research and development expenses.

Shipments

Total shipments in the first quarter of 2014 were 581.2 megawatts (“MW”). This represents a 0.9% decline from 586.3 MW in the fourth quarter of 2013 and a significant 71.6% rise from 338.6 MW in the first quarter of 2013. Of the total shipments, 455.1 MW were solar modules, 92.1 MW were silicon wafers and 34.0 MW were solar cells.

Again, shipments to the US and Japan now account for about 30% of total shipments and the company intends to enhance its footprint in the regions to take advantage of higher ASPs.

Financial Condition

JinkoSolar at the end of the reported quarter had cash and cash equivalents and restricted cash of $271.0 million, up from $141.2 million at the end of Dec 2013.

As of Mar 31, 2014, total short-term borrowings that included the current portion of long-term bank borrowings were $265.9 million compared with $326.2 million at the end of Dec 2013. Total long-term borrowings were $56.7 million compared with $59.8 million at 2013 end.

Guidance

JinkoSolar expects total solar module shipments in the range of 570 MW and 600 MW for the second quarter of 2014. By the end of 2014, the company expects total solar module shipments in the range of 2.3 GW and 2.5 GW, with total project development scale expected to be above 400MW.   

Peer Comparison

Recently, First Solar Inc. FSLR reported strong first quarter 2014 earnings of $1.10 per share, comfortably surpassing the Zacks Consensus Estimate of 50 cents per share by 120.0%. The top line also beat the Zacks Consensus Estimate of $840.0 million by 13.1%. The better-than-expected result was attributable to a solid solar project business.

Our Take

With first quarter 2014 profits, JinkoSolar has now reported in the black for four quarters in a row. The company has successfully enlarged its geographic footprint and expanded its downstream business, which has ensured net profitability for four straight quarters on the trot.

JinkoSolar's domestic market, China, holds a lot of promise. According to the company, an unusually harsh winter was responsible for the slowness in the Chinese market during the first quarter. However, the nation's distributed generation market is expected to grow in 2014 with additional policy support. Module shipments are expected to increase by 30% for the second quarter 2014.

Apart from its strong domestic position, JinkoSolar expects to record robust shipments to new emerging markets like South Africa, Chile and India. A deal to supply 100 MW of PV modules for two Chilean PV plants in May 2014 will largely help the company to meet its target.

JinkoSolar presently holds a short-term Zacks Rank #3 (Hold). Other attractive solar PV operators are JA Solar Holdings Co., Ltd. JASO and Yingli Green Energy Holding Co. Ltd. YGE. While JA Solar holds a Zacks Rank #1 (Strong Buy) Yingli Green Energy carries a Zacks Rank #2 (Buy).

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