On Wednesday and Thursday, JinkoSolar Holding Co., Ltd. JKS recovered all of its initial post-earnings losses, but Axiom analyst Gordon Johnson says Jinko and other solar vendors with exposure to the Chinese module market have plenty more pain on the horizon.
Johnson says Jinko’s shrinking margins are a sign of things to come for a handful of other solar stocks. According to Johnson, solar vendor margins became artificially inflated when vendors took advantage of the YieldCo craze by selling projects to themselves at high margins.
In the past 53 weeks, the decline in module prices has been larger than the decline in polysilicon prices just 22 percent of the time for Chinese module vendors, suggesting major margin pressures ahead. Johnson says this phenomenon has been going on for years, but the YieldCo model helped companies to transcend the actual market pricing trends and support their margins.
As a result, Johnson says the true margins of Chinese solar module vendors are about to be exposed, and the market will likely not be happy.
“Given this [view] is not Consensus at present, as this dynamic unfolds, we believe those vendors who are the most exposed to selling Chinese-made solar modules to third parties will come under intense pressure,” Johnson wrote.
In addition to Jinko, Johnson says JA Solar Holdings Co., Ltd. (ADR)JASO, Hanwha Q Cells Co Ltd –ADR HQCL and Yingli Green Energy Holding Co Ltd (ADR) YGE are the most at-risk of margin compression.
Last week, Johnson reiterated Sell ratings on JA Solar, Yingli Green Energy and Solaredge Technologies Inc SEDG.
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