JinkoSolar Holding Co., Ltd. :JKS-US: Earnings Analysis: 2016 By the Numbers : April 11, 2017

JinkoSolar Holding Co., Ltd. reports financial results for the year ended December 31, 2016.

Highlights

  • Gross margins narrowed from 18.97% to 18.08% compared to the same period last year, operating (EBITDA) margins now 10.54% from 11.34%.
  • Change in operating cash flow of -227.19% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating (EBIT) margins contributed to decline in earnings, despite some positive contribution from one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 3214.8 2457.71 1617.12 1152.65 760.88
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 148.82 121.91 109.07 30.61 -244.77
Earnings Growth (YOY) 22.07 11.77 256.28 112.51 -677.34
Net Margin 4.63 4.96 6.74 2.66 -32.17
EPS 3.8 3.4 2.5 1.28 -11.03
Return on Equity 16.11 14.19 19.23 11.05 -71.77
Return on Assets 3.75 3.36 4.52 1.98 -17.47

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Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 18.08% to 18.97% for the same period last year, while operating margins (EBITDA margins) went from 10.54% to 11.34% over the same time frame.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

JKS-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 44.74 days, compared to last year’s level of 42.89 days.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

JKS-US‘s year-on-year change in operating cash flow of -227.19% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s earnings fell, largely because of the narrowing in operating margins, which decreased from 7.26% to 6.89%. The decline in earnings probably would have been worse, were it not for some one-time items that improved pretax margins from 5.61% to 5.83%.

EBIT Margin History
PreTax Margin History

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Company Profile

JinkoSolar Holding Co., Ltd. engages in the solar power industry. It operates through Manufacturing and Solar Power Projects segments. The Manufacturing segment focuses on the manufacture of silicon ingots, wafers, cells, and solar modules. The Solar Power Projects segment deals with the development, construction, and operation of solar power projects, which include power generation; engineering, procurement, and construction; and connecting solar power projects to the grid, and operation and maintenance of the solar power projects. The company was founded by Xiande Li, Kangping Chen, and Xianhua Li on August 3, 2007 and is headquartered in Shangrao, China.

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