JinkoSolar Holding Co., Ltd. :JKS-US: Earnings Analysis: Q1, 2017 By the Numbers : June 8, 2017

JinkoSolar Holding Co., Ltd. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of JinkoSolar Holding Co., Ltd. – JA Solar Holdings Co., Ltd. Sponsored ADR, Hanwha Q CELLS Co., Ltd. Sponsored ADR and Daqo New Energy Corp. Sponsored ADR (JASO-US, HQCL-US and DQ-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 839.72 million, Net Earnings of USD 8.81 million.
  • Gross margins narrowed from 21.33% to 11.24% compared to the same period last year, operating (EBITDA) margins now 0.98% from 10.49%.
  • Narrowing of operating margins contributed to decline in earnings.

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

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 839.72 745.69 855.43 906.39 837.06
Revenue Growth (%YOY) 0.32 -21.4 33.27 75.6 89.98
Earnings (mil) 8.81 21.23 35.05 42.63 47.98
Earnings Growth (%YOY) -81.65 -61.1 13.42 245.9 487.32
Net Margin (%) 1.05 2.85 4.1 4.7 5.73
EPS 0.27 N/A 1.07 1.28 1.3
Return on Equity (%) 3.75 8.58 13.65 17.19 20.23
Return on Assets (%) 0.92 1.92 2.88 3.8 4.5

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Market Share Versus Profits

Revenues History
Earnings History

JKS-US‘s change in revenue this period compared to the same period last year of 0.32% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that JKS-US is holding onto its market share. Also, for comparison purposes, revenues changed by 12.61% and earnings by -58.52% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 21.33% to 11.24%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 10.49% to 0.98% in this time frame. For comparison, gross margins were 14.25% and EBITDA margins were 1.96% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

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 16.70 days, compared to last year’s level of -24.54 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 10.49% to 0.98% and (2) one-time items that contributed to a decrease in pretax margins from 8.43% to 1.07%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
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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