Image source@Visual China
文 | BT财经数据通，作者 | Jordan Sauer
JinkoSolar, a well-known name in the global solar module manufacturing field, is standing on the cusp. In the first nine months of 2023, they shipped 52GW of solar modules, firmly holding the top spot in the world's solar industry. Most of the power of these green energy sources from China's production lines.
The ambitious Jinko is not resting there, predicting that module shipments will soar to 70 to 75 GW in 2023, and that by the end of the year, the combined overseas production capacity is expected to exceed 12 GW. This is a victory for China's manufacturing power and a powerful declaration for the global green energy market.
When it comes to cost, JinkoSolar's cost of manufacturing solar modules in China is 50% lower than in Europe and 65% lower than in the United States. This huge cost advantage makes Jinko highly competitive in the global market. But even so, issues such as tariffs are still in some markets, such as the United States, putting a lot of pressure on Jinko.
The solar market is becoming increasingly competitive, and the price of solar modules is declining. Although the competitiveness of solar energy has increased demand, the company's profitability has been squeezed by price pressures. This is also reflected in the stock market, where JinkoSolar's stock has underperformed over the past few years.
On December 20, JinkoSolar's stock price continued to decline due to the slight weakness in the capital market, and finally closed at 8.03 yuan, a decline of 1.59%. It is worth mentioning that the intraday stock price touched a low of 8.01 yuan, which hit a record low for the company's stock price. Looking back over the past year, JinkoSolar's stock price has fallen by 41.18%, compared to the 13.88% decline of the CSI 300 Index over the same period, and it is clear that JinkoSolar's performance has underperformed the overall market level.
The question now is, can JinkoSolar use its manufacturing strengths in China to find a way out of the situation in the face of such headwinds, and can they stay ahead of the fierce global competition and achieve sustained profitable growth?
Overcapacity in the market
With the cost of solar production plummeting, utility-scale solar PV has become the most affordable option for power generation in many parts of the world. The solar market is becoming more competitive and expanding rapidly.
In 2022, solar PV generation increased by 270 TWh, a year-on-year increase of 26%. In the first half of 2023, PV installations soared by 153% in China, 102% in Germany, and 34% year-on-year in the US.
The dominance of China's photovoltaic industry is even more indisputable. In 2022, China's PV silicon materials, wafers, cells, and module output hit record highs, reaching 857,000 tons, 371.3GW, 330.6GW, and 294.7GW, respectively. China's domestic PV installed capacity has ranked first in the world for 10 consecutive years, with a cumulative installed capacity of more than 392GW. Entering 2023, China's photovoltaic industry will continue to make rapid progress, with rapid technological progress, and the scale of industrial manufacturing and installed capacity applications will grow by leaps and bounds.
According to the forecast data of various institutions, by the end of 2023, the global production capacity of polysilicon, wafers, cells, and modules will exceed 800GW. If all expansion announcements are basically realized on schedule, the production capacity of polysilicon and cells will exceed 1,100 GW, and the production capacity of wafers and modules will reach 900 GW. This will far exceed the module demand of 480GW~550GW in 2023 and 2024.
According to CPIA data, China's production capacity in all links has accounted for more than 80% in the past two years.
In the context of global decarbonization, the demand for solar energy is expected to continue to rise. The International Energy Agency predicts that by 2027, installed solar PV capacity is expected to surpass coal and become the world's largest energy source, accounting for more than 20% of all electricity capacity. According to data from the China Photovoltaic Industry Association (CPIA), in the first half of the year, the output of the four major manufacturing links of polysilicon, silicon wafers, crystalline silicon cells and crystalline silicon modules all achieved a year-on-year increase of more than 60%.
However, in this wave of photovoltaic prosperity, hidden worries have gradually emerged. In the first half of the year, there were as many as 23 listed companies with revenues of more than 5 billion yuan in the photovoltaic industry chain, of which 16 companies' revenue increased by more than 20% year-on-year, and 9 companies' net profit doubled year-on-year. However, at the same time, the leap in production capacity of all segments of the industrial chain, especially polysilicon, has brought about a shift in the relationship between supply and demand, and polysilicon prices have plummeted in the first half of 2023, and prices have also dropped in downstream segments.
According to the latest SEIA/Wood Mackenzie Power & Renewables report, the average global solar module price plummeted by 30%-40% in the first and third quarters of 2023. According to domestic data, polysilicon prices have plummeted by 80% since last year's high, with the average transaction price of mono-Si dense polysilicon falling to 65,700 yuan/mt, and the prices of wafers, cells, and modules have also dropped sharply.
Behind the boom in the PV industry, a storm of polysilicon production capacity is brewing. According to the latest data, polysilicon production capacity will continue to be released in the coming period, but due to the impact of falling prices, the asset impairment losses accrued by many companies have increased significantly compared with the same period last year, exposing the risks behind the industry.
Lv Jinbiao, deputy director of the silicon industry expert group of the China Nonferrous Metals Industry Association, pointed out that there is no obvious surplus in the polysilicon market this year, and some new entrants have not increased production faster than expected. The total output is expected to be about 1.5 million tons (equivalent to about 600GW) in 2023. However, the real challenge will emerge next year, especially in the first quarter, when the problem of overcapacity will become more severe.
The statistics from the Silicon Chapter reveal a more grim reality. By the end of 2023, polysilicon production capacity will reach a staggering 2.852 million tons. Among them, about 750,000 tons of new production capacity will be put into operation in the fourth quarter. Considering that this part of the production capacity will take time to ramp up, and assuming that there will be no expansion in 2024, the annual polysilicon output will still reach 2.30~2.5 million tons (equivalent to about 920GW-1000GW).
More worryingly, polysilicon production in December 2023 may reach 200,000 tons. At the end of the year, all aspects of the enterprise need to clear the inventory, if the first quarter of next year encounters the demand off-season, the contradiction between supply and demand will be extremely acute. This may not only lead to a further drop in polysilicon prices, but may also trigger fierce competition and price wars among companies.
In this silicon storm, the challenges faced by PV companies are becoming more and more severe. In addition to the pressure of overcapacity, companies also need to deal with asset impairment losses caused by falling prices. How to maintain profitability in the fierce market competition has become a major problem for photovoltaic enterprises.
Earnings that beat expectations
JinkoSolar is the only solar giant to achieve both revenue and profit growth, with strong growth momentum in the third quarter.
According to the third quarterly report, Jinko's quarterly shipments reached 22,597MW, a year-on-year increase of 108.2%, of which solar module shipments were 21,384MW and cells and wafers were 1,213MW. Revenue reached $4.36 billion, up 63.1% year-over-year. At a time when the demand for solar energy is strong, JinkoSolar has successfully grasped the pulse of the market and achieved a leap in performance.
Despite the sharp drop in module prices in Q3, JinkoSolar's gross margin bucked the trend and rose to 19.3%, up from 15.6% and 15.7% in the previous two quarters. This is mainly due to the company's efficient operation and cost control capabilities. At the same time, adjusted net income attributable to ordinary shareholders reached $184.6 million, up 215.1% year-over-year. EBITDA was $607.4 million, up 145.9% year-over-year. This series of data fully demonstrates JinkoSolar's profitability and growth potential in a complex market environment.
Looking ahead, JinkoSolar's management expects module prices to continue to decline in Q4 but remain relatively stable next year. An oversupplied market environment can put pressure on older production lines for less productive products. However, JinkoSolar is expected to gain more market share due to the high efficiency of its mass-produced N-type modules – which is 25.6% – to gain an edge over the competition.
It is worth mentioning that JinkoSolar's N-type modules accounted for about 57% of shipments in the first nine months of 2023, continuing to lead the market average. Management expects N-type to account for 60% of total module shipments in 2023. This trend shows that N-type modules are gradually becoming mainstream in the market, and JinkoSolar's leading position in this field lays a solid foundation for its future growth.
Geographically, China accounted for about 40% of the company's third-quarter shipments. At the same time, the Inflation Reduction Act (IRA) is expected to increase demand in the United States, while inventories in Europe remain relatively high. In addition, the company is optimistic about the growing demand for solar energy in Saudi Arabia and the Middle East. These market dynamics provide more possibilities for JinkoSolar's global presence.
For the fourth quarter, management expects gross margin to decline sequentially due to the company's greater exposure to the China market. However, analysts believe that lowering interest rates will be beneficial to JinkoSolar. If interest rates fall, the demand for solar panels is likely to increase, which will help reduce the total cost of solar energy.
In terms of photovoltaic cell technology, as the conversion efficiency of PERC cells approaches the bottleneck, N-type cell technology represented by TOPCon, HJT, BC cells, etc. has become a promising technical direction for photovoltaic companies. JinkoSolar was the first to achieve large-scale mass production of TOPCon, which became the key to its sudden rise. Through the comparison of financial reports, it can be found that the dividends brought by TOPCon's expansion have become increasingly prominent in the third quarter. Enterprises with N-type TOPCon products as their main business, such as Jinko and Junda, have achieved high performance, showing obvious profit advantages.
According to industry experts, the decline in the price of N-type PV modules will increase the yield of end users, which in turn will promote the continued strengthening of the new installed capacity of PV. At that time, the leading photovoltaic enterprises with N-type technology, capital and production capacity advantages may benefit. At the same time, the supply and demand of N-type polysilicon have tightened, and the price gap between N-type and P-type polysilicon has widened. Compared with P-type polysilicon, N-type polysilicon has high purity and low metal impurity content, and the production capacity of N-type polysilicon will be the core competitive factor for polysilicon companies in the future.
JinkoSolar's self-developed 182N-type high-efficiency monocrystalline silicon cell (TOPCon) conversion efficiency has been tested and certified by the National Photovoltaic Industry Metrology and Testing Center for third-party testing, and the conversion efficiency of full-area cells has reached 26.89%, setting a new record for the efficiency of large-area N-type monocrystalline passivated contact (TOPCon) cells with a size of 182 and above. This lays the foundation for the next step of mass production efficiency improvement.
The company plans to launch bifacial TOPCon next year, with an expected mass production efficiency of 26.5%, and hopes to gradually reach a mass production efficiency of 27% to 27.5% from 2024 to 2025. Such an efficiency will definitely suppress all other technical routes and become the mainstream of mass production in the market.
The reality of low valuations
On the track of the photovoltaic industry, JinkoSolar has won the attention of the market with its steady performance and innovation capabilities. However, despite its forward price-to-earnings ratio of just 2.8x as of Dec. 17 and some debt sustainability, the company's true value is not as simple as the numbers.
First, when we factor in its net debt of $2.29 billion at the end of the third quarter, JinkoSolar's enterprise value ratio (EV/EBITDA) rose to 6.53, which is clearly higher than its apparent price-to-earnings ratio, revealing that the company is not as "cheap" as it first looks. In addition, JinkoSolar, which is in the solar industry, struggled to sustain a premium valuation deal due to the lack of a deep moat.
While the market expects a possible reduction in interest rates next year, which will be a positive for the solar industry, the potential oversupply situation cannot be ignored. This challenge could further squeeze JinkoSolar's profit margins.
However, analysts also see bright spots for JinkoSolar. The company actively returns capital to shareholders through buybacks and dividend payments. In September, JinkoSolar announced its first dividend of $1.5 per American depositary share (ADR), a move that could strengthen the loyalty of its shareholders.
In addition, JinkoSolar's expansion in photovoltaic + energy storage business has also opened up new growth space for JinkoSolar. As a well-known brand in the solar industry, the company already has the inherent advantage of extending into the energy storage market. However, the energy storage business is still in its infancy, and whether JinkoSolar can seize the opportunity remains to be tested by the market.
The disconnect between JinkoSolar's share price and its profitability is a phenomenon to watch. This means that there are other factors besides fundamentals that affect the performance of the stock. These could include tariff increases on solar panels and lower profit margins due to oversupply.
Overall, analysts believe JinkoSolar's valuation is attractive, but there are many uncertainties in the current market environment. Therefore, investors are advised to maintain a wait-and-see attitude towards the stock and include it in a diversified stock portfolio to diversify risk.
Interestingly, despite the recent downturn in stock prices, northbound funds have increased their holdings of JinkoSolar by an estimated 28.6046 million yuan in the past 2 days, showing a certain optimistic attitude. At present, Northbound Capital holds a total of 106 million shares, with a total market value of 850 million yuan, accounting for 3.43% of the outstanding shares. This move may mean that after a period of adjustment, JinkoSolar's fundamentals are still recognized by some institutional investors.
At a time when market sentiment is sluggish, the increase in northbound funds has undoubtedly brought a hint of warmth to JinkoSolar. But the continued decline in the share price also reflects the market's concern about the company. For investors, while remaining cautious in the face of such a situation, it is also necessary to pay close attention to the company's future performance and industry dynamics in order to make informed investment decisions at the right time.
After all, in this market full of challenges and opportunities, it remains to be seen whether JinkoSolar can achieve breakthroughs and growth.