Barclays Sees 49% EPS Growth for JinkoSolar
Initiates at Overweight
April 9, 2014
The sun will keep shining on the solar industry. That’s the opinion of Barclays analyst Jamie Yeh and his team as they initiated coverage on the solar sector, listing the Chinese solar panel maker JinkoSolar Holding (JKS) as its top pick.
In a note published today, Yeh and his team argued that the industry is in the early stage of an upcycle with healthy supply and demand sustaining profit. The analysts see stable pricing and expect shipments to grow better than 20% annually into 2016.
Yeh and his team write:
With prices having declined 80% since 2011, solar energy has become substantially more affordable compared with retail electricity prices. Governments around the world, especially those of economic powerhouses China, Japan and the US, are promoting this renewable energy (which still accounts for <1% of global power generation) as a means of reducing air pollution and moving away from nuclear power…We expect a regulated supply increase as the Chinese government discourages unqualified entrants and banks are not willing to fund capacity expansion, while existing players now have better visibility on demand and will focus on their downstream projects. Therefore, we believe the rally since 2H13 only factors in the sector’s turnaround but not the sustainability of future earnings uplift since selective solar companies’ EPS has already returned to the same level now as it was in the last peak in 2010-2011 but share prices have not.
Barclays initiated JinkoSolar with an Overweight and a price target of $51, a 78% premium to today’s price. The analysts see Jinko generating 49% average annual per-share earnings growth through 2016. How? As Barclays explains it.:
Jinko is one of the most cost-effective solar module makers in China, thus it should continue to generate c20% GPM for its vertically integrated module business under a stable ASP profile; 2) Jinko is diversifying into Japan and the US from China, which should improve its blended ASP; and 3) Jinko is an early mover in developing downstream solar farm projects and thus should start to generate stable revenues/profit stream from 2014E, which would greatly reduce business volatility and enhance ROE.
Shares of JinkoSolar rose 5% to $28.64.
Content provided by: Shuli Ren, CFA - Barron’s / Emerging Markets Columnist and Blogger / Twitter: @shuli_ren