After surviving the production disruptions and shipment delays caused by the virus attack in the early months of the year, JinkoSolar Holding Co. (NYSE: JKS) seems to be headed into a difficult phase. Though the China-based energy firm’s weak near-term outlook was a drag on investor sentiment, its prowess in photovoltaics technology gives room for optimism.
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Like most businesses, the prospects of the energy industry will depend a lot on how the business world emerges from the present crisis, given the growing uncertainty over the duration of the slump. Currently, preservation of liquidity is a priority for most enterprises and institutions. That is going to reflect in their capital spending going forward, especially in high-value projects like energy infrastructure.
Headwinds Galore
For JinkoSolar, the main challenge is a combination of weak demand and delays in logistics and project implementation in the current quarter, and probably beyond. The company predicted a 25% fall in global installations this year while reaffirming its positive production targets. On the positive side, there has been a decrease in raw material prices, which is partially offset by elevated shipping costs. That, together with the softness in selling prices and unfavorable exchange rates, can affect margins.
Being a leading solar panel maker, JinkoSolar has an impressive market share that keeps expanding. Considering the growing interest in renewable energy, the company should be able to get back on track once the economy emerges from the grip of coronavirus. But the near-term outlook is not very encouraging, with the management forecasting second-quarter revenue and shipments below the consensus estimates.
Emerging Opportunity
Since solar energy plays a key role in energy security initiatives, it assumes increased significance during the pandemic when governments across the world are waking up to the need to be self-sufficient. It is certain that energy consumption would not come down in the foreseeable future, though there is a temporary dip these days. Also, in the event of a large-scale shift to renewable energy sources, the market might witness a consolidation that will result in a gradual exit of the smaller players.
“We believe government around the world will increasingly run their focus to energy security and in localization, especially after the COVID-19 pandemic. Due to the continued enhancement of the competitiveness of solar energy over traditional energy, and the acceleration of global parity cost by the fall in the price of the industrial churn during the epidemic, which will result in more countries implementing policies to support solar energy, and will drive its deeper penetration in the post-pandemic era.”
Kangping Chen, chief executive officer of JinkoSolar The Chinese government has policies in place to encourage the use of renewable energy and reduce the dependence of conventional energy sources, which bodes well for JinkoSolar and its peers in the sector. Also, this quiet period is an opportunity for the management to streamline operations and achieve cost efficiency through innovation and upgrading underperforming facilities.
Q1 Earnings Surge
Though earnings more than doubled to $0.65 per share in the first quarter of 2020, they fell short of expectations. The stock dropped following the announcement as the stakeholders were not impressed by the double-digit growth in revenues to $1.2 billion, which also topped the Street view.
“Results in the first quarter were in line with our guidance. Key financial indicators including total revenue, gross margin, and net income have increased significantly year-over-year. This is due to the continued increase in the integration, production level,” said Haiyun Cao, the chief financial officer of JinkoSolar.
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The stock has witnessed a series of ups and downs since debuting on the New York Stock Exchange a decade ago. The shares are yet to recover from the COVID-induced selloff. They have lost around 27% in the past twelve months and closed Tuesday’s session at $16.28.