Downgrade to Hold, but raise TP by 5.6% to US$57
• Our target price on JinkoSolar is based on 17x (unchanged) our 2022F EPS (vs. 2021F EPS previously).
• We revised down our 2021 revenue and net profit estimates by 8% and 34%, respectively, in light of rising polysilicon prices.
• We also fine-tuned our 2022 and 2023 earnings estimates after adjusting our product ASP, gross margin, and OP margin assumptions.
• JinkoSolar’s stock has gained around 40% over the past month, due in large part to expectations on the listing of the company’s subsidiary.
• However, we think a higher valuation would be unjustifiable, given: 1) the near-term uncertainties surrounding the solar PV industry caused by the sharp rise in raw material prices; and 2) the limited potential for earnings and margin improvements.
Polysilicon prices up 215% YTD and 25% in the past month
• The rise in polysilicon prices has been driven by: 1) continued panic buying (due to massive wafer capacity expansions) amid surging solar PV demand this year; 2) worries about supply disruptions sparked by US sanctions against Xinjiang companies; and 3) China’s silicon metal production cuts in the wake of its energy crisis.
• We do not expect China’s power crunch to ease in the near term, given surging heating demand during winter and the government’s continued focus on the environment. As such, we expect the strength in polysilicon prices to continue for some time.
• Accordingly, we see near-term risks of earnings and margin contraction across solar wafer, cell, and module suppliers.
Still a key beneficiary of the global solar PV market boom
Near-term uncertainty vs. continuing move toward carbon neutrality
• With calls for carbon neutrality increasing around the world, we forecast solar PV installations to grow 13% annually over the next five years.
• JinkoSolar is the world’s second largest solar PV company (wafer/cell/module), with a well-balanced geographical revenue mix (18% from China, 29% from the Americas, 13% from Europe, and 27% from Asia Pacific).
• Faced with challenging conditions, management has made nimble strategic decisions, including: 1) minimizing the impact of surging raw material prices by increasing external sales of wafers and decreasing module output; and 2) forming strategic logistics partnerships with Maersk and COSCO Shipping to expand global sales.
|OP margin (%)||2.6||5.8||5.1||3.7||4.7||4.7|
|Source: Company data, Mirae Asset Securities Research estimates|
**** Please see the attached files for details.