12-21-2015, 04:25 AM
Jinko Solar (JKS)
- Another one of our previous favorites is a company that is market leader in the biggest solar market in the world; China.
- Considering the extreme pollution in many Chinese cities and their commitment to arresting climate change after the Paris agreement, we think we're still in the early innings of the solar build out.
- The big risk in the solar sector is the cyclical nature of the industry. If too much capacity is build, this leads to inventory build-up (and write-offs), reduced sales and, more especially, price declines and margin contraction. We have been through such a cycle recently in which many solar companies actually went down, like Suntech, previously the biggest solar company in the world. The subesequent price declines, while terrible in the short-term for producers, sets up accelerated growth by increasing demand in the medium term, and that's what we're now experiencing.
- There are few signs yet that there is such a downturn around the corner, quite the contrary, the recent Paris climate deal has committed many countries (like India) to expand alternative energy.
- Another risk is the decrease or abolishment of subsidies, but only last week the US renewed tax deduction for alternative energy in a budget deal.
So, one should keep an eye on module pricing to see weather there is any sustained weakness (some weakness can be absorbed as costs and efficiencies of cells are improving steadily). Jinko's shares have been volatile:
We're now at important resistance levels, but we think these are going to be broken out as the last quarterly results and guidance from Jinko were very good. Keep in mind that the shares are very volatile, some trading and picking up on wild swings downward seem a good idea to us.