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Jinko Solar Earnings: An Early Look

By Dan Caplinger - Apr 8, 2013 at 11:45AM

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Can the Chinese solar company survive?

Spring is finally here, and a new earnings season is right around the corner. On Wednesday, Jinko Solar (JKS 1.22%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Chinese solar stocks have struggled especially hard lately, as a glut of capacity has made many players in the industry unprofitable. Jinko Solar actually earned an annual profit as recently as 2011, but its fortunes have reversed with most of its peers. Let's take an early look at what's been happening with Jinko Solar over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on Jinko Solar

Analyst EPS Estimate

($0.80)

Year-Ago EPS

($2.58)

Revenue Estimate

$244.5 million

Change From Year-Ago Revenue

28%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Can Jinko Solar shine this quarter?
As dire as Jinko's earnings appear, analysts haven't gotten any more pessimistic about them in recent months, keeping their consensus views stable both for its most recent quarter and for full-year 2013. But the stock hasn't been as fortunate, as it has lost a third of its value since the beginning of 2013.

Solar companies in China have largely survived poor conditions in the industry due to the generosity of government subsidies. Last December, China's Ministry of Finance set aside $1.1 billion in solar subsidies, while the Ministry of Science and Technology said it would provide subsidies to 100 different companies. While those subsidies help the industry as a whole, they don't help shake out weaker players from the industry.

But Jinko may have an inside track to survival. The company got a $1 billion loan from the China Development Bank to help it with European solar projects. With a stronger balance sheet than many of its peers, Jinko appears better poised to survive the inevitable shakeout, while LDK Solar (NYSE: LDK) and Yingli Green Energy (NYSE: YGE) struggle under more substantial debt burdens. Already, the bankruptcy of Suntech Power has shown that China won't rescue investors in every solar company.

Still, the fundamental problem in the industry is that capacity far exceeds demand. U.S. giant SunPower (SPWR 1.53%) has a huge efficiency lead over its rivals, making it most likely to capture its share of the 30 gigawatts of demand that companies with 70 gigawatts of capacity are fighting over. Similarly, First Solar (FSLR -2.82%) has found ways to remain profitable even with challenges from subsidy-supported Chinese rivals.

In its earnings report, watch carefully for Jinko to comment on the impact of the Suntech bankruptcy on its business. If Jinko can capture some of Suntech's business, it could be a net positive for the company. But if Suntech lingers on in a reorganized form, it could spell the beginning of the end for the Chinese solar industry entirely.

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Stocks Mentioned

JinkoSolar Holding Co., Ltd. Stock Quote
JinkoSolar Holding Co., Ltd.
JKS
$68.06 (1.22%) $0.82
First Solar, Inc. Stock Quote
First Solar, Inc.
FSLR
$66.23 (-2.82%) $-1.92
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$15.89 (1.53%) $0.24

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