Sunrun – Should continue to run ahead as USA solar market grows strongly
April 20, 2016India's capital city of Delhi set to become the largest market for Solar Rooftop Installations
April 22, 2016My investment take on JA Solar
JA Solar (JASO) reported a 33% increase in annual shipments to 4GW in 2015 due to higher shipments to USA and APAC regions. The company reported an improvement on all major fronts. JASO is expanding its marketing network in USA aiming to capture 10% marketshare in 2016. This vertically integrated company has a strong presence across the solar supply chain. The company is also expanding its manufacturing capacity to 2 GW for wafers, 5.5 GW for cells and 5.5 GW for modules by the end of 2016. It is also gradually increasing its focus on both solar utility and distributed generation projects. The valuation is cheap and the current stock price offers a good entry point.
Sharp Improvement across all financial metrics both on a QoQ and YoY basis
i) Strong 2015 performance – JA Solar gave a good performance on all major financial metrics. JA Solar’s project business is also growing as can be seen from the fact that the company expects module shipments for its downstream projects to nearly double to 100MW in Q1’16 itself from 53.5MW for the whole of 2015. Project assets also increased more than 50% to $158 million by 2015 end.
| FY’15 | FY’14 | % Inc. | |
| Shipments (in GW) | 4 | 3.1 | 29.03 |
| Revenues (in billion $) | 2.1 | 1.7 | 23.53 |
| Gross Margin (in %) | 17 | 15.6 | |
| Net Income (in million $) | 94.9 | 69 | 37.54 |
| EPS (in $) | 1.63 | 1.06 | 53.77 |
Data from JASO
ii) Geographic diversification improved quarter on quarter – The company has a better exposure in the American markets. JA Solar also achieved better shipment numbers in China and Europe when compared to the beginning of the year. China and USA are the two of the largest and fastest growing solar markets while Europe is a relatively mature slow growing market. Full year 2016 shipments are expected to be in the range of 5.2 to 5.5 GW.
Region-wise Shipments as a % of total
| Q4’15 | Q3’15 | Q2’15 | Q1’15 | |
| China | 43.8 | 53.1 | 45.3 | 21.4 |
| APAC (ex-China) | 40.5 | 36.3 | 31.9 | 53.9 |
| Europe | 5.1 | 7.8 | 14.8 | 22.6 |
| Americas | 8.4 | 1 | 0.6 | 1 |
| Others | 2.2 | 1.8 | 7.4 | 1.1 |
Data from JASO
iii) A good performance even on a quarter on quarter basis – It has been interesting to see how the company has progressed from being a pure play solar cell provider to a leading global solar panel player. The company has smoothly transitioned to become a major solar panel sellers to all major global markets. Net income declined in Q4’15 but it was more due to impairment and provisions rather than any operational deficiency.
| Q4’15 | Q3’15 | Q2’15 | Q1’15 | |
| Shipments (in MW) | 1366.2 | 1126.8 | 790.8 | 681.5 |
| Revenues (in million $) | 709.3 | 601 | 436.8 | 387.7 |
| Gross Margin (in %) | 17.1 | 17.7 | 16.4 | 16.1 |
| Net Income (in million $) | 28.5 | 40.7 | 21.9 | 5.6 |
| EPS (in $) | 0.52 | 0.7 | 0.36 | 0.1 |
Data from JASO
Stock performance has not been very impressive in the last year
The valuation looks cheap with a market capitalization of ~$453 million and P/E of 4.9x.
Though the company has shown an improved performance on almost all fronts, the stock performance has not reflected this. JASO lost ~8% in the last one year and is currently trading at near ~$9 levels. This could largely be due to the buyout offer made by the management. This has capped the prices from going up.
Conclusion
The Chinese market volatility has affected the valuation of Chinese solar companies. I have received numerous messages from readers stating that they are unsure about the Chinese markets and hence reluctant to put money in these stocks. However, investors should look at management history, rather than the country which the company belongs to. Some large USA solar companies such as SunEdison (SUNE) have also fallen due to management mistakes. Many Chinese companies like JA Solar, Trina Solar and Jinko Solar (JKS) have become quite transparent and are doing business in a financially disciplined manner. SunEdison was not wrong in its approach, however it went too far with its acquisition strategy. I think that a cheap valuation offers a good time to invest in these solar stocks. The global solar industry growth is set to grow in double digits for a very long time and it is much safer to invest in solar energy, as compared to other energy sectors such as coal, oil or gas.