Jinko Solar is a Good Buy

Jinko Solar (NYSE:JKS) has been one of my most favorite Chinese solar stocks. The company has been successfully reducing its in-house cost of production each quarter and delivering double digit gross margin since the last four quarters. Jinko Solar has been increasing its presence in strategic solar markets across the globe. The company is amongst the top three module suppliers in USA. Total shipments to USA accounted to 29% of the total shipments in the last quarter of 2015, when compared to 23% in the prior quarter.

Why do I like this stock

1)Expansion in favourable Global Locations

In a recent interview to PV magazine Dany Qian, VP of Branding for Jinko Solar speaks about the company’s ambitious plans to grow in Japan, where the company succeeded to bag a 50% growth in the last 2-3 years. According to the VP, the company is well positioned to tap the rooftop installations growth in the country, following the FIT reduction which will adversely affect the ground-mounted utility installations in Japan. JKS is introducing dual glass and black modules to tap the residential and commercial establishments in Japan.

2)Strategic Agreements could be a key to success

The company has also signed important agreements in USA, including a 1 GW supply agreement with sPower, and a partnership with GreenSky in the residential sector. The company is aiming at shipping 2 GW to USA this year, double from what it did in the last year. Its Malaysian facility will play an instrumental role in supplying to the USA market, as it will allow the company to circumvent the duties.

3)New Products and Technological Innovations is the only way to stay on Top

The company introduced an all-black poly module available in 60-cell and 72-cell versions. JKS used an edging process rendering high efficiency to these modules. These modules are designed to perform even in low light conditions. The company expects this solar module to gain momentum in the US and Japanese markets.

Jinko Solar is also planning to expand capacity in the current year as per the table below. Its Malaysian production facility is already up and running, having a capacity of 450 MW for cells and 500 MW for modules.

Capacity Expansion Plans

Data from JKS Q4’15 PPT

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Stock Valuation

The stock is currently trading at more than $20, 36% below its 52 week high price and has a P/E of just 6.5x with a market capitalization of $658 million.

Risk

The only risk involved in buying a Chinese solar stock right now is the increased risk aversion in the market. The existing paradoxes of solar industry is increasing today. Though the price of solar is falling each day and it is becoming competitive with the traditional sources of power, the falling oil and gas price is acting as a major headwind in the solar development story. However, the prospects of solar are bright and companies like SunPower (NASDAQ:SPWR), First Solar (NASDAQ:FSLR) and Jinko Solar should benefit from their leading products and technology advantage, and increased presence in leading markets like USA. Jinko Solar also has a sound Balance sheet which is a major positive for the company, given the recent decent of Sunedison.

Conclusion

Jinko Solar shipped a total of 4.51GW solar modules in 2015 and expects shipment of 6.5GW by 2016. Jinko Solar will leverage from its position as a leading Chinese module supplier in USA. The best part of the company is its sound balance sheet. JKS has managed to keep its debt levels low and has a cheap and attractive valuation. All these make it a strong buy case in my point of view.

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