Editor’s Note: An update was made to this article regarding JinkoSolar’s debt figure.
For many years, I’ve believed and written that JinkoSolar (NYSE:JKS) stock was dramatically undervalued.
In my view, it’s always been ridiculous for one of the world’s largest makers of solar modules – which is growing rapidly and was quite profitable before the coronavirus pandemic – to have a market capitalization ranging from about $500 million to $4 billion.
Now, after Jinko recently floated a 42% stake of its main operating subsidiary on China’s Shanghai Stock Exchange, there’s much more concrete evidence of just how undervalued JKS stock is.
Meanwhile, the company’s recent forays into new ventures that will probably be highly profitable bode very well for the shares. Also making Jinko’s longer-term outlook strong are the continued proliferation of electric vehicles globally and many governments’ ongoing, strengthening support for solar energy. Finally, the solar sector’s supply chain woes are expected to ease.
JinkoSolar’s New Listing and the Valuation of JKS Stock
On Jan. 26, the shares of Jiangxi Jinko, JinkoSolar’s principal operating subsidiary, started trading in Shanghai.
According to Seeking Alpha, on Jan. 26, Jiangxi’s shares closed with a market capitalization of about $16 billion, making Jinko’s stake in the subsidiary worth approximately $9.3 billion. Yet the market capitalization of the JKS stock that’s traded on the New York Stock Exchange is about $2 billion.
It must be noted that, due to JinkoSolar’s debt load — it had net debt of slightly over $2.5 billion as of the end of Q3 — its enterprise value is a much more elevated $6.24 billion.
Still, Shanghai valued Jiangxi, Jinko’s main operating unit, roughly 265% higher than Jinko’s enterprise value on the NYSE. Also worth noting is that the proceeds from the sale of the Shanghai shares will meaningfully reduce JinkoSolar’s debt and that Jinko ran up a large portion of its debt expanding its manufacturing capacity in order to meet the huge, rapidly expanding demand for its solar modules. Over time, those investments will very likely prove to be extremely profitable.
Meanwhile, the trailing price-sales ratio of JKS stock on the NYSE is a tiny 0.4, while its forward price-earnings ratio, based on analysts’ average 2022 revenue estimate, is just 10.
Profitable New Ventures
At the end of last year, Jinko announced that it would partner with a huge Chinese oil company, Sinopec Star, to launch green hydrogen factories. Plug Power recently stated that it expects its hydrogen fuel business, which includes much green hydrogen, to exceed 30% by 2024.
Since labor costs are much lower in China than the U.S., Jinko’s gross margin from its hydrogen plants should, within a few years, be at least 40%.
And as I mentioned in a previous column, JinkoSolar is partnering with the world’s largest lithium-ion CATL, on the development of solar-plus storage technologies. Tesla (NASDAQ:TSLA) CEO Elon Musk said that Tesla is seeing “good margins” on the residential Powerwall energy-storage product, Energy Storage reported in April. So, the venture with CATL should be very profitable for JinkoSolar.
The sales of electric vehicles continue to soar. In 2021, Chinese EV sales jumped 154%. European EV sales could double this year, according to a new study, and EV sales jumped 83% in the U.S. With many new EV models becoming available this year and charging infrastructure proliferating, the sector’s sales growth should greatly accelerate in 2022.
And as I’ve written in the past, large jumps in EV usage are likely to require new power plants. Since solar power is cheaper and cleaner than other forms of power, expect many, if not most of these new plants to be powered by solar panels.
Meanwhile, China is looking to install a huge 565 gigawatts of new solar and wind power by the end of the decade, while the European Commission is expected to unveil a new solar strategy for the bloc later this year. As a result, expect the EU to greatly step up its incentives for the solar sector in 2023 or 2024. Finally, in the U.S., congressional Democrats are likely to enact additional support for the solar sector by June.
Finally, well-respected research firm Wood Mackenzie expects the solar sector’s supply chain problems to become less troublesome in 2022.
The Bottom Line
The data on the IPO of Jinko’s subsidiary provides further evidence for and quantifies the extreme undervaluation of JKS stock on the NYSE.
Meanwhile, JinkoSolar continues to have powerful, positive, fundamental catalysts. Consequently, I continue to urge long-term investors to buy JKS stock.
On the date of publication, Larry Ramer held long positions in JKS and PLUG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Ford, solar stocks, and Exxon. You can reach him on StockTwits at @larryramer.