Jinko Solar (JKS) got its start in 2006 as a supplier of recovered silicon materials. It is now a vertically integrated solar manufacturer and seller of solar wafers, cells and modules. The company touts its fast growth and low-cost advantage from its Chinese operations. (See profile for more details).
JKS debuted on the American stock market in mid-May of this year at its IPO price of $11. This occurred just months after the company withdrew previous IPO plans. With a steep correction underway in the general market, JKS quickly plunged 23% in 4 days. At the time, it was easy to dismiss this event as another busted IPO. However, the company came to market as a profitable entity with a viable business model. By the time JKS had a chance to remind investors and traders of its attractive financials in mid-August, the stock had already more than doubled from its poor start. On Wednesday, JKS completed a recovered from a one-day drop of 11% earlier this month to set fresh highs. The stock has now almost tripled from its IPO. (Click chart for a larger view).
(Click for larger view)
*Chart created using TeleChart: 
The earnings announced August 16 certainly got the market’s attention. Average trading volume has more than doubled since then (tripling during a brief steep correction) and the stock has increased another 50%. During August’s earnings, JKS raised Q3 and FY10 evenue guidance above analyst consensus expectations: $145-155M vs. $117M Q3 consensus and $500-525M vs. $419M FY10 consensus. For the quarter, JKS reported a 64% year-over-year increase in revenue to $133M “…primarily due to increased global demand for solar products and a significant increase in the shipments of solar modules attributable to the Company’s enhanced sales and marketing campaigns.”
Gross profit increased at an even faster 87% year-over-year rate to $36M. Net income was $27M. However, almost a third of the gross came from shifts in foreign exchange:
“The Company entered into foreign currency forward contracts with local banks to hedge its exposure to foreign currency risks. In the second quarter of 2010, the Company recorded a gain of RMB74.6 million (US$11.0 million) from a change in the fair value of forward contract derivatives resulting from the depreciation of the Euro and U.S. dollar against Renminbi.”
The yuan’s future appreciation will depend as much on political dynamics as market adjustments, but JKS did not discuss the sustainability of the profits from this derivative activity. For reference, a year ago, JKS lost money on its derivative contracts during a quarter in which it reported a loss in net income.
Another concern is the large amount of relative debt. Total debt is $188M but cash levels are only $59M. Total debt to equity is a whopping 80. (See Yahoo!finance for details). While total assets are $259M, it seems likely that JKS will eventually take advantage of its strong stock price to raise additional capital. GT Solar’s (SOLR’s) announcement of a secondary offer earlier this month may have triggered the brief but sharp sell-off in JKS on September 9.
Regardless the uptrend in the stock remains strong and valuations are probably low enough to encourage more buying absent any negative news flow (forward P/E is 7.9, price-to-sales is 1.8, and price-to-book is 2.8). The recovery from a swift and steep correction to today’s fresh post-IPO highs is an encouraging technical signal. JKS’s strong stock performance places it in good company with this year’s other strong performers in the solar industry (for a brief review of these see “A ‘Stealth Rally’ In Solar Stocks” and “A ‘Stealth Rally’ In Solar Stocks, Part Two“).
Be careful out there!
Full disclosure: no positions