Trade Barriers And Overcapacity Will Erode Solar Margins

Key Takeaways

• International trade restrictions and policy uncertainty are limiting market access and export growth, stalling revenue and market share expansion.
  
• Intense price competition, overcapacity, and innovation pressures are eroding margins and profitability while financial leverage and cash flow strain threaten long-term viability.
  
• Strong global demand, technological leadership, diversification into energy storage, financial resilience, and shareholder-friendly actions position the company for sustained growth and enhanced investor confidence.

Catalysts

Engages in the design, development, production, and marketing of photovoltaic products.

• Intensifying trade barriers, including reciprocal tariffs in the United States and persistent international policy uncertainty, are likely to restrict JinkoSolar's access to major overseas markets and lead to decreased module shipments, stalling both revenue growth and market share expansion over the coming years.
  
• Continued industry-wide overcapacity and the resulting supply-demand imbalance are driving module prices lower and compressing margins, as evidenced by JinkoSolar's recent negative gross margins and significant year-over-year revenue decline. This commodity pricing trend threatens sustained profitability and could lead to further net losses.
  
• Ongoing heavy capital expenditures to expand production capacity and invest in R&D, alongside sluggish revenue growth, are rapidly increasing JinkoSolar's debt levels and straining free cash flow, resulting in a rising asset-liability ratio and lower earnings quality.
  
• Growing scrutiny of environmental, social, and governance practices-compounded by apparent difficulties diversifying manufacturing outside of China and adverse policy developments-may decrease access to global project finance and limit new customer contracts, placing long-term downward pressure on both revenue and valuation multiples.
  
• Accelerating innovation in alternative technologies, including perovskite and advanced energy storage by competitors, raises the risk of technological obsolescence for JinkoSolar's current product portfolio, further endangering its premium pricing power and threatening long-term revenue and margin stability.

JinkoSolar Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on JinkoSolar Holding compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming JinkoSolar Holding's revenue will grow by 15.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -2.3% today to 2.2% in 3 years time.
• The bearish analysts expect earnings to reach CN¥2.8 billion (and earnings per share of CN¥54.12) by about September 2028, up from CN¥-1.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 3.3x on those 2028 earnings, up from -4.7x today. This future PE is lower than the current PE for the US Semiconductor industry at 29.7x.
• Analysts expect the number of shares outstanding to grow by 0.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.58%, as per the Simply Wall St company report.

JinkoSolar Holding Future Earnings Per Share Growth

Risks

• Rising global demand for solar energy-especially in China, Europe, Asia Pacific, and emerging markets-combined with JinkoSolar's maintained industry-leading shipment volumes and a robust order book with 60% to 70% visibility may support sustained top-line revenue growth in coming years.
  
• JinkoSolar's continued technological leadership in TOPCon solar cells, including achieving industry-high efficiency records and the ability to command premium pricing for high-power, high-yield modules, could help stabilize or grow net margins as demand for advanced products rises.
  
• Rapid expansion into the energy storage systems (ESS) segment, with projected significant year-over-year shipment increases and third-party recognition as a Tier 1 provider, opens new diversified revenue streams that may offset solar module industry cyclicality and improve overall earnings.
  
• Strong cash reserves, cost controls, and active asset-liability management provide the company with balance sheet resilience, allowing it to weather short-term downturns and potentially invest in growth initiatives that could positively impact long-term earnings and profitability.
  
• The decision to launch share buybacks and dividend payments in response to low valuation may increase shareholder confidence, support the stock price, and signal management's belief in the company's long-term value proposition, which could bolster total shareholder returns.

Valuation

• The assumed bearish price target for JinkoSolar Holding is $17.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of JinkoSolar Holding's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $66.1, and the most bearish reporting a price target of just $17.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥128.9 billion, earnings will come to CN¥2.8 billion, and it would be trading on a PE ratio of 3.3x, assuming you use a discount rate of 13.6%.
• Given the current share price of $24.01, the bearish analyst price target of $17.0 is 41.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.