Sunny Asia has JinkoSolar's factories buzzing
Aug 30 (Reuters) - JinkoSolar Holding Co Ltd, the first Chinese solar panel maker to return to profits after a two-year slump in the sector, is increasing production as rising demand from Asia eats up excess capacity.
The company's progress has raised questions about whether investors need to revise a negative view of the sector, where any bad news has sent Chinese solar stocks diving in recent times.
Like U.S.-listed Chinese solar rivals Canadian Solar Inc and Trina Solar Ltd, Jinko is benefiting from higher sales at home and in the lucrative Japanese market.
It has raised annual production capacity by 300 MW to 1.5 gigawatts (GW), but that is barely enough to meet its full-year shipment outlook of 1.5 GW to 1.7 GW.
"Our demand is so strong that we had to expand our capacity little by little," Sebastian Liu, head of investor relations at JinkoSolar, told Reuters. "We are already sold out till November."
China accounts for more than 45 percent of the new demand this year, while Japan makes up 12 to 15 percent, Liu said.
Jinko's plans are an early sign of a delicate recovery in an industry battered by oversupply. A glut in panels sent prices spiraling 60 percent in the past two years and forced several companies to cut production.
Yingli Green Energy Holding Co Ltd and ReneSola Ltd said on Wednesday they expect panel prices to go up by year end.
Jinko plants are running at full capacity and should be profitable over the next two quarters, Liu said. The company had suffered nearly two years of losses before returning to profits in the second quarter.
Though Jinko's stock has more than doubled in value this year, there have been sharp swings in its price since it reported a profit on Aug 14, underscoring the volatility of Chinese solar stocks.
"Sentiment is still very negative on solar stocks and potential earnings are high, so it is a good time to invest again...," said Edward Guinness, co-portfolio manager at Guinness Atkinson Asset Management in London.
The firm holds stakes in Chinese solar panel makers such as Trina Solar, Yingli, LDK Solar Co Ltd and JA Solar Holdings Co Ltd.
Roth Capital Partners analysts doubled their price target on Jinko's stock to $18 earlier this month, saying they continued to see value in the stock despite the rally earlier this year.
JA Solar has the highest StarMine Relative Valuation score among its peers, which means it is relatively cheap. StarMine's Relative Valuation model combines six ratios that compare the valuation of a company and its peers.
Solar panel makers expect demand in Asia, particularly Japan, to lower stockpiles and restore profitability.
"We expect China to be a larger market than Japan in 2013, but (the Japanese) market is crucial to triggering profitability," said Shyam Mehta, an analyst at renewable energy consultancy GTM Research. He said selling prices in Japan were nearly 20 percent higher than in other countries.
Sharp rises and then falls in subsidies have played havoc with the solar sector but analyst see little chance of government support in China and Japan being withdrawn.
China wants to more than quadruple solar power generating capacity to 35 gigawatts by 2015, while Japan boosted support for renewable energy as it seeks to cut its reliance on nuclear power following the Fukushima disaster.
The push into Asian markets comes on the heels of European Union restrictions on Chinese imports. Chinese solar companies will only be allowed to ship 7 GW of panels a year, according to industry estimates.
Liu said he expects Jinko to grab 5 percent to 7 percent of the Chinese share of the European market on a full-year basis.
Analysts and company executives say that as well as benefiting from surging Asian demand, Jinko has managed to return to profits early due to low production costs.
This is partly due to it avoiding high-priced long-term contracts to buy polysilicon, its main raw material. Prices of polysilicon have crashed since 2011, favoring Jinko, which buys most of the raw material on the spot market.
Jinko's cost-leadership, however, may not go unchallenged in the crowded Chinese solar industry, because the barriers of entry remain very low, analysts said.
To combat this, Jinko and its rivals are looking to move away from merely selling panels into a higher-margin business of building power plants. It expects to build 200 MW of solar projects in China this year.