Business context and reporting period
JinkoSolar Holding Co., Ltd. filed this Form 20-F for the fiscal year ended December 31, 2015; it is an annual report, not a standalone fourth-quarter filing. The Cayman Islands holding company manufactures photovoltaic products and develops, constructs and operates solar projects, primarily through PRC subsidiaries. Financial statements are prepared under U.S. GAAP and audited by PwC Zhong Tian, which issued an unqualified opinion. Management and the auditor reported effective internal control over financial reporting as of year-end.
JinkoSolar’s business remained heavily concentrated in solar modules, which generated approximately 93.8% of 2015 revenue. At year-end, annual capacity was 3.0 GW each for silicon ingots and wafers, 2.5 GW for solar cells and 4.3 GW for modules; its share of completed solar projects was 1,007 MW.
Key financial metrics
Unless otherwise stated, amounts below are RMB; 2015 U.S.-dollar conversions are for convenience. Income-statement and cash-flow amounts are for the year; balance-sheet amounts are at December 31.
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | 16,076.5 million (US$2,481.8 million) | 9,978.5 million |
| Gross profit / margin | 3,269.8 million / 20.3% | 2,240.0 million / 22.4% |
| Operating income / margin | 1,318.3 million / 8.2% | 931.6 million / 9.3% |
| Net income, consolidated | 860.3 million | 726.2 million |
| Net income attributable to JinkoSolar shareholders / margin | 683.8 million (US$105.6 million) / 4.3% | 673.0 million / 6.7% |
| Operating cash flow | 1,339.0 million | 187.1 million |
| Investing cash flow | (3,314.6) million | (4,158.8) million |
| Financing cash flow | 3,850.6 million | 5,303.7 million |
| Cash and cash equivalents | 3,683.7 million | 1,777.0 million |
| Total current assets / current liabilities | 14,594.6 million / 15,234.9 million | 10,403.6 million / 10,523.4 million |
| Total assets / total liabilities | 27,144.5 million / 21,184.8 million | 19,083.9 million / 14,115.5 million |
Net income attributable to shareholders rose only 1.6% despite strong sales growth. The filing attributes the difference between consolidated net income and shareholder-attributable income in part to RMB172.3 million of accretion on redeemable non-controlling interests in 2015.
Material changes versus the prior comparable period
- Revenue increased 61.1%, primarily as module shipments rose 73.6% to 4,207.6 MW. Module sales revenue rose 64.8%; the reported average selling price fell. The MD&A gives RMB3.59 per watt for 2015, while another risk-factor disclosure gives RMB3.57; investors should verify the correct figure.
- Gross profit rose 46.0%, but gross margin declined from 22.4% to 20.3%, principally due to lower module prices. Operating expenses increased 49.1%; operating margin fell from 9.3% to 8.2%.
- Electricity-generation revenue increased to RMB628.0 million from RMB243.8 million as more projects entered operation. Project assets grew to RMB7,044.7 million.
- Operating cash flow improved to RMB1,339.0 million from RMB187.1 million, while investing outflows remained substantial. Inventory increased by RMB1,411.0 million during the year; cash generation also benefited from higher customer advances and accounts payable.
- Long-term borrowings increased sharply, from RMB956.5 million to RMB4,627.9 million. Total current liabilities rose to RMB15,234.9 million and exceeded current assets by about RMB640 million, consistent with management’s disclosure of negative working capital.
Outlook, risks, contingencies and unusual items
- Outlook and liquidity: The filing provides no specific earnings or shipment guidance. Management expresses a positive long-term view of solar demand and expects downstream projects to become more important, but states that cash, expected operating cash flow and available bank facilities should cover working capital and capital spending for at least 12 months after year-end. It also warns that near-term debt repayments may leave funds insufficient. Of RMB10.7 billion in bank credit facilities, RMB4.2 billion was undrawn at year-end.
- Debt and financing: Year-end short-term borrowings, including current maturities, were RMB3,290.1 million; long-term borrowings were RMB4,627.9 million. The company also reported RMB866.7 million of current bonds and RMB650.9 million of current 2016 convertible notes, alongside RMB856.1 million of non-current convertible notes. It had issued US$150 million of 4% notes due 2019, with a holder put option in February 2017. Most borrowings are secured by assets; variable-rate debt and foreign-currency obligations expose the company to interest-rate and exchange-rate risks. Capital commitments for manufacturing equipment totaled RMB1,209.9 million, mostly due in 2016.
- Subsidy collection and project risks: RMB572.1 million of receivables represented unpaid electricity subsidies pending inclusion of projects in China’s Subsidy Catalog. Delays in catalog approval and payment weigh on cash flow. Grid curtailment had affected projects in Gansu and Xinjiang; the filing reports utilization at 58% for one project and 52% for another. Lower feed-in tariffs, subsidy changes, project delays, financing constraints and grid access could impair returns.
- Market and trade risks: Oversupply and price competition pressured module selling prices. Overseas markets accounted for 61.4% of revenue, including 25.8% from the U.S. The company recorded RMB30.1 million for preliminary U.S. anti-dumping and countervailing duties; administrative reviews could change final rates. EU trade measures and Canadian duties also apply. Silicon supplier concentration, customer credit exposure, and currency fluctuations are additional risks.
- Contingencies and unusual items: Unpaid statutory social-insurance and housing-fund contributions were estimated at RMB285.3 million at year-end. A subsidiary recorded a RMB15.3 million provision after losing a guarantee-related lawsuit. Litigation over a RMB93.2 million supplier prepayment remained pending, although that balance had been fully provided for; a separate contractor lawsuit filed in March 2016 sought approximately RMB82.8 million. The shareholder class action was approved for settlement in March 2016 for US$5.05 million, with the company’s share reported as US$0.6 million; disclosures elsewhere in the filing describe the company as taking no charge, so the accounting treatment merits verification. The company also disclosed an immaterial RMB24.0 million prior-period interest-capitalization adjustment recorded in 2015.
- Other items: Non-asset government subsidy income rose to RMB103.6 million from RMB49.8 million and is discretionary and non-recurring. The company paid no dividends and stated no near-term plan to do so. Management reported effective controls, while noting the usual limits of internal control systems.
Most important facts for investors to verify
- Reconcile the reported 2015 module average selling price (RMB3.59 versus RMB3.57 per watt) and confirm module shipment and margin trends.
- Assess liquidity against near-term debt maturities, negative working capital, collateral requirements and the actual availability of undrawn credit facilities.
- Track collection of the RMB572.1 million subsidy receivable and the timing and outcome of the next Subsidy Catalog listing.
- Review final U.S. trade-duty rates, related provisions and potential effects on U.S. sales, which represented 25.8% of revenue.
- Confirm the treatment and remaining exposure for the class-action settlement, the RMB15.3 million guarantee judgment, supplier litigation and contractor claim.
- Evaluate the recoverability of rising inventory and receivables, the RMB285.3 million employee-benefit shortfall, and the company’s reliance on discretionary subsidies and secured financing.