Trade tensions between Beijing and Washington continue to escalate, but we still see prospects for some solar companies focused on the China market.
The winners in the solar industry can thank Beijing for renewing the power subsidies to 92.36 billion yuan ($13 billion) in 2020, which is nearly 8% higher from last year. The new incentives gave the solar projects 42.86 billion yuan, wind projects 33.69 billion yuan, and the remainder to biomass power and grid companies, according to the Ministry of Finance.
For years, China's manufacturers have been the world leaders in the global photovoltaic (PV) industry. With more demand likely on the way, listed below are three China-focused solar firms to add to your watchlist:
Now May Be a Good Opportunity to Swoop Daqo After Hiccup
The largest Wall Street-listed Chinese solar player Daqo New Energy Corp. (NYSE: DQ) has seen strong demand since Beijing unveiled the new budget for solar subsidies.
Since June 16, shares of Daqo have more than doubled.
(Yahoo Finance!: DQ)
The stock has given up some ground over the past week, losing the gains reaped from its strong second-quarter performance report. The polysilicon manufacturer’s revenues in the three months through June hit $133.52 million, up from $65.96 million in the same period last year on earnings of 16 cents a share. According to the Zacks Consensus Estimate, Daqo was expected to report a loss of 3 cents a share, while revenue was anticipated to come in 25% lower.
More excitement is ahead for the company: Lately, Daqo has been weighing listing its main operating subsidiary, Xinjiang Daqo New Energy Co. Ltd., on the Nasdaq-like STAR Market in Shanghai. The listing is only expected to take place in about two years, however.
Over the past week, Daqo's stock has fallen from $133.37 per share to today's $111.87 per share. Now seems like a good opportunity to pick up some shares in the company. Zacks currently has this stock ranked as a “#1 (Strong Buy).”
Avoid JinkoSolar After Alleged Fraud
Even though this one has been a strong gainer, stay wary of JinkoSolar Holding Co. Ltd. (NYSE: JKS).
Since June 18, JinkoSolar’s stock has soared 46% to date. This company has also shown solid growth in its latest earnings. In the first quarter, JinkoSolar’s revenues leaped to $1.2 billion, up 25% year-over-year. Net income in the three months through March hit $41.8 million, or 9 cents per share, up 659% from the same period in 2019.
However, there’s one problem: Chinese firms aren’t yet obliged by law to have their audits inspected by the PCAOB.
In March, JinkoSolar was hit by two short-seller reports from Bonitas Research, alleging that JKS’s founder and chairman, Xiande Li, privatized the company's most valuable assets for himself, leaving shareholders with debts and construction cost liabilities.
Bonitas claimed in a statement, “We are short JKS because we think its equity is ultimately worthless.”
The firm also claimed that JinkoSolar fabricated sales and profits.
I would issue a "hold" on this stock. While JKS could see more demand in the short term, I would be reluctant to buy it until I am certain that it will not follow the path of Luckin Coffee's (OTC: LKNCY) fiasco to delisting.
Canadian Solar Is More Like China Solar
Canadian Solar (Nasdaq: CSIQ), whose name tells you it is not from China, conducts most of its business in China and Southeast Asia. Unlike many solar peers who have seen earnings fall, Canadian Solar has maintained positive earnings growth.
The stock recently popped over 10% after GLJ Research, a firm that has been skeptical of solar stock valuations, recommended Canadian Solar. However, at these prices post-spike, the stock is a hold.
The company is reportedly planning a secondary listing in China. That, or any other significant news, would change the investment picture.
ReneSola Could Be a Bargain
One solar stock that I’ve had on my radar for a while is ReneSola (NYSE: SOL). The "Chinese" company, now headquartered in Stamford, Connecticut (it maintains offices in China), has been focusing on projects in Europe but also hopes to expand in the U.S. However, the company is still very active in the Chinese market.
The compay's second quarter results announced last week saw revenue jump to $26.2 million, above the $22 to $25 million forecasted. The increase was attributed, in part, to increased sales of electricity from Chinese plants.
In June, Renesola said it would participate in a consortium to develop a large-scale ground-mounted solar plant in the south of France, and in the following month, it received $12.1 million in financing for its solar power project in Poland.
More recently, ReneSola has launched new projects in the U.S. Last month, ReneSola completed the sale of its 21.05 MWp community solar portfolio in Minnesota to Nautilus Solar Energy, LLC. Later in August, it signed an agreement with an undisclosed U.S.-based developer to acquire “certain assets” including solar projects and accounts receivable in an all-stock deal worth around $8 million.
Zacks Equity Research wrote after the news “Considering this and the fact that post completion of the acquisition, the transaction will increase Renesola’s development pipeline by approximately 200 MW, we expect the deal to add further impetus to its growth.”
After coming off a disappointing first quarter, the solar project developer has rebounded strongly.
In January, when the stock was trading around $1.30 per share, Ke Chen, the chief financial officer of ReneSolar, told CapitalWatch that its stock performance was not reflective of the company's profitable growth and market opportunity.
"We have a great story to get in front of investors, and we believe our strategic focus on the project development business in the U.S. and Europe can drive accelerating growth and improved profitability, which in turn should drive a higher valuation,” Chen said.
Even with shares up from nearly 60% from June. I would feel comfortable buying ReneSola at its current levels. As of Wednesday, the stock was trading at $1.82 per share.
(Yahoo Finance!: SOL)
With China frimly committed to supporting the solar indsutry, investors should cash in on the opportunity to invest in China’s subsidy-friendly solar sector.