JinkoSolar (JKS) and Canadian Solar (CSIQ) are among the world’s largest solar equipment manufacturers. Over the past few years, solar panel prices have gone down far more than what was projected and have by far become the cheapest form of renewable energy in the world. The solar industry has also been aided by the rise of climate change as a cause for concern and its politicization.
With the world more serious than ever about sustainability, Solar stocks might be the next big wealth creators, but which stock is a better buy, JKS or CSIQ?
JinkoSolar is by far the largest solar equipment manufacturer in the world. Jinko has an annual capacity of 20 GW for silicon wafers, 11 GW of solar cells, and 25 GW for solar module assembly. The company operates 7 production facilities around the globe. The company sold 14.2 GW of solar equipment in 2019.
Canadian Solar is a Guelph based manufacturer of Solar equipment. The company operates 17 production facilities all over the world. As of 2020, the company has 5 GW of silicon wafer capacity, 10 GW of solar cell capacity, and 14 GW of module capacity. The company sold 8.6 GW of solar equipment in 2019.
JinkoSolar functions on an asset-light-manufacturing business model. The company outsources a significant part of its PV cell production, which is the most capital intensive component of the product portfolio. The company makes up the extra-expense by cost savings due to lesser leverage compared to competitors and industry-leading economies of scale in the other two components. The company has a massive advantage as it has domestic status in China, where annual solar installations are projected to top 60GW in the next few years, by far the highest in the world, and it is a market where international firms find it very difficult to compete. The company also recently entered the home and industrial battery storage markets so that it can offer more integrated solutions.
On the other hand, Canadian Solar does not operate on an asset-light model, it is a fully vertically integrated setup and does outsource any production. The company is more focused on industrial and government projects. Also, the company is the market leader in operational efficiency, with a negative cash conversion cycle, low inventory, and near zero-bad debt on credit sales. The company also has the biggest direct channels in the solar industry, leading to a sustained competitive advantage and a higher ASP(Average Selling Price).
In Q2, JinkoSolar reported a 22% increase in YoY revenues at $1.2 billion on shipments of 4.4 GW. Shipments were up 32% YoY from Q2 2019. The company reported gross margins of 17.9%. The company has a market cap of $2.88 billion and a P/E of 15.4.
In Q2, Canadian Solar reported revenues of $696 million, down 33% from Q2 2019 revenues of $1.036 billion and shipments of 2.9 GW. The company reported gross margins of 21.2%. The company has a market cap of $2.18 billion and a P/E of 8.4.
Both these companies are excellent investments given the importance of solar in transitioning the world to sustainable energy. Both companies are very strong in their own right, while JinkoSolar is domestic in China and thus has a massive opportunity in front of it and is available at a reasonable P/E, Canadian Solar has higher margins and is available at a ridiculously cheap P/E of 8.4, as it took a bigger hit due to the pandemic amongst the two.