JinkoSolar (JKS)is a solar equipment manufacturer and Daqo New Energy Corp. (NYSE:DQ) is a solar panel component manufacturer.
Over the past few decades, solar panel prices have dropped far more than projected and have undoubtedly become the cheapest and safest form of sustainable energy in the world. Over the next few years, the solar industry is poised for tremendous growth as government and public interest in climate change is at an all-time high and rising.
JinkoSolar is undoubtedly the largest solar equipment manufacturer in the world. Jinko has an annual capacity of 11 GW of solar cells, 25 GW for solar module assembly, and 20 GW for silicon wafers. The company has 7 production facilities around the globe. The company sold 14.2 GW of solar equipment last year.
Daqo New Energy Corp. is a China-headquartered company that produces monocrystalline silicon and polysilicon, which are critical components needed in solar panel production. The company was founded in 2008 and has a nameplate silicon production capacity of 70000 tons. The company operates a state-of-the-art production facility in Xinjiang, China.
Both companies have a massive advantage as they have domestic status in China which is by far the biggest solar market in the world. According to projections, solar installations just in China are expected to cross 60GW over the next five years.
JinkoSolar operates an asset-light-manufacturing business model. The company outsources a significant portion of the most capital intensive component of the product portfolio, the PV cell production. The company makes up for the extra-cost with low leverage and debt expenses coupled with massive economies of scale on other components.
Daqo is a leading high-purity polysilicon manufacturer based in China. The company produces polysilicon using the CVD(Chemical Vapor Deposition Process) and has developed a closed-loop system to produce polysilicon of high-quality consistently and in a cost-effective manner.
The company’s biggest customers are photovoltaic/solar manufacturers looking for high-quality silicon, who then process the silicon into wafers, cells, modules, etc. The company has a major competitive advantage over some competitors as the Xinjiang region, where the company’s production facilities are located, has much lower electricity and utility costs compared to other industrial and coastal areas, thus giving the company valuable cost-savings.
In Q2’20, JinkoSolar reported revenues at $1.2 billion on shipments of 4.4 GW, up 22% YoY. Shipment growth from Q2 2019 was 32%. Despite, the 32% growth in shipments, revenue was lower because of lower average selling prices this year. The company has a 17.9% gross margin. The company has a market cap of $2.8 billion and a P/E of 14.83.
In Q2’20, Daqo outperformed projections and turned a profit after it saw sales double year-on-year. The company reported a top-line of $133 million and a profit of $2.4 million. The company produced 18,097 tonnes and sold 18,881 tonnes in the quarter. The company has given Q3 sales guidance of 13,643 tonnes and 2020 full-year guidance of 70000-75000 tons. Gross margin for Q1 and Q2 was 37.4% and 20%, respectively. The company attributes the sharp fall in margins to disruptions caused by the pandemic. DQ stock has a market cap of $2.91 billion and a P/E of 50.
While both companies are very well placed for future growth, JKS stock is a safer and better option for investors as it has a dominant market position, untapped balance sheet, and is available at a cheaper valuation.