Jiangsu Sunrain Solar Energy Co., Ltd (SHA: 603366), now known as Solareast Holdings Co., Ltd, is principally engaged in the research, development, manufacture and sales of solar standalone water heaters, solar hot water engineering systems, solar air energy water heaters and other solar related products. The company distributes their products within the domestic and international markets.
The company was first listed on 25 May 2012 at ¥11.00 a share. The share price reached an all-time high of ¥20.62 on 5 June 2015. Ever since then, the price has plummeted, and is currently trading at ¥5.60 a share. Its current market capitalization is ¥4.68 Billion. With its share price nearly 50% down from its listing price, is it a good time to buy shares of the company now? Let’s find out.
The company’s revenue has generally been increasing. For Q1 2019, revenue stood at ¥640.44 Million. The amount increased 38% to ¥880.35 Million for Q2 2019, before dipping slightly by 8% to ¥807.01 Million for Q3 2019.
China is set to become the world leader in solar power. Currently, they are the world’s largest market for both photovoltaics and solar thermal energy. In the past 25 years, China has gone from having 0 solar panels to having 100% more than any country in the world.
Furthermore, a new research has shown that China’s solar power is now cheaper than grid electricity in 22% of cities. This would definitely drive a surge in adoption by consumers, as they would want to save money on electricity bills.
As technology advances, clean energy price would drop. Coupled with the increasing demand of electricity, investing in renewable is beginning to look more appealing. This brings about more opportunities for the company, and they could look to increase their revenue in the near future.
The company’s operating income has been increasing since the start of the year. For Q1 2019, they reported a quarterly loss of ¥22.14 Million. However, in Q2 2019, the company managed to turn it into a positive amount of ¥39.67 Million. This amount further increased 3% to ¥41.42 Million for Q3 2019.
This figure shows that the company is getting more efficient in managing their operating expenses. Even though their revenue for Q3 is less than Q2 of 2019, the company managed to turn a higher operating income in Q3 2019.
One possible concern is the company’s quick ratio. The company’s quick ratio is 0.64, as compared to the industry’s average of 1.55. This means the company does not have adequate liquid assets to pay off all of their current liabilities. It also shows that the company is relying heavily on efficient inventory turnover to keep them afloat.
However, the company’s inventory turnover is slightly better than the industry, standing at 4.17, as compared to the industry at 3.99. Furthermore, as more consumers buy solar related products, the company’s inventory turnover would increase, and thus the low quick ratio would no longer be a concern in the future.
Key Financial Ratios
To standardise, we would be comparing the trailing twelve month average for all the ratios.
Gross Margin for the company is at 31.1%, compared to 20.67% for the industry.
Operating Margin for the company is at -12.94%, compared to -264.61% for the industry.
Net Profit Margin for the company is at -12.75%, compared to 208.44% for the industry.
Earnings per Share for the company is at -0.61, compared to 0.18 for the industry.
Return on Equity for the company is at -12.25%, compared to 5.74% for the industry.
Return on Assets for the company is at -6.89%, compared to 3.19% for the industry.
Return on Investments for the company is at -12.08%, compared to 23.84% for the industry.
In terms of ratios, the company is under-performing the industry in most aspects, with the exception of the gross margin and operating margin. Overall, I am of the opinion that the clean energy sector is a good investment, given the increasing demand in the near future.
However, the company itself is not a good investment at its current state, given that they are providing negative returns for investors. Thus, I am of the opinion that it is not a good time to invest in Jiangsu Sunrain Solar Energy at this time.
*Disclaimer: I am not a financial advisor. The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice