JKS - Jinko Solar

[jasonw1]

I started a position in JKS lately, the stock has been volatile, here are the factors attracted me

1) Solar panel cost coming down while demand continue to grow strongly

2) JKS is the leader in volume and technology

3) Stock is cheap, PE<5 from continuing operation. 

 

There are definitely risks with the ASP pricing of solar panel going down, I'm betting on the industry continue to go through consolidation and price will stabilize, while at the same time solar power will become much bigger part of power generation, JKS will maintain its leading position.

 

Here is a write up from a few months ago: https://seekingalpha.com/article/4051870-jinko-solars-time-come

 

What's your thoughts?

[thepupil]

Shares some directors with a proven fraud (CBEH: china integrated energy), specifically longgen zhang (Jinko director and former CFO) and Steve marksscheid.

 

Had some run-ins in the past with compliance (googleing "jinko solar fraud") gets some results related to $5mm lawsuit settlement with shareholders over misrepresentations environmental dumping and some other fraud accusations. Also ties to Xinyuan Real Estate co which trades for 1/3 book and 2x earnings (either super tee duper cheap or a fraud).

 

With any Chinese small stock in the US, I assume it's a fraud and try to prove otherwise. I've never been able to prove otherwise (not that you can do this really). My point is to show me a small chinese stock that has paid out more than its raised or been bought out above its IPO price or that has any sense of capital allocation. My impression may be stale given that i haven't look at one since 2012 or so but haven't heard of a bunch of these that ended up not being frauds either. I know some got taken private, but usually it was inconclusive.

 

When a stock is so cheap, the only relevant question is "is it real and do I own the company and does management care about me".

 

I'd advise taking that approach.

 

Some things to start with: background of directors and service providers (involvement in previous frauds), even the website for example looks a lot like all the other frauds, check for CFO and auditor turnover (here that looks low, but the former CFO now director was a director for a fraud), related party transactions (looks like they have some), check the actual corporate structure in terms of "if the company dividends all its earnings to you, what tax would be paid along the way", this isn't a fraud thing but just a question of "is it actually 5x earnings or should we tax adjust those".

 

Google more extensively for shortnseller reports, see who did the IPO and IR conferences  (Roth, rodman and renshaw, a few others come to mind as the worst), see who their for profit IR firm is, just ask if story is believable etc

 

EDIT: just saw your post history and it looks like you owned CCME back in the day, so you've been looking at China small caps for a while, I read in another post that you're portfolio was flattish over the past few years so I'm going to assume you haven't been finding the 1/10 or 1/100 US listed Chinese smallcap that's not a fraud and making multi-bagged returns. I would suggest fishing in another pond. This makes me sound like an asshole, but I'm just saying that if you haven't been able to identify the non- frauds (and to be clear I don't know anyone who has, people I know who madke money in Chinese stocks own high growth internet and consumer names that are more blue chip like maotai and JD and or Baidu VIPS etc.), maybe consider a different approach.

 

If I'm incorrect in the above characterization and you have had success or m ow others who have had success in this area please correct me as I am genuinely curious if there are legitimate companies out there that just have all the same superficial characteristics of the frauds.my sentiment may be why theses stocks are so cheap. Maybe that's an opportunity.

[jasonw1]

Thanks for your thoughts, thepupil, your observation on China small caps are right on for the past several years, the two board members are indeed big red flag for JKS, I'll look into them more closely.

 

I invested in a bunch of China companies in the past, and still have some positions today. I encountered several fraud cases with the smaller companies. I took a basket approach and got out some of them OK, made money with some of them, but got burned by CCME which I had a large position. For the micro-cap and small-cap there are full of land mines, while the big ones (Tencent, BABA, JD, CTRP etc) are good, and there are lots of companies in between. You will find some good, mis-priced stocks among these in between companies once in a while. For example, both QIHU and EDU had fraud charges raised by Muddy Water, they became significantly mis-priced and had great run after dusts settled.  I never owned VIPS but it also had fraud charge from Muddy Water, so there could be opportunities there sometimes, but I agree with you the fraud risk is definitely there.

 

Over the past 3-4 years my stock holdings haven't done well, mainly due to large amount of cash position, selling too early and some "value" stocks didn't go anywhere. I would have done much better if I haven't done a thing with my stock holdings in the past 3 years. I have had better luck with real estate during the period, it's been Davis-Double like with low-cost leverage and price appreciation, but I'm getting nervous with the double digit appreciation we experienced in Seattle area for the past several years.     

 

[ccplz]

Shares some directors with a proven fraud (CBEH: china integrated energy), specifically longgen zhang (Jinko director and former CFO) and Steve marksscheid.

 

This makes this uninvestable at any price.