China Stock Roundup: JinkoSolar Beats, Alibaba Announces Share Purchase Deal

Markets rebounded during the week, powered by Chinese stocks would become part of MSCI Inc.’s global benchmarks. The benchmark index closed nearly flat on Monday following uncertainty among investors regarding China’s monetary policy. The Shanghai Composite Index surged on Tuesday, posting its largest increase in percentage terms in nearly three months.

The benchmark index moved lower on Wednesday after manufacturing data failed to assuage investors about the state of the country’s economy. The benchmark index gained on Thursday, closing at its highest level for the month till now.

JinkoSolar Holding Co., Ltd. (NYSE:JKS) reported first-quarter 2016 non-GAAP earnings per American Depositary Share (ADS) of $1.68, well ahead of the Zacks Consensus Estimate of $1.11 by 51.3%. Alibaba Group Holding Ltd. (NYSE:BABA) announced a share purchase deal with Softbank Group on May 31.

Last Week’s Developments

Last Friday, the Shanghai Composite Index lost 0.1% on Friday suffering its sixth consecutive weekly decline. This was the longest such series of losses since 2012. Consumer staples, industrials and pharma stocks were the worst performers for the week. Additionally, fresh data revealed that profit growth of industrial companies had declined to 4.2% for April.

The benchmark lost 0.2% over the week and 4% over the month. The CSI 300 moved 0.1% lower, taking the week’s decline to 0.5%. The Hang Seng gained 0.9%, adding 3.7% over the week. The Hang Seng China Enteprises Index increased 0.8%, advancing 3.5% over the week.

Markets and the Economy This Week

The benchmark index closed nearly flat on Monday following uncertainty among investors regarding China’s monetary policy. Such speculation increased despite signs that the economy was improving. The CSI 300 gained 0.1%. The Hang Seng advanced 0.3%. The Hang Seng China Enterprises Index also increased 0.3%. The Hang Seng China AH Premium Index lost 0.2%.

The Shanghai Composite Index surged 3.3% on Tuesday, posting its largest increase in percentage terms in nearly three months. Gains were largely a result of The Goldman Sachs Group, Inc.’s (NYSE:GS) announcement that Chinese stocks would become part of MSCI Inc.’s global benchmarks.

Turnover also increased for the day, which had slumped to lows last witnessed in 2014 when brokerages experienced gains. According to Goldman Sachs, new regulations which seek to reduce trading halts and clarifications issued by China’s securities markets regulator regarding beneficial ownership rules had raised the odds of an MSCI inclusion from 50% in May to 70%. The Hang Seng China Enterprises Index and the Hang Seng both gained 0.9%. The CSI 300 surged 3.4% with all of its 10 sub-indexes closing in the green.

The benchmark index lost 0.1% on Wednesday after manufacturing data failed to assuage investors about the state of the country’s economy. The official manufacturing PMI came in at 50.1 for May, in line with April’s reading. Non manufacturing PMI declined to 53.1 from April’s reading of 53.5. Meanwhile, the Caixin-Markit PMI reading declined from 49.4 in April to 49.2 in May.

Banks and utilities were the largest decliners during the trading session. The CSI 300 declined by 0.3%. The Hang Seng moved 0.3% lower while the Hang Seng China Enterprises Index closed flat for the day.

The benchmark index gained 0.4% on Thursday, closing at its highest level for the month till now. Tech and consumer staple stocks were the leading gainers for the day. Trading turnover plunged 22% from the level witnessed on Tuesday. The CSI 300 advanced 0.2%. Sub-indexes of consumer staples and tech shares gained a minimum of 0.6%. The Hang Seng moved up 0.5% while the Hang Seng China Enterprises Index added 0.6%.

Stocks in the News

JinkoSolar Holding Co., Ltd. reported first-quarter 2016 non-GAAP earnings per American Depositary Share (ADS) of $1.68, well ahead of the Zacks Consensus Estimate of $1.11 by 51.3%. In the year-ago quarter, the company reported earnings of 88 cents per share.

In the quarter under review, JinkoSolar’s total revenues of $848 million surpassed the Zacks Consensus Estimate of $714 million by 18.7%. On a year-over-year basis, the top line increased 98.8% primarily on the back of higher shipments as well as electricity revenues from solar projects.

In the first quarter of 2016, total solar product shipments were 1,600 megawatts (MW), up 102.7% year over year primarily due to higher shipments of solar modules, silicon wafers and solar cells. Out of total shipments, nearly 166 MW were used in its downstream projects.

JinkoSolar expects second-quarter 2016 total solar module shipment in the range of 1.6–1.7 Gigawatts (GW). For 2016, the company expects total solar module shipments in the band of 6–6.5 GW.

Alibaba Group Holding Ltd. announced a share purchase deal with Softbank Group on May 31.

Per the deal, Alibaba will buy from Softbank $2 billion worth of Alibaba Group shares outright using balance sheet cash. Another $5 billion worth of shares will be exchanged for securities that will convert to Alibaba shares in three years. In addition, $400 million in stock will be sold to an Alibaba partnership apparently comprising governing members of Alibaba’s board. Another $500 million worth of shares will be sold to an unknown sovereign wealth fund.

As part of the deal, Softbank also agreed that it will not transfer any Alibaba shares held by it for six months.

Softbank Group also disclosed this deal in a statement on the same day citing capital structure reforms and de-leveraging as the main objectives behind the deal. It will pay down debts from the capital obtained from the sale.

Softbank expects the deal to improve its interest-bearing debt/EBITDA ratio, increase its liquidity cushion and enhance efficiency of financial management.

This is the first time that Alibaba has purchased any of its shares owned by Softbank. Softbank is one of the earliest and the largest shareholders in Alibaba though, with this sale, its stake is now down from 32% to 28%.

JA Solar Holdings Co., Ltd. (NASDAQ:JASO) has won a contract to supply solar modules for “Front Runner”, a national advanced photovoltaic (PV) technology demonstration project in Datong, China. Per the contract, JA solar will supply 420 megawatts (MW) of modules, including 150 MW of high-efficiency monocrystalline Percium modules. The first phase of the “Front Runner” project has a total installed capacity of 950 MW, of which 44% of the modules will be supplied by JA Solar.

The National Energy Administration commenced the “Front Runner” program to promote the development of advanced solar PV technology by domestic suppliers. The first phase entails an investment of approximately $1.6 billion for 13 PV power stations. Upon completion, the facility is expected to generate 1.5 billion kilowatt-hour (kWh) of on-grid energy annually, which will cut the burning of 480,000 tons of coal on an annual basis.

JD.com (NASDAQ:JD) launched its annual summer sale on Jun 1 which will continue till June 20. This includes a sales event scheduled to be held on Jun 18 for 24 hours to mark the company’s 13th anniversary.

The event will include an “American Quality” sale where prominent U.S. brands will have special offers. Brands such as The Coca-Cola Company (NYSE:KO) and Guess?, Inc. (NYSE:GES) will be featured in this sale. Various product categories will be showcased on separate days.

Performance of Most Actively Traded US-Listed Chinese Stocks

The table given below shows the price movements of 10 Chinese companies with the highest three-month average trading volume on U.S. exchanges. Price movements over the last five days and during the last six months have been included.

Next Week’s Outlook:

Stocks have rebounded over the week following signals that China’s stocks may be included in MSCI’s global manufacturing benchmarks. This has provided much needed respite to investors who have suffered six successive weeks of losses. However, economic data released during the week has failed to assure market watchers about the state of the economy.

Several crucial economic reports are scheduled for release over the next few days. This includes private data on services and official data on forex reserves, trade and inflation. If most of these releases are positive in nature, markets could sustain their recently gained momentum over next week.