晶科能源 (JKS) 2011 Q2 法說會逐字稿

Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Company Ltd., second quarter 2011 earnings conference call.

At this time, all participants are in a listen-only mode.

After management's prepared remarks, there will be a question and answer session.

As a reminder, today's conference call is being recorded.

I would now like to turn the meeting over to your host for today's calls, Mr.

Yvonne Young, JinkoSolar's Head of Investor Relations; please proceed, Yvonne.

Thank you, [Carolyn].

Hello, everyone, thank you for joining us today for JinkoSolar's second quarter 2011 earnings conference call.

The Company's results were released earlier today, and are available on the Company's IR website, at www.jinkosolar.com, as well as on NewsWire's services.

We have also provided a supplemental presentation for today's earnings call, which can also be found on our Company's IR website.

On the call today from JinkoSolar are Mr.

Kangping Chen, Chief Executive Officer; Mr.

Arturo Herrero, Chief Marketing Officer; and Mr.

Longgen Zhang, or Sam, Chief Financial Officer.

Mr.

Chen will discuss JinkoSolar's business operations and the Company highlights; followed by Mr.

Herrero, who will talk about the Company's business strategies; and then Mr.

Zhang will go through the financials and the guidance.

They will all be available to answer your questions during the Q&A session that follows.

Please note that today's discussion will contain forward-looking statements, made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties.

As such, our future results may be materially different from the views expressed today.

Further information regarding this and other risks is included in JinkoSolar's public filings with the Securities and Exchange Commission, including its Annual Report on Form 20-F for the physical year ended December 31, 2010, filed with the Securities and Exchange Commission on April 25, 2011, as amended on May 10, 2011, and other documents filed with the US Securities and Exchange Commission.

JinkoSolar Holding does not assume any obligations to update any forward-looking statements, except as required under the applicable law.

Please be noted that to supplement its consolidated financial results, presented in accordance with the United States Generally Accepted Accounting Principles, or GAAP, JinkoSolar uses certain non-GAAP financial measures, including non-GAAP net income, non-GAAP earnings per share, non-GAAP earnings per ADS, and non-GAAP diluted weighted average ordinary shared outstanding, which are adjusted from the comparable GAAP results to exclude certain expenses of incremental ordinary shares relating to convertible senior notes and capped call options.

The Company believes the use of non-GAAP information is useful for analysts and investors to evaluate JinkoSolar's current and future performance, based on more meaningful comparison of net income and diluted net income per ADS, when compared with its peers and the historical results from prior period.

These measures are not intended to represent or substitute numbers as measured under GAAP.

The submission of non-GAAP numbers is voluntary, and should be reviewed together with GAAP results.

It's now my pleasure to introduce Mr.

Kangping Chen, CEO of JinkoSolar.

Mr.

Chen will speak in Mandarin; I will translate his comments into English.

Please go ahead, Mr.

Chen.

(interpreted) Thank you, Yvonne.

Good morning and good evening to everyone, and thank you for joining us today.

We know that there has been a lot of turmoil in the markets over the past week, so we appreciate your time.

I'm happy to announce today that despite the oversupply situation in the market, which triggered extraordinarily intense competition, we delivered another quarter of solid financial and operational results.

We came in ahead of our expectations for module shipments and revenue.

During the second quarter 2011, we shipped a total of 254.1 megawatts of solar products, of which 206.7 megawatts were solar modules.

This was, clearly, ahead of our high-end expectation of 200 megawatts, and compares with a total of 208.4 megawatts of solar products and approximately 166.6 megawatts of solar module shipments in the first quarter of 2011.

Italy and Germany, as well as a larger geographic reach, contributed a total revenue of $350.6 million (sic).

In the light of the current market environment, we are pleased with our performance, as we are able to maintain our margins at what we consider a fairly healthy level.

While the first half of the year was difficult for the industry, we believe that it, in fact, presented an opportunity for us to gain market share.

This can be seen by our outstanding performance over the past two quarters.

Since our inception, we have remained steadfastly committed to producing and delivering the highest quality modules to both our new and existing long-term customers.

By leveraging our industry-leading cost structure and vertically integrated business model, we have been able to maintain healthy growth in shipment volumes, while not sacrificing on pricing and margins.

In the second quarter, we achieved over 25% blended gross margin, while our in-house gross margin remained about 30%.

We expanded our geographic reach this quarter, by maintaining a strong relationship with our existing market customers, while continuing to attract new ones.

During the period ended June 30, 2011 we shipped our modules to over 60 customers, in 20 different countries, across the globe.

This is particularly encouraging, as almost 50% of our customers have previously a contract with Jinko, and we won another 30 customers in the second quarter.

Of course, pricing, reliable and timely delivery, and great customer service are important.

But more than anything, this progress shows that our customers value the quality of our product.

More than anything, this is key to building brand recognition, in a tough market.

As we reported last quarter, polysilicon prices have begun to fall, though, as it turns out, this has happened at a faster pace than we initially anticipated.

I would like to point out again, that we made a conscious decision to procure over 80% of our polysilicon from the spot market.

In 2011, we implemented this strategy in anticipation of a decrease in pricing, and now we are, clearly, benefiting from this.

Our pricing strategy provides us with the flexibility to offset margin pressure, as the price of polysilicon declines.

It also frees up capital to apply elsewhere.

We anticipate that we'll continue to benefit from this dynamic, as we expect to see polysilicon prices trend further down into the fourth quarter.

Obviously though, polysilicon price is only part of the equation.

We continue to focus on cutting non-silicon cost as well.

We successfully reduced our non-silicon cost from $0.73 per watt, in the first quarter of 2011, to $0.70 per watt.

This past quarter, we were able to cut costs this quarter, due mainly to the more efficient use of consumable materials, in the production process, and improvements in operational management.

Specially, we are now able to internally produce junction boxes, and thinner aluminum frames, which have significantly reduced our module production.

Looking forward, we are confident that we'll be able to reach our target of $0.67 per watt by the end of the year.

We have also applied significant resources to improving cell conversion efficiencies, which, combined with our cost cutting measures, also bringing down our per unit cost.

We implemented several technical initiatives during the quarter, which will provide a long-term, sustainable innovation and development required to keep bringing steady improvements to our products.

Of significant note, we started commercial scale production of this quarter, of our Quantum-1 solar modules, which are part of our Quantum series.

Our Quantum-1 modules are producing using pseudo-mono multi-crystalline, which carries the benefits of both mono and multi-crystalline cells.

[We] operate at higher efficiencies, but can be sold at a highly competitive price, due to our manufacturing cost advantages.

The cells currently perform at an 18.3% conversion efficiency level.

At the same time, we doubled the warranty of our Quantum-1 modules, from the industry standard five years, to 10 years.

The new warranty supplements our 25 year peak power warranty.

With the launch of our new R&D center, we are aiming to increase the average conversion efficiency rate to 18.6%, for mono-crystalline cells, and 17.5% for multi-crystalline cells, at the end of 2011.

This would be a solid improvement of our current efficiency rate of 18.1% and 16.8% respectively.

Notwithstanding the turmoil in the global capital markets, we expect the sector to see growing demand and intense competition, as polysilicon prices and module ASPs to continue to fall, in the second half of the year.

However, we are confident in our strategy and our ability to respond to these issues, and turn them to our advantage.

The relentless pursuit of quality and the cost reductions, remains one of the cornerstones of our continuing success, going forward.

Our flexible pricing strategy, together with a strengthened, international sales team, will help expand our market share, as we expect to see shipment volumes increase to existing and new customers.

For the third quarter of 2011, we expect to ship 230 megawatts to 250 megawatts (sic) of solar modules, and total revenues to be approximately $310 million to $350 million (sic).

We expect to increase our in-house silicon wafer, solar cell and solar module production capacities, to approach approximately 1.3 gigawatts each, at the end of the third quarter of 2011.

Our full year guidance remains unchanged.

Our Chief Marketing Officer, Arturo, will now discuss our major achievements in sales and marketing, for the second quarter, in further detail, as well as our market outlook for the second half of 2011, in key countries and regions.

Thank you.

Thank you, Mr.

Chen.

Good morning and good evening to all of you.

As Mr.

Chen just mentioned, we are proud to announce that we managed to deliver a solid set of results for the second quarter.

During this first half of 2011, we have successfully managed to continue building brand recognition and rapidly increase our market share across geographically diverse PV markets.

Despite extremely challenging global economic environment, our high quality cost leading Jinko products, and our successful and well executed sales and marketing strategies continue to attract new and existing customers and expanding our Jinko business, both in size and geographic reach.

During previous quarters we managed to capture the loyalty from important customers, who have been growing their business with our support.

This loyalty has been based on strong relationships, recognition of our quality and service, and also our competitive advantages.

At the same time, we have continued to expand our customer portfolio, by attracting new important customers.

We have been able to further expand and diversify our business, both in terms of size and geographic reach.

Europe continued to account for the largest portion of our shipment modules.

While we have successfully executed our market expansion strategy to further penetrate into new geographic locations, we have maintained strong sales with our existing and new customers, in both Germany and Italy, where we have continued enjoying support from our customers, resulting in increased shipments, to the two major PV markets combined, despite the difficult market conditions.

We expect to achieve similar results for the full year as we believe we will benefit from the short and midterm deadlines feed-in tariff cut both in Germany and Italy.

At the same time, we managed to considerably increase and diversify sales to countries, such as France, Spain, Belgium and Portugal, representing together around 25% of our total revenues.

In France, we keep a strong relationship with Solaire Direct, one of the leading and best recognized companies in the PV industry.

The 25 megawatt contract that we signed last quarter began construction in early July.

Over the past few quarters, we have made progress in France.

I am proud to announce we have already established our French office in Montpellier and we expect more shipments with establishment of this new local sales office there.

In addition, we announced 16,000 of our solar panels are now installed on top of the Solar Tunnel near Antwerp, which was done in cooperation with our Belgium partner, Enfinity.

Aside of major markets, in our process of diversification, we have pushed even farther into new markets this quarter; specifically, we increased shipments to China, Australia, Israel, UK and Greece.

So, as a result, during the quarter we made sales to over 60 (sic) clients in more than 20 countries.

We continue to strengthen and further expand our global sales and marketing team.

We have strong and established teams with years of industry knowledge and experience in all these countries.

We have built teams in regions such as Italy, France, Spain, UK and East of Europe.

In China, we are seeing good steps in the implementation of solar programs, subsidized both by state and by provinces.

The Government will offer a subsidy of [CNY9], around $1.4 per watt, for projects to adopt crystalline modules.

Under Golden Sun program, the Government during 2010 has allocated RMB3 billion and subsidized 272 megawatts of projects under this program.

In July 24, first ever nationwide PV feed-in tariff in China was announced.

We expect it will be the trigger to make possible the unofficial PV target of 10 gigawatts installed by 2015 and 50 gigawatts by 2020.

We expect China market increase this target from right now around 500 to 800 megawatts and we expect around 2.5 to even 4 gigawatts by next year 2012.

In JinkoSolar we are building a dedicated team to Chinese market to identify the good opportunities for end of this year and 2012 a strong PV market.

Going to North America, we have increasingly focused our attention in the United States, where we are capitalizing on the growing opportunities there.

We continue to construct a high caliber sales team in our San Francisco office.

In Los Angeles, we completed the shipments in this quarter of a total 5,292 modules to complete a PV solar project of 1.2 megawatts built by our partner, Premier Power.

This is just one of our examples.

I am happy to announce that during the second quarter, we recruited two high senior professionals as Directors of Sales in USA.

Mr.

Roy Shaw brings to Jinko more than 25 years experience, building successful sales teams including recently, last three years, in Suntech.

Mr.

Peter Schenk joined Jinko from Canadian Solar where he was instrumental in the US market strategy.

Peter has more than 15 years' business experience.

Alongside a larger business development team, our experienced sales team will work to expand our geographic reach, both in California and a number of other states.

Also for USA, we strengthen our marketing team by recruiting a high experienced marketing professional as Marketing Director, Mrs.

Isabelle Christensen.

Isabelle Christensen has been in the solar industry since 2006.

Her experience includes working at both upstream and downstream, such as Akeena, REC and SCHOTT Solar.

As already announced, we are also on track to open our sales office in New Jersey in the second half of 2011.

Just to summarize, in second quarter 2011, the total products shipments were 254 megawatts, which exceeded our expectations, our internal targets and our guidance to the market.

This consisted of 36 megawatts in silicon wafers, almost 12 megawatts in solar cells and over 207 megawatts in solar modules.

We delivered approximately 36% to Italy; 32% to Germany; 12% to France; and 10% to Belgium and Spain together.

This compares with 30% to Italy and 49% to Germany during the first quarter in 2011.

Shipments to Germany and Italy accounted for 68% of our total modules as compared with 79% in previous quarter, reflecting this way our continued support and fruitful results in expanding our business geographically.

Regarding partnerships, we are very proud of renewing contracts with our existing customers, who have seen in JinkoSolar a trustful long-term partner, flexible to market changes, excellent provider of service and high quality products, despite uncertainty solar policy environment in Europe.

We continue to build a strong partnership with distributors, PV developers and EPC contractors, including Volteo, Tozzi, Cogip and Tonello in Italy; Saint-Gobain, IBC, BULL Power-tech in Germany; Solaire Direct in France; Gransolar, Essentium, Krannich and Bester in Spain; Enfinity and Nizet in Belgium; Lumus, Premier Power and Haller in the US; Martifer in Portugal; SunConnex in Netherlands and many others.

We have been selected by PHOTON Power AG, a subsidiary of PHOTON Holding Group, for the first phase consisting of a 2.9 megawatt of further solar energy products being planned for the next months.

In relation to marketing, one of our primary goals over the past few years has, obviously, been to broaden our Jinko brand recognition around the world, particularly in the various important markets in Europe and United States.

For this full year 2011, we are initiating an intensive PR activities, as well as we keep attending approximately 15 solar renewal energy exhibitions and conferences.

We attended the Munich and San Francisco Intersolar conferences during the quarter, which has gone hand in hand with our extensive and highly effective marketing campaigns.

We will continue to actively participate in regional and international exhibitions to increase exposure of our JinkoSolar brand, such as PV SEC in Hamburg, PV Tech in Milano and Renewable Energy Exhibition in France among others.

Regarding our sponsorships, we strongly believe on analyzing marketing opportunities and making the best and intelligent use of our marketing budget, mainly focusing to our PV industry and to our B2B business.

We consider it unnecessary to spend huge amounts of money to sponsor marketing campaigns dedicated to consumption market, especially those unrelated to solar, renewal energy or similar green activities.

Focusing on solar, among our most important marketing actions, we have sponsored Intersolar in San Francisco and Intersolar in Munich.

We keep sponsoring SolarPV.TV, the first worldwide Internet TV portal completely devoted to solar PV technology and business.

Increasing our presence, we remain intent of establishing other local subsidiaries in key markets such as Switzerland in order to develop our local operations, together with long-term customer relationships and a key part of this will be after sales support in our local markets.

For 2011, we'll continue to build our JinkoSolar brand and expand our market and diversify our customer geographic portfolio.

Regarding OEM, we believe that increasing market exposure and geographic presence, we understand the importance of remaining flexible for our long-time customers when providing contracts to the OEM or white label solar modules.

During the second quarter of 2011, our OEM business accounted for 28% of our revenues, in line with our commitment to promoting Jinko's brand and dedicate only our OEM business to 20% to 30% of our total revenues.

Regarding bank-ability, we continue to make big steps towards improving the bank-ability of our solar modules worldwide.

We gained the support of more European and US banks during this quarter in 2011, bringing the total to 28 banks that have now financed Jinko branded solar modules versus 25 at the end of first quarter 2011.

And we're in touch and in advance conversations with more than 61 banks in 11 countries.

We are definitely on the right direction.

Going to ASPs, we consider that the module decline will be faster than expected and, in this quarter Q2, have been relatively strong versus our competitors.

Despite this erosion on prices in the market, our performance is particularly encouraging as it shows our ability to leverage our competitive advantages, especially in terms of our cost structure.

During the quarter, in addition to the improvements and efficiencies we gained on the production side of our business, we also benefit from buying our polysilicon on the spot market, which also helped increase our flexibility and offset margin pressure as the price of polysilicon declined.

We see this as an opportunity for JinkoSolar to keep rapidly expanding and gaining market share, as we are well positioned and clear cost leaders in this industry, due mainly to our vertical integration and thanks to our significant brand recognition in Europe and United States.

Therefore, despite the current market situation and increased competition, we believe that demand of our products and our market share will continue to grow.

With that, now I would like to turn the call over to Sam, who will introduce our financial results and guidance for the third quarter and full year 2011.

Thank you, Herrero.

Good morning and good evening to everyone on the call.

First, I would like to walk you through our financial results for the second quarter of 2011, followed by third quarter and full-year 2011 guidance.

Before I go through the line items, I would like to give you a quick overview of our second quarter performance.

We delivered another quarter of solid financial and operational results.

While facing intense competition in a tough market, we surpassed our revenue and ship guidance.

Our vertically integrated business model and other cost reductions allowed us ensure production of the high quality products, while maintaining relatively healthy gross margins in what turned out to be a highly competitive market.

As Mr.

Chen mentioned earlier, total solar product shipments in the second quarter of 2011 were a record of 254.1 megawatts, consisting of 35.6 megawatts of silicon wafers, 11.8 megawatts of solar cells and 206.7 megawatts of solar modules, an increase of 21.9% over the previous quarter.

Total revenues in the second quarter of 2011 were a record of $350.6 million, an increase of 5.9% sequentially and 151.6% year over year, exceeding our guidance of $330 million to $350 million.

The sequential increase in revenues was primarily due to the increase in the sales volume of solar modules as a result of our expanded sale efforts and enhanced brand awareness, despite an industry-wide decline in the average selling price of solar products.

Gross margin was 25.4% in the second quarter of 2011, a decrease from 26.2% in the first quarter of 2011 and a decrease from 26.9% in the second quarter of 2010.

The sequential decrease in gross margin was primarily due to a decline in the average selling price of solar modules and it was partially offset by a decrease in polysilicon price and average manufacturing cost per watt as a result of Company's continued improvements in operational efficiency.

In-house gross margin relating to in-house silicon wafer, solar cell, solar module production was 30.5% in the second quarter of this year.

We continued to lower our average non-silicon cost in the second quarter by leveraging our vertically integrated manufacturing capabilities and improvements in technology and operational efficiency.

Non-silicon cost decreased to $0.70 per watt in the second quarter of 2011 from $0.73 per watt in the first quarter of this year.

This was primarily due to our efficient use of consumable materials in the production process.

Income from operations in the second quarter of 2011 was $63.4 million, a decrease of 2.3% sequentially and an increase of 172% year over year.

Total operating expenses in the second quarter of 2011 were $25.8 million, an increase of 18.7% sequentially and an increase of 82% year over year.

Operating expenses represented 7.3% of total revenues in the second quarter of this year, an increase from 6.6% in the first quarter of this year and a decrease from 10.2% in the second quarter of last year.

The sequential increase was mainly because of increased sales and marketing efforts.

The increase in total operating expenses was due to additional transportation costs and sales commissions, as a result of the increase in sales volumes and the Company's expansion into new markets.

Operating margin in the second quarter of 2011 was 18.1% compared 19.6% in the first quarter of 2011 and 16.7% in the second quarter of last year.

Net interest expenses in the second quarter of 2011 were $7.1 million, an increase of 33.6% from the first quarter of 2011 and 228.8% from the second quarter of 2010.

The sequential increase in net interest expense was primarily attributable to the additional interest expense that the Company incurred under convertible senior notes, which were issued in May 2011 and bear an annual interest rate of 4%.

This results in $0.6 million in accrued interest charges that were booked in the second quarter of this year.

The sequential increase in net interest expense was also due to the increase in long-term and short-term banking borrowings.

The Company incurred an expense of $4.7 million associated to the issuance of $125 million in convertible senior notes in May 11, 2011.

We recorded foreign currency exchange loss of $5.6 million in the second quarter of 2011, primarily due to the loss of $4.7 million unchanged in the fair value of forward contracts, as a result of the appreciation of the euro against the renminbi.

The foreign currency exchange loss was partially offset by a gain, as a result of depreciation of the US dollar against the renminbi.

We recognized a loss of $3.1 million in change in fair market value of capped call options and convertible senior notes, resulting from the loss from change in fair value of the capped call options, partially offset by a gain from change in fair value of the convertible senior notes.

In May 2011 the Company entered into a capped call transaction with an affiliate of an initial purchase of convertible senior notes in connection with the issuance of the convertible senior notes.

Other income in the second quarter of 2011 was $0.09 million compared with $4.9 million in the first quarter of 2011 and other expenses of $0.7 million in the second quarter of last year.

The significant sequential decrease was primarily due to the receipt of damage from a silicon wafer customer that defaulted on its obligations and its contract with the Company in the first quarter of 2011.

The Company did not have such income in the second quarter of this year.

We recognized a tax expense of $7 million in the second quarter of 2011 compared with a tax expense of $8.1 million in the first quarter of 2011, and a tax expense of $4.4 million in the second quarter of last year.

We expect to have an effective tax rate of approximately 14.6% for the full year of this year.

Net income in the second quarter of 2011 was $36.4 million, a decrease of 30.1% from the first quarter of this year and an increase of 30.2% from the second quarter of last year.

This translates into basic and diluted earnings per ADS of $1.53 and $1.38 respectively.

Non-GAAP net income in the second quarter of 2011 was $44.3 million, a decrease of 14.9% from the first quarter of 2011 and an increase of 58.6% from the second quarter of last year.

This translates into a non-GAAP basic and diluted earnings per ADS of $1.86 and $1.82 respectively.

We would like to take a quick look at our balance sheet.

As of June 30, 2011, we had $208.1 million in cash, cash equivalents and restructured cash.

Total short-term banking borrowings, including the current portion of long-term banking borrowings, were $338.4 million.

We had total long-term borrowings of $51.2 million as of June 30, 2011.

Capital expenditure in the second quarter of 2011 was $118 million, which was used for the procurement of silicon wafer, cell and module manufacturing equipment as we continue to ramp up production capacity.

Now, let me turn to our guidance.

For the third quarter of 2011, we expect total solar module shipments to be approximately 230 megawatts to 250 megawatts.

Total revenues are expected to be approximately $310 million to $330 million.

We expect to increase in-house annual silicon wafer cells and module production capacities to approximately 1.3 gigawatts each by the end of third quarter of 2011.

For the full year 2011 we maintain our guidance range of 950 megawatts to 1 gigawatt in total solar module shipments, and $1.4 billion to $1.5 billion in total revenue.

We also reiterate in-house annual silicon wafer, cell and module production capacity targets of approximately 1.5 gigawatts each by the end of 2011.

At this moment, we are happy to take your questions; operator?

Thank you, sir.

(Operator Instructions).

Philip Shen, Roth Capital Partners.

Congratulations on a nice quarter in a challenging environment.

Thank you.

Thank you.

So -- please help us understand the current pricing environment.

What range of module ASPs do you expect in Q3 and Q4?

Okay, Philip, you can see that the market has been very -- let's say, very hard in terms of competition, and it was the driver for this reduction in the ASPs.

As I said in my speech, prices in Q2 were down from Q1, but also we saw that JinkoSolar managed to get an ASP, I would say, in line or even bigger than our competitors.

So, for Q3, we are seeing again some kind of pressure from Q2 pricing.

But mainly, I would say that ASP has been stable in the last month/month and a half.

So probably we will see -- if you want me, I can give you a range, in Q3, of around $1.20 to $1.30 per watt.

Great.

That's Q3?

That's correct.

And what are your expectations for Q4?

For Q4, probably -- hopefully, because of the huge demand that we are seeing right now coming from countries like Germany, there will be a stable pricing until the month of December.

You know that then the production in December will be sold mainly for stocks in production in January.

So Q4 I wouldn't see a very big decrease on this ASP, but, to be conservative, you can count on $1.15 to $1.25 per watt as an average.

Great, that's helpful, thank you.

And one other follow-up, in terms of -- in your release, you indicated that a silicon wafer customer defaulted on its contractual obligations in Q2.

Are you beginning to see capacity rationalization or consolidation in the industry?

How do you think capacity will rationalize going forward?

Okay, yes.

Let me answer the question, I think.

Yes, I think we see, I think, as ASP of modules, price, continues to go down, you can see -- you use calculation, we still achieve pretty good, I think, ASP of modules Q2.

You can use your calculation; our in-house gross margin is still 30.5%.

Our cost and the silicon plus non-silicon cost is $1.07.

And we see the module price will continue -- looks like go down, as Arturo said.

We already see a lot of Tier 2/Tier 3 players in China, they are either reducing their production or wiped out.

So, especially those state-owned companies, they invest -- jump into -- in this industry last year.

So right now, basically, we are competing actually the Tier 2/Tier 1 players right now.

The most is the public companies.

So, basically, yes, we see some consolidation going on.

But as I mentioned there, in the solar industry, especially between the Chinese players, for merge and acquire, have a lot of difficulties.

One is the technology continued revolution.

So second is the most -- Chinese companies, most of their founders still manage the company.

To merge/acquire, it's difficult to synergy the culture.

Great, thanks.

And one last one, if I may and I'll hop back in queue.

What are your expectations for poly prices in Q3 and Q4?

The poly price, as you can see that, basically, theoretically right now, if you look, the total output right now, today, the production, the poly supply and the demand -- the poly [no reason] stands at about $50.

But actually right now still is around $51 to $53.

And we think, as the ASP module continues to go down, the poly definitely will go down.

So we estimated Q3 maybe go to between $40 to $50; then, if the module price continues to go down to, like, Arturo said, to the end of $1.15, we think the poly is no reason will stand above $35.

Great.

Thanks very much.

Vishal Shah, Deutsche Bank.

I just wanted to understand your visibility right now.

What percentage of your volumes for the second half are contracted for Q3/Q4, and what percentage of those contracts are fixed price?

Thank you.

Thank you, Vishal.

This is Arturo again, the CMO.

So mainly, we are seeing much more visibility right now, and we are starting in Q3, for this quarter.

So I would say that for Q3 we have around 70% to 80% already under contract.

And I would say that 60% is under fixed price, or almost fixed price, I would say 50% of this 80%.

And then for Q4 we will say that we will have to finalize most of the contracts, so -- in terms of negotiation of prices, so we have around 50%, or 60% under contract, but we will have to negotiate pricing, so probably no more than 20% is ready under fixed contract, under fixed price.

20% of Q4 volumes.

Yes, 20% is under fixed contracts of this 60% that are already contracted for Q4.

Okay.

And you said 50% of the 80% that is contracted is fixed price in Q3?

Yes, for Q3 I said that 80% -- 70% to 80% is already signed contracts, and around 50% to 60% is under fixed prices.

That's very helpful, thank you.

You're welcome.

As you look at the environment, and assuming you're seeing a pick-up in demand throughout the quarter, so would you expect pricing to -- the $1.15 to $1.20 that you mentioned in Q4, should we start seeing that type of pricing from next month, or are we looking --

No, I would think that next month, for as it is still Q3, right?

So Q3 still is slightly higher than that, so we are seeing prices in a range for $1.20 to $1.30 per watt, and then Q4 will be stable, except in December, when we are seeing as every year that pricing is mainly driven by the next year feed-in tariff.

So then, this December -- at the end of the year will be impacting the average of the Q4, and this is why we are seeing probably prices between $1.15 to $1.25 maximum.

Very helpful, thank you.

What is your polysilicon inventory right now?

Okay, I think right now the polysilicon inventory is around 166,000 tons.

That's almost one week.

That's by the end of June 30.

So, that's as of today, or as of end of June?

As of June 30.

Okay.

And what about current inventory levels?

Current inventory still is around that?

Okay.

Do you expect the polysilicon pricing to also remain stable?

I know you are talking about a (inaudible).

Is that going to be in Q3, or you think it's going to be [in Q4]?

I think the poly price right now is -- suppose you see every year, suppose -- this time the poly supposed price should go up little, but right now, it looks like poly right now is stable, and it will go down.

We think the poly, if the modules continue to go down, the pressure is the Tier 2/Tier 3 still wipe out continue.

So the demand continues to reduce, so the poly, definitely, the price will go down.

So that's why I just mentioned that.

If, based on Arturo's price, ASP module, we think in Q3, the poly should be between $40 to $50, then Q4, should be no reason above $35.

Thank you very much.

Dan Ries; Collins Stewart.

Congratulations on the quarter, especially the gross margin, it's pretty impressive.

Thank you.

My first question is for Arturo.

We heard that there's a new implantation of Italian law, kind of Robin Hood Italian law, tax law.

Well, just wondering if you heard about it and will it cover the solar projects?

And will it likely to be a retroactive feed-in tariff cut?

No, as far as I know and I have been in touch with my Director in Italy market and my team in Italy and also some customers; I didn't hear anything related to any retroactive cut in the feed-in tariff.

What we know, this is as far as I know, there is a feed-in tariff already published and effective from June 1.

I don't know if you refer to any taxation that has been introduced in general in Italy.

That is something that I have not been aware.

What we know is that there is a 10% increase on the feed-in tariff if the modules are coming from European manufacturers.

But still, it doesn't affect or doesn't impact us so much, because our ASPs and our price are around 25% to 30% lower than European manufacturers.

So even with this 10% increase of local content, they still prefer to buy from Jinko modules.

That's great.

Okay, also comment on the month-over-month market trend in the 3Q, both on demand and ASP.

Do you see more demand in August than July and how about September?

Okay, so if you -- let me go back to the beginning of the year.

The first half has been quite tough, especially the Q1 has been very difficult mainly due to the long winter, the slow demand in Germany and Italy.

If you remember, in March they have this freezing period of the new Conto Energia, the new law, was not implemented.

So all these companies, all our solar peers were suffering, and including Jinko.

But we managed to overcome difficulties and we reach 20% over our target in the first quarter.

In the second quarter, the market was starting to become better.

And we saw, especially in May, quite an improvement, because all these inventories that were in channel -- in the distribution channel, mainly in Germany, they were starting to be cleared out.

So right now, what we're seeing is that after May, June has been strong enough to absorb a lot of good megawatt sales in Italy and in Germany, but also in other countries that we have been seeing much more demand.

And mainly July has been very strong for JinkoSolar, not only because of -- Germany has been clear out inventories, but also they have announced that there's no cut on the feed-in tariff as everybody was expecting, so the demand is becoming much better than before.

And Italy, as you know, with this Conto Energia, this new regulation, is helping us to also have many more megawatts.

Also we have been diversifying our efforts in countries like Spain, like France, like Belgium and, of course, now in the USA.

So the month of August for us is slightly lower in the first half because of the season of holidays in Europe.

But still we are on track to get our target for Q3.

That's great.

Last question on your high efficiency cell Quantum-1, I'm just wondering can you give us some color on when are you going to convert 100% of your capacity to the high efficiency cell?

Do you have a target, maybe 3Q or year end?

Well, as we announced with the Quantum series, we're introducing right now and it will be progressive introduction.

So probably, right now, we are seeing from 3% to 5% of our production.

And then we'll be increasing further at the end of Q3 to probably 20% of all production and slightly going up.

Great, thank you.

[Ming Chi], Jefferies.

Good evening, gentlemen.

Thanks for taking my question.

I just want to follow up on ASPs.

Earlier, you mentioned Q3 ASP is at the range of $1.20 to $1.30.

However, your guidance implied a blended ASP range of $1.32 to $1.35.

Should we assume there is some upside on your [assuming] guidance?

Okay, Ming, let me answer the question.

Your question is you use my Q3 guidance is simple in our users, when we divide by the module shipments.

That's right.

Therefore, on the total revenue that gives the guidance, the total revenue including also has some partial small [ship-off] in wafer and cells.

So you have to add in a portion of wafers and cell.

Do you see what I'm saying?

Yes, but wafer and cell ASPs are lower than modules.

So actually, if you include that it should drag your ASP down.

But even with that, you're a little higher than the current market price.

Yes, but we give the guidance on the shipments only modules.

Okay, I see.

Which is the modules is -- they are 230 megawatts to 250 megawatts.

Okay.

Yes, that's very helpful.

And what is your utilization in Q2 and Q3?

Frankly speaking, in Q2, right now, we're still I think almost 100% running the utilization.

In Q3, so far today, we're still 100% running our capacity.

And basically, we still believe and we have the ability to sell whatever we produced.

But, for some reason, we're still -- the guidance and the figure, the shipments, we still have to be conservative.

Yes, so this is why I try to understand why your volume is sequentially down.

So I would assume there's some conservatism built in there.

This is a sequential down.

We compare -- the shipments in Q2 206.7 megawatts, right now, [is] 230 to 250 megawatts, so, yes.

Okay, great, thanks a lot.

This is very helpful.

Congratulations for your solid quarter.

Thank you very much.

Anil Doradla, William Blair.

Good job on the quarter, a couple of questions actually.

Given the constant price is falling down, can you comment on maybe when you guys would want to get into long-term contracts for the polysilicon front?

And also a follow-up; on the competitive landscape, as we enter the second half of the year and perhaps first half next year, do you see increased competition from competitors, given that some of their long-term silicon contracts roll off?

Anil, I think to answer you first question, okay, I think at Jinko today, all of these modules are vertically integrated, and to buy the poly from the market, almost 90% today from the spot price.

Because of this, I think we can enjoy and reduce the volatility, also risk on the module price and the polysilicon price change.

Sometimes, yes, we have suffered because the ASP module price go down quickly then the polysilicon price goes down.

But we are lucky, we still can sell the vertically integrated channel to reduce -- continue control on our silicon costs to enjoy, I think, a little consistent gross margin.

So today, if you look, the polysilicon capacity expansion from China to Korea to all abroad, so you can see in the future, definitely in China even, GCL, [Dachang], all other companies right now invest tons of money, even some state owned companies like [Chung Mai] Energy Company.

We think the capacity will continue to go up, will be over-supply in the market.

So this is, for us, Jinko, we will evaluate the situation from time to time but not at this moment.

The spot price around [$51] to [$53], we got a signed contract, to us is no advantage.

And we always think of because you know the technology also continued to improve right now even in silicon manufacturing.

So the cost of continued reduction, just like GCL claims, they will reduce the silicon cost to $20 per kilogram.

So we think the reasonable price may be around $30 to $40, so maybe we can find some long term contracts to fix partial of our supply.

That's the first question I think to answer you.

Second question you know with today Jinko compare our peers.

We didn't have long-term contracts in our -- on the polysilicon supply, did we have advantage or disadvantage?

That's, obviously, if you compare Jinko with other company.

As you can see, I think JinkoSolar already declared their gross margin's negative, even -- I'm not -- name any company.

You will see all the companies will continue to release their earning release.

I think Jinko is one of them.

I think it's only maybe right now we can take that advantage, continue to enjoy on the -- polysilicon price go down, as the margin price go down.

So -- and one final question is, you know you guys talked about improving visibility, now would it be fair to characterize that's largely driven by the fact that inventories have come down at manageable levels and even an incremental pick-up in demand shows up as improving visibility, or are there some other underlying trends?

Well, there are [] again, there are different inputs here.

One, as you said, you right, in this approach that inventory has been almost clear during the last few months, two or three months.

So we have seen the distribution channel much more -- let's say, much more clean.

So now all these customers are ordering again megawatts for the second half of the year.

A second thing is that, as you know, there is no feed-in tariff cut in Germany so the IRR of the project is starting to be very interesting when the price of the modules are at the level that we have seen at the end of the second quarter.

So it makes the return on investment very attractive for new projects and new investments in countries like Germany.

But also there are new countries that are also improving in their -- let's say, in their demand, countries like Spain, countries like UK.

We are seeing our products from JinkoSolar in these countries when before there was a lot of bureaucracy and administration that was blocking the market to keep going on.

Okay, good, thank you very much.

And finally US, that obviously we came a little bit late to the party, but I think now we have very true high level professionals managing as Directors there US industry.

And we are expecting from our last conversations and negotiations in Intersolar San Francisco that probably we will have quite nice news to report to you when we sign some big contracts that we are in negotiation.

Thank you, guys.

Thank you, Anil.

Satya Kumar, Credit Suisse.

Yes.

Hi, thanks for taking my question.

Just wanted to clarify, what was the average cost for silicon in Q2, was it around $63 or so?

The average costing on the silicon side is $66 per kilogram.

Okay.

Just wanted to clarify how the average costs accounting works.

The end of Q1 inventory was around $159 million.

My understanding was there was some poly inventory at high cost at the end of Q1, and some finished panels, which probably had higher poly cost in Q1, but the in-house gross margin is still very good at 30%.

What happened to the high costs inventory at the end of Q1?

Okay let me just explain to you the US how to calculation.

In the Q1 any -- in the Q1 we have the inventory is -- one is $58 million -- almost one is $59 million, of which we have raw materials, we have working cost saving; we have finished goods.

And we have raw materials, for example, our silicon -- silicon we have 367 [tons].

And what we are doing is the accounting method is asking when we do the review, we need to look, you know by the end of Q1 the look in the beginning of April what's the selling price of module.

So, if they use you know the inventory cost then what's you know the gross margin?

If it is negative then they go to reach the inventory provision.

For example, Q1 our inventory provision is $552,000.

Then back to end of Q3 -- Q2, June 30; right now, the inventory is for the raw materials we have 166,000 tons and that's at $60 -- $60 for kilogram.

Then we also have work in [progress], as you can see, 16 -- [on the web], 60 megawatts, 29 megawatts on the cell.

We also have 63 megawatts on the finished goods.

Then we also base on -- right now, the module price go down so quickly, so the calculation, the inventory write-down has been provisioned is $5.3 million right now, we write-down inventory put to [count of] cost of goods sold.

So basically we say, right now, our average inventory, right now, is $66 per kilogram.

Then for the inventory part we only write down $5.3 million.

So for the next quarter, so these -- I didn't calculation how much we write-down, maybe it's around $57 million/$56 million.

So then for the second -- for the next quarter we based on the new purchase, then weighted average, then calculation and inventory, then also compare the market price we [got to] -- do with or without reserve proving or not.

Satya, you understand what I'm talking, explain?

Yes, I think I'm getting a sense of what you're saying, maybe we'll follow-up after the call on the details.

So, just at a high level in terms of what to think of in-house gross margins from Q2 to Q3, if we assume that the volume price has stayed at this $51/$53 level, and your non-silicon costs are maintained at this level, and we take them at point of your ASP guidance, the in-house gross margin should drop to around the 20% level.

Is that roughly what you're thinking?

And are you hoping that the price and costs will trend, so you can maintain that level into Q4?

First of all, I think, Satya, you have seen right now our Q2 accounting -- for accounting purpose, the poly cost is $66 per kilogram.

Even adding some provision -- inventory provision, $5.3 million is adding there.

So it's already reduced the Q3 inventory, for the polysilicon.

Secondly is the new purchase, where we're below $53.

So for the Q3 let's say the purchase is the polysilicon, the average costing, definitely it will be between, I think, $50 to $55 per kilogram.

So consider that the ASP module go down to, let's say, $1.20 to $1.70, we think -- I believe our in-house gross margin still will be around between $0.24 to $0.25.

Okay, that's helpful; thanks a lot.

Aaron Chew, Maxim Group.

Thanks much for the question.

Just looking a little further out, you guys have done a pretty remarkable job at really jumping out the gate and ramping your non-silicon conversion costs down, and looks like your target for $0.67 may be at the maybe -- maybe the lowest in the industry.

Looking a little further beyond, the balance of this year, I'm wondering if you guys can offer a little color on what you think you're capable of -- or where you're thinking you're capable of taking that next year?

Have the low hanging fruit really been plucked?

Is it possible to get another 10% reduction in 2012 to your non-silicon costs?

And maybe if you could just shed a little light on some of the other tools you have at your disposal, now that you're already internally producing junction boxes, frames and etc?

This is a good question.

I think for Q2 right now our non-silicon costs reduced from Q1 $0.73 to $0.70.

The major reduction is the materials, consumable materials, and consumptions.

And as you can see, the Q2 we got [glasses] prices lower, then also junction box we produced by ourselves, single frames, all these help us.

We think we're still on the -- down the road, you know, consider the technology, continue improve and efficiency improve.

Our target on the Q4 the non-silicon cost is $0.67 per watt.

But definitely by ramping up the volume for the next year, we think -- our target for next year, I cannot give projections, but I think we can continue to improve, let's say, around $0.65 per watt.

All this will help us continue, I think if the poly price continues to go down, to increase our competitive, [strengthen].

So if you see the polysilicon continue to go down, let's say to $40, and that's only $0.28, then perhaps our non-silicon costs basically $0.65/$0.67.

I think that's the future; the costs may be around $0.95/$90.

So even the module price continues to go down to reach the great parity, that's the Jinko of the future.

So we will focus continue cutting on the non-silicon costs, continue to enjoy the silicon price go down.

Of course, we're also looking for the opportunities to build up some strategic partnership with a poly producer, or even some merger/acquire some company.

But we will [evaluation] from time to time.

All right, that's appreciated.

But, just to clarify, and I know you're not really offering 2012 guidance at this stage, but just taking poly totally out of the equation for the time being, what's reasonable for us to think about in terms of future progress on the non-silicon side?

Is it going to be 1p or 2p?

Or do you think a $0.04/$0.05 step reduction is really feasible when you're already down to $0.67; again, just speaking about 2012?

Thanks.

Yes, I think the non-silicon cost reduction by two effects; one is the conversion efficiency rate improve, the technology side; second is the materials.

Right now, our materials, you see the $0.70 almost -- I think right now, $0.51 is the materials and the consumables, including EVA, glasses, and silver paste, all those.

You have to see that; a lot of domestic made to replace import.

For example, you see the glasses, back sheets, EVA, right now, almost right now, the [single case], we can import from -- can buy from China.

The China maker right now almost cut 50% to 30% the cost, so we think if on today, based on right now, I think we still can buy them end of next year, cutting to around $0.62/$0.60 it's possible.

Right, that's very helpful.

And then one last one, if I could just fit it in.

If you're forecasting $35 poly by year end, where do you think that goes in 2012?

Do you think it stabilizes around there?

Or do you actually see it further declining to the $30 level, or below?

Okay, first of all, on assumption the [SC] module go down to $1.15 then the poly maybe go to below $35.

That's an assumption.

Okay, so if the module really go to Q4 is [hot] the SC module go up then the poly maybe also go up.

So looks like the price of -- poly price is function of the SC module price, so this all depends on next year.

If China market and the US market really boom then, definitely, I think the poly price will stay stable, maybe between $30 to $40, because you have to see the capacity, like OCI, like Dachang, like GCL, all the capacity right now expansion they will put into production.

So the supply, definitely, will increase a lot.

So we think there's no way for the next year the polysilicon will -- above $50.

Right, excellent.

Thanks so much for telling .

Pranab Sarmah, Daiwa Capital.

Thanks for taking my question.

Could you comment a little bit about inventory status on the channel, what you are seeing now, especially in Italy?

Again, what we are seeing is that an improvement from the last two months right now.

So we ended Q1 with a lot of inventory.

Unfortunately, referring to Italy market, there was a frozen situation of the policy, on the subsidies for solar investment, so there were a lot of customers having inventories in the warehouse.

And also, some of our competitors, they were having a lot of inventories in the ports that they couldn't be able to allocate.

I think, in this regard, Jinko did well to move them to other countries, like Germany or Spain or Belgium.

Then, in Q2 we have seen an improvement, especially for May and June, and the reduction of these inventories.

Right now, when the market has been quite stable after the feed-in tariff was approved, we are seeing much more demand coming from Italy, especially for JinkoSolar modules, where we have a quite nice market share in Italy and a very good -- I think, one of the top three/top four brands in the Italian market.

Got you.

And for your -- this Quantum-1 wafer, could you let us know what is the cost in that process?

Is it in light of the multi-wafer processing cost, or it's higher than that now?

I think let me just give you some information, the Quantum.

The Quantum-1, I think the costs on the non-silicon side, I think on the sales segment, the cost is cheaper; and also, the conversion efficiency is higher.

So basically, right now, I think this will really help us improve -- continue to cutting the non-silicon costs.

Right now, the sale non-silicon costs is around $0.16, so basically Quantum-1 will continue reduce by $0.01, if we use their technology.

Yes, that's it for me today, thank you.

Thank you.

Thank you.

There are no further questions at this time.

I would like to hand the conference back to Yvonne.

Thank you for joining us today.

If you have any further questions, please feel free to contact us.

You can find all the contact details on the Company's IR website at www.jinkosolar.com.

Thank you.

Goodbye.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for participating.

You may all disconnect.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.

The interpreter was provided by the Company sponsoring this Event.