晶科能源 (JKS) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the JinkoSolar Third Quarter 2011 Conference Call.

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

There will be a presentation followed by a question-and-answer session.

(Operator Instructions)

I must advise this conference is being recorded today, Tuesday, the 22nd of November 2011.

I would now like to hand the conference over to your first speaker today, [Rene Van Kosten].

Thank you.

Please go ahead.

Thank you, operator, and hello everyone.

Thank you for joining us today for JinkoSolar's third 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 service.

We have also provided supplemental presentations 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 Company highlights, followed by Mr.

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

Zhang, who will go through the financials.

They will all be available to answer your questions during the q-and-a session that follows.

Please note that today's discussions 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 form on Form 20-F for the fiscal 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 does not assume any obligation to update any forward-looking statements, except as required under the applicable law.

Please also be noted that to supplement its consolidated financial results presented in accordance with United States generally accepted accounting principles, GAAP, JinkoSolar uses certain non-GAAP financial measures including non-GAAP operating profit, non-GAAP net income, non-GAAP earnings per share, non-GAAP earnings per ADS and non-GAAP diluted weighted average of ordinary shares outstanding, which are adjusted from the comparable GAAP results to exclude certain expenses or incremental ordinary shares relating to convertible CNOs and capped call options.

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

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 is now my pleasure to introduce Mr.

Kangping Chen, CEO of JinkoSolar.

Mr.

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

Please go ahead, Mr.

Chen.

(interpreted) Good morning and good evening to everyone and thank you for joining us today.

As many of you know, the third quarter was not an easy one for the entire solar industry.

The economic and financial difficulties in Europe, funding limitations which have caused European banks to cut their lending activities, and the global oversupply situation have added to an already jittery market.

While we have no control over these external forces, we are able to take action internally to enhance our ability to respond with flexibility and forward thinking necessary to navigate these difficult times.

We remain confident that our vertically integrated low cost structure business model is still viable.

Despite the extremely challenging conditions and the rapidly declining selling prices we were still able to keep our in-house gross margins near 20% while our overall gross margins stayed positive.

Maintaining the flexibility, however, to match production and polysilicon purchases with demand will be of the utmost importance as we move forward and push through these tough times.

During the third quarter 2011 we shipped a total of 257.7 megawatts of solar products of which 218.2 megawatts were solar modules.

Solar revenues were $279.2 million.

In light of current market conditions we lowered our guidance last week for the third quarter and the full year.

During these challenging times our brand remained strong even after the unfortunate accident at our Haining facility.

Most of our top customers have stayed with us and we believe that this is because they value our high quality products as well as the corrective measures that we have taken.

Increased shipments to England, Spain and Ukraine embodied strategy we have adopted to not only increase our geographic footprint globally, but to also maintain close relationships and support the customers we have around the world to not only to pursue growth, but to mitigate the impact of an economic slowdown in certain countries.

While the first nine months of the year were difficult for the industry we believe that it in fact represented that unfortunately for us to lead the industry in recovery.

Leveraging our industry-leading cost structure, strong balance sheet and wide reaching global presence we have been able to maintain growth and shipment volumes, however slight, despite the current downtrend.

Quality is what we deem to be important to our customers and the third quarter was no exception.

In the face of challenging market conditions we were able to take advantage of our business model to find new efficiencies in our production process and squeeze out incremental improvement in our cost structure.

We were thus able to achieve an in-house gross margin of 18.4% with our overall gross margin remaining positive at 3.7%.

As I mentioned earlier, our outlook for the coming quarters had to be readjusted given the external forces at play.

Due to instability in the Eurozone we don't expect there to be high global growth.

We are currently anticipating global demand to be around 19 to 20 gigawatts in 2012.

European countries that have subsidized demand so that solar industry can grow have gradually been reducing their subsidies.

At the same time there has been massive capacity buildup which grew alongside the decline in pricing and margin reductions.

With near-term demand so [in elastic] we don't see growth coming from within Europe, but emerging markets such as China, South Africa, India and Australia are expected to contribute increasingly.

Accordingly we have begun to transition from the less attractive and increasingly financial unstable markets to new markets that will drive our future growth to ensure our financial stability.

Our marketing and sales strategy therefore is to maintain market share in Europe given our strong presence and experiences seen there, but in line with global demand we will begin developing a sales force that will target countries we expect to see growth in.

During the fourth quarter branch offices in Canada and Australia will be open.

Alongside our expanding sales force we are trying to participate in more project developments where the Company will take on engineering, procurement and construction roles such as the China Guangdong nuclear agreement we signed in September that calls on us to supply 38 megawatts of solar modules for two PV power plant projects in Western China, of which 18 megawatts has been delivered.

I would now like to take a few minutes to provide an update on the accident that occurred at our facility in Haining, Zhejiang Province in September.

Production resumed in October and our facility has been running smoothly since then.

We continue to hold the view that the riots were orchestrated and that most of the active perpetrators were village outsiders, including some with police records.

A number of the rioters who were arrested remain in jail to this day.

In addition to implementing corrective measures, including a few recommended by one of the top environmental engineering firms that is licensed by the Chinese government, we have been working with two environmental consulting firms.

The first one is [Rena], which was commissioned by a leading European financial institution.

We understand that the conclusions of their review are positive.

The second firm is URS which we hired to conduct an assessment of environmental conditions at our Haining facility.

We are waiting for their conclusions and will act on these diligently.

As I mentioned before customers appreciate our commitment to quality and valued trust and transparency that is associated with our name.

There have been no withdrawals of orders and customers have continued to return since then.

We are confident that we can survive this difficult period despite growth rates that are clearly going to be moderate in the near term.

We are well positioned to leverage our strengths to lead the industry out of its current lows as demand over the long term continues to look promising.

For the fourth quarter of 2011 JinkoSolar expects total solar module shipments to be approximately 180 to 210 megawatts.

Total revenues are expected to be approximately $180 million to $210 million.

The Company expects its in-house annual silicon wafer solar cell and solar module production capacities to remain approximately 1.2 gigawatts each by the end of the year 2011.

For the full year 2011 the Company has readjusted its guidance range to 770 to 800 megawatts in total solar module shipments and $1.1 billion to $1.2 billion in total revenues.

The Company reduced its in-house annual silicon wafer solar cells and solar module production capacity targets from 1.5 gigawatts to approximately 1.2 gigawatts each by the end of 2011.

Arturo will now discuss our major achievements in sales and marketing for the third quarter in further detail, as well as our strategy and market outlook for the fourth quarter of 2011 in key countries and regions.

Arturo?

Thank you, Mr.

Chen.

Good morning and good evening to all of you.

As Mr.

Chen, our CEO, just mentioned there are difficulties in the current macroeconomic situation characterized by [loo keeling] debt crisis, our reduction of project finance, our loans from banks and a deep ratio on pricing due to an oversupply situation has impacted the whole PV industry and JinkoSolar has also during the second quarter.

However, thanks to our good contribution during the first half of 2011 and last year 2010 we have successfully managed to continue growing our shipments, growing our market share, geographically diversifying, entering into new markets and keeping the build of brand recognition.

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 geographical 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 the strong relationships, recognition of our quality and service and also 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 in more than 16 countries and currently we have more than 85 customers in our portfolio.

If in Q2 Germany and Italy represented around 70% of our sales.

In Q3 Germany and Italy together represents only 50% of our shipments.

The other 60% it is spread among 14 countries, showing our good improvement in increasing market share in other markets such as Ukraine, Spain, UK and China.

Europe continued to account for the largest portion of our shipment volumes, while we have successfully executed our market expansion strategy to further penetrate into new geographic locations.

We were expecting further demand coming from Germany and Italy due to the short and midterm deadlines [filling Johnny Scott], but reaction from these markets didn't come until October and still in Italy the current situation of lack of financing is affecting especially these two big solar markets.

This reduction, however, has been compensated.

In UK we were selected as the partner for three important ground system projects invested by AEE and the Germany BC company [lia Solar Technique].

The total power is 14 megawatts, producing 12.5 million kW hours yearly.

In Ukraine we were selected by Activ Solar for a 40 megawatt plant.

It is one of the largest projects in Ukraine and definitely in Eastern Europe.

Despite the difficulties we continue to strengthen our farther and farther expand of our global sales and marketing team.

Especially in the USA and Asia we have reinforced the marketing structure with covering high (inaudible) positions with two world recognized professionals from solar market.

In China we managed to complete the first part of a project well after a bid to power a total of 38 megawatt of the utility China Guangdong Nuclear.

Eighteen megawatts are already shipped.

As announced in Q2 we are seeing good steps in implementation of solar programs subsidized both by state and by provinces in China.

Under Gold Sun program we are continuing seeing government support subsidize large quantity of megawatts of projects.

And according to the PV seating that is in China that was announced in July 24, 2011, currently we are seeing improvements of demand to make possible their official PV target of 10 gigawatts installed by 2015 and 50 gigawatts by 2020.

We expect China market [increasingly started] in 2015 to 10 gigawatts from around 500 to 800 megawatts in 2010.

And we expect one to 1.5 gigawatts in 2011 and 2.5 to four gigawatts by next year.

In JinkoSolar we are opening an office in Beijing to be closer to government and we are putting on place a team to focus on Chinese markets and then identify the good opportunities for next year.

Going to North America we are increasingly focusing our attention on the United States where we are capitalizing on the growing opportunities there.

We are continuing to construct a high caliber sales team in our San Francisco office and from now on in our New Jersey's office.

In Los Angeles we enjoyed the cutting ribbon ceremony of a PV solar project of 1.2 megawatts built by our partner, Premiere Power, for Dependable Companies' world headquarters.

Our on site, our larger business development team, our experienced sales team we work to expand our geographic reach both in California and a number of other of the states.

We have started to develop successfully business in South America where we see good opportunities mainly for next year and 2013.

Markets such as Chile and Argentina are proposing installations of large PV ground systems to have extra power offered in areas with important demand, mainly for [minery], especially for Chile.

In Argentine we are in close conversation with some local authorities and with a governor in one of the regions for a big project that could represent in total 50 megawatts.

In Mexico we established the first partnership for this solution and we expect to sell the first products very soon.

And in Brazil we passed the certification of Inmetro with A grade for most of our module portfolio.

We expect with our partner, [Garviture], and other customers to enter into distribution they are doing next year and continuing in 2013.

Worldwide during the third quarter of 2011 [2,000] approved shipments were almost 215 megawatts, which exceeded Q2 shipments.

This consisted of 24 megawatts in silicon wafers, around 16 megawatts in solar cells and over 218 megawatts in solar modules.

Sequentially we have reduced wafer cells in line with our vertical integration strategy.

We delivered approximately 26% to Germany, 24% to Italy, 12% to France and 12% to Spain, 7% to UK and over 5% to China.

This compares with 36% to Italy and 32% to Germany during the second quarter of 2011.

In terms of partnership we are also very proud of receiving support from existing customers who have seen in JinkoSolar a trustful, long-term partner, flexible to market changes, excellent provider of services and high quality products.

Despite the difficulties in this quarter we continue to build a strong partnership network with distributors, PV developers and [a physical tractors] across the globe, including the same companies as last previous quarters, [Tochi Cochi Volteo Toleo] in Italy, [Tango van IDC], WSV and [Pre ve was u] more power tech in then Germany, [Solar Dilec] in France, [Grand Solar Prosoria] and [Bestilin] in Spain, Premiere Power, [Lumos Maga Solar Center Sorry] USA, [Marka Fer] in Portugal, [San Callecs] in the Netherlands and so on.

We have visited part of the nine systems powered by Photon Power AG, consisting on several projects already installed with JinkoSolar modules, and further programs being planned for the next months after we got the green light after the TED near technical inspection from Photon Power having installations.

One of our primary goals over the past few years has been obviously been to broaden our Jinko brand recognition around the world, particularly in values, important markets, in Europe and USA.

For this full year, 2011, we have been shaping an intensive PR campaign as well as keep attending approximately 16 solar and energy exhibitions and conferences.

We attended during this quarter San Francisco in the solar exhibition, India renewal energy conference and we are also attending the [Hambull] exhibition of 26 European PV [sec] 2011.

We actively participated in regional and international exhibitions to increase exposure of JinkoSolar brand and will be also representing JinkoSolar brand in France for in Solar I exhibition at the end of this month.

Regarding the sponsorships, after analyzing marketing opportunities we decided to sponsor the German national team in order to approach to the still most important PV market in the world and make it residential where B2C marketing has much more sense.

For USA we had initiated a very successful balance sheet with [14 N] as a sponsor.

They are starting in San Francisco.

Focusing on solar we have a sponsor in their solar in San Francisco on PV [sec] in Milan in Italy.

We keep sponsoring also solar PV TV, the first worldwide Internet TV portal completely devoted to solar TV technologies and business, in personnel expenses established new local subsidies is key and we have been successfully in our Switzerland office in order to improve timely after [sten] support in European local markets.

For Q4 we continue to expand our market and even see if customer geography, investing in smart and efficiently our marketing budget, choosing the most key PV markets.

In terms of OEM and all our white label solar modules, during the third quarter of 2011 our OEM business accounted for only 10% of our revenue.

Therefore 90% was still Jinko brand, in line to keep promoting our Company name and indicate only our OEM business to key special partners.

Regarding bankability, thanks to the due diligence from external (inaudible) conducted in our Haining facilities after the incident, we rebuilded a track, a (inaudible) from big important banks such as UniCredit or in business San Paolo in Italy, or important advance in Germany such as [Bit in B], which has financed a big project with Jinko [mondose] in Germany.

Right now more than 25 banks are still financing PV [Cs] simply with JinkoSolar modules.

And we are still in touch in advanced conversations with more than 60 banks in 12 countries.

After receiving environmental report from [Took Centeranelitos] we are convinced every pending doubt will be clarified.

We are definitively on the right direction to do the (inaudible) much of our Company, also from the banking community.

In terms of ASP the price in solar module declined faster than expected so as our close competitors we have seen the variation on prices and margins.

Despite this hard pressure on prices our performance is encouraging as it shows our ability to leverage our advantages across the structure.

During the quarter in addition we could launch new and high efficient products from single mode of technology.

Being competitive and at the same time strong in quality and efficiency gives JinkoSolar a gradeable trade to be expanding and gaining market share as clear cost leader our significant increasing in brand recognition.

Therefore, despite the current market situation of cutting subsidies and lack of financing it has been good to see that demand for our products and our market share continue to grow.

With that now I would like to turn the call over to our CFO, Sam, who will review our financial results for the third quarter.

Thank you, Arturo.

Good morning and good evening to everyone on the call.

First I would like to walk you through our financial results for the third quarter of 2011.

As Mr.

Chen mentioned earlier, total solar product shipments in the third quarter of 2011 were a record 257.7 megawatts, consisting of 23.9 megawatts of silicon wafers, 15.6 megawatts of solar cells and 218.2 megawatts of solar modules, an increase of 1.4% over the previous quarter.

Total revenues in the third quarter of 2011 were a record of $279.2 million, a decrease of 21.4% sequentially and an increase of 23.8% year-over-year.

The sequential decrease in revenues was primarily due to an industry-wide decline in the average selling price of solar products, which was partially offset by an increase in the sales volume of solar modules as a result of the competent increased sales efforts.

Gross margin was 3.7% in the third quarter of 2011, a decrease from 25.4% in the second quarter of 2011 and a decrease from 33.5% in the third quarter of 2010.

Aside from a non-cash inventory provision, the sequential and year-over-year decrease in gross margin was primarily due to a decline in the average selling price of solar modules, which was partially offset by declining polysilicon prices and operating efficiency improvements.

In-house gross margin relating to in-house silicon wafer, solar cell, solar module production was 18.4% in the third quarter of 2011, compared with 30.5% in the second quarter of 2011 and 38.6% in the third quarter of 2010.

The decline was mainly because the average selling price of solar modules fell more rapidly than the price of polysilicon.

Now silicon costs decreased to $0.68 per watt in the third quarter of 2011 from $0.70 per watt in the second quarter of 2011.

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

Loss from operations in the third quarter of 2011 was $30.9 million, compared with income from operations of RMB409.9 million in the second quarter of 2011 and income from operations of RMB379.3 million in the third quarter of 2010.

Total operating expenses in the third quarter of 2011 were $41.3 million, an increase of 58.1% sequentially and an increase of 156.6% year-over-year.

Operating expenses represented 14.8% of total revenues in the third quarter of 2011, an increase from 7.3% in the second quarter of 2011 and an increase from 7.1% in the third quarter of 2010.

The sequential increase was mainly due to a provision, a reserve for bad debt of $18.3 million which was partially offset by a decrease in sales and marketing expenses which traditionally declined in line with the revenue.

Operating margin in the third quarter of 2011 was a net (inaudible) 11.1% compared with a positive 18.1% in the second quarter of 2011 and a positive 26.4% in the third quarter of last year.

Net interest expense in the third quarter of 2011 was $7.8 million, an increase of 8.3% from second quarter of 2011 and 186.1% from third quarter of 2010.

The sequential increase in net interest expense was primarily attributable to the first full quarter of interest expense incurred by the Company on the convertible senior notes which were issued in May 2011 and bear an annual interest rate of 4%.

This resulted in $1.3 million in interest expense in the third quarter of 2011, as compared to RMB4 million in the last quarter.

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

We recorded a foreign currency exchange loss of $1.3 million in the third quarter of 2011, primarily due to the loss of $12.1 million in foreign currency exchange as a result of depreciation of the euro and the US dollar against renminbi.

The foreign currency exchange loss was partly offset by a gain in change in the fair value of the forward contracts as a result of the depreciation of the euro and the US dollar against the renminbi.

We recognized a gain of $48.8 million in change in fair value of capped call options and convertible senior notes resulting from the gain from change in fair value of the convertible senior notes, partially offset by the loss from change in fair value of the capped call options.

Other expense in the third quarter of 2011 was $0.6 million, compared with RMB0.6 million in the second quarter of 2011 and other income of RMB4.7 million in the third quarter of last year.

We recognized a tax expense of $0.2 million in the third quarter of 2011, compared with a tax expense of RMB45 million in the second quarter of 2011 and a tax expense of RMB38.2 million in the third quarter of last year.

We expect to have an effective tax rate of approximately 13.4% for the full year of 2011.

Net income in the third quarter of 2011 was $10.7 million, a decrease of 71.1% from the second quarter of 2011 and a decrease of 73.8% from the third quarter of 2010.

This translates into basic earnings per share per ADS of $0.45 and diluted loss per ADS of $1.86, respectively.

Non-GAAP net loss in the third quarter of 2011 was $38.9 million, compared with non-GAAP net income of RMB286.5 million in the second quarter of 2011 and a non-GAAP net income of RMB259.5 million in the third quarter of last year.

This translates into non-GAAP basic and diluted loss per ADS of $1.63 and $1.62, respectively.

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

As of September 30, 2011, we had $150.8 million in cash, cash equivalents and restricted cash, total ship item banking and borrowing including the current portion of long-term bank borrowings were $320.4 million.

We have total long-term borrowings $47.8 million as of September 30, 2011

Capital expenditures in the third quarter of 2011 were $53.6 million, which was used to -- used for the procurement of silicon wafer, solar cell and solar module manufacturing equipment as we continue to ramp up production capacity.

At this moment we are happy to take your questions.

Operator?

(Operator Instructions).

And your first question comes from the line of Philip Shin of ROTH Capital Partners.

Please ask your questions.

Good morning, everyone.

Thanks for taking my questions.

I'd like to start with non-silicon processing costs.

In the quarter you were improved in your costs from $0.70 down to $0.68.

And we just got the [Traina] call and they talked about an improvement of $0.73 to $0.65, $0.08, which is a pretty dramatic improvement.

And they attributed it to a deflationary supply environment.

Do you think that there could be a dramatic improvement for your costs in Q4?

And what are your expectations for non-silicon processing costs in 2012?

In Q3 our non-silicon cost total is $0.68.

Compared with Q2 I think it is $0.70.

The major I think reduced is the consumable materials.

And as I mentioned that and all the [glasses] EDA and the [back heats] of the price all go down, went down in the Q4.

And we think that in the Q4 we can continually to reduce those materials and to improve efficiency.

So our time for the non-silicon costs in Q4 is around $0.65.

For the 2012 we think our time is on the non-silicon cost is around $0.63 to $0.65.

So throughout 2012 you think you might only get about a $0.02 by the fourth quarter of 2012?

Yes.

Okay.

To what degree are you extending terms to customers?

And we're hearing terms as long as 180 days being discussed.

And what are your standard payment terms today?

And what is the range of payment terms that you have on your books?

Philip, this is Arturo.

So I think your question is so that in the statement terms, right, so for customers?

That's right.

Yes, right.

So mainly what we are trying to balance is to make sure that price and payment terms are offset and also that we are very careful after our due diligence to customers to make sure offer the right payment terms to companies that are successfully returning the money back to the Company.

So right now financially in this industry there are several cases of companies in very financial difficulties.

So we have to be careful in this regard.

So still we are offering long payment terms, but only to real good partners that we are sure that financially are strong.

Great.

And is -- if you were to say what the standard payment terms are today is there a number that you think is representative?

Perhaps it's 120 days or 90 days.

Well it depends on a case by case on the partner, on the customer, but we have extended these payment terms to, yes, over for sure over 45 days, over 90 days in some cases.

And very exceptional we go to 120 days.

Great.

That's helpful.

And my next question here is about the solar world trade complaint in the US.

And I know you're just building your business here.

There's a potential for retroactive tariff that could be placed on the importer of record that we're hearing that Chinese silicon companies are listing themselves more often now as importers of record and potentially charging a premium to customers as a result of taking on that tariff risk.

Then what are your thoughts on this and have you guys engaged in any of this kind of practice?

I think let me answer the question first then, I think also just if any more comments.

I think that after the -- and about the end CDT I think come out I think by the solar world in October 19.

And the Chinese, 14 Chinese companies I think they are grouping together and talking.

I think that under the [foster] under the Chinese I think that the equivalent electronic centers import and export organizations.

Jinko is one of them also in the group together and but I think after that the years I think the commerce department is already sending the investigation team to as we know the one now is full company I think encoding in the [Treena], [Sontac] and GT Solar.

And so far we didn't receive that, but we definitely were working I think along with those mandatory the [plandiv].

And we were far -- and we also hire the chairman, [Baker McAnfree] as our lawyer to file in the questionnaire and those sheets together.

And for us we think is a little ridiculous since in total investing in the United States employed almost a 100,000 employees, of which 80% is not deal with the [river] cell and module.

80% employees is the equipment and like GT Solar first [ED] the FTI, all those basically other high-tech silicon materials manufacturers, so only around 1,000 employees if you are counting those I think Solar One, along with other companies together only 1,000 employees.

And we don't understand why those 1,000 employees want to sacrifice all 10,000 employees, 100,000 employees of the in the United States just the whole industry to not enjoy the cheap, I think lower costs of the module.

And to sacrifice the consumer benefits we don't understand.

So maybe this is typical the situation in US, but definitely we are ready to do the complaints, yes.

Just one comment to add to Zhang is that this is not new for us.

In this last year so we have seen some initiatives from companies in Europe or US.

And this is not the first time for sure [are old] to try to ban imports or to restrict the commercial relationships between China and Europe or China and USA.

I think as you will understand is more a reaction of the difficulty they have to be competitive in the market and a reaction of the difficulties to have to keep growing their business and being profitable.

So they think they have to do their own homework as we are doing ours and this is something that in a common open market where globally we are entering much more into relationships between China and Europe and China and USA there is no sense for these kinds of restrictions.

Thanks.

That's helpful.

Let me transition to gross margins briefly and I'll jump back in queue.

What are your expectations for gross margins in Q4?

Philip, I think if you look at our gross margins in Q3 the in-house gross margin is around 18.4%.

And actually 3.7% the major reason is we write off the inventory almost $28 million.

That accounts for almost 10%.

And then other that we also sell we are going to sell lower gross margin.

I think in Q3 I'm not going to give out the projection of gross margin.

I never do that because our business model is to buy the products from fore market, manufacturing products, then sell the modules also on the market price.

So basically in Q3, Q2 you have to look for long term.

The in-house gross margin is to tell you something.

The actual gross margin will deteriorate by the price of polysilicon and the module price continues to go down.

So in Q4 let's say if our adding inventory is not too much so then the inventory write off is not too much, but you have to still consider the end of Q3 I still have some high inventory costs and are my inventory, so that [in well] would sell in the Q4.

So what I think is in Q1 next year Jinko is in best position.

Why?

Because when the silicon price is stable around 28 and 25 and the module price also is pretty stable between $0.90, $1.00, then we think it's easy to calculation to tell what the gross margin will give to you.

Great.

And that's very helpful.

Thanks very much.

Your next question comes from the line of Satya Kumar of Credit Suisse.

Please ask your question.

Yes.

Hi.

Hi, Satya, yes.

Hi, Longgen.

How are you, Satya (inaudible).

And thanks for taking my question and good response, Longgen, on the whole wrong situation on the China situation.

Obviously the even parties in the US which are (inaudible) they which I hear are objecting to file this whole complaint, so it's good to get the other perspective.

Getting back to business what is the portion of your finished goods versus raw materials inventory at the end of Q3?

Okay.

I think, Satya, the question about our inventory by the end of Q3 was what's the structure of the inventory.

At the end of the Q3 our after write, wrote off the inventory our net balance is around $174 million, as you can see in our news release, of which we have the modules is 109 megawatts and in the inventory it's accountable almost the value is $121 million.

And the silicon total I think it's also including the or in the poly and the materials in the pro-selling add together I think if just accountable the polysilicon is around 225 tonnes of polysilicon.

And what is the average cost of the modules and the average cost of the silicon that's in military right now?

You mean after a write off?

Sorry, after the write off.

Yes.

After write off the -- easy this is -- I think I only have the third quarter write off.

I think I can give you later.

Okay.

What is your average polysilicon purchase cost right now?

If you look at our Q3 the average polysilicon cost the average silicon cost is $53 for Q1.

So silicon cost is $0.29 per watt.

Right now the polysilicon cost is around $25, $26 per kilowatt.

Okay.

And you mentioned that your shipments are going to be lower sequentially from Q3 to Q4, but you mentioned I think that your production has resumed in the plant.

Are you expecting to burn or build inventory in Q4?

And as you look at the first quarter next year what type of visibility do you have in terms of shipments?

Okay.

First of all to answer your questions I think in Q4 in (inaudible) we still have some inventory there.

We did guide it also is I think around 180 to 210 megawatts on the module shipments.

Definitely in Q4, especially in December, our utilization of production capacity will go down.

And we want to keep to the end of year the inventory pretty lean.

And in terms of Q1 the sales of next year I think generally speaking the market maybe also can comment I think compared to Q4 will go down around 30% to 35%.

So basically we think Q4 definitely the capacity you cannot be -- for Jinko especially I think in December it may be around 30% to 50% utilization.

Sorry.

Thank you so much.

Yes.

Your next question comes from the line of Vishal Shah of Deutsche Bank.

Please ask your question.

Hi.

This is Scott Reynolds for Vishal Shah.

Thank you for taking my question.

So with the Company's overall expansion of marketing strategy and also a geographic expansion, can you talk about how you're able to control costs and also expand your geographic footprint, and then how you see operating expenses trending over the next few quarters?

This is Arturo.

I will explain a little bit about the geographical distribution and then strategy from our side, for my side, controlling the budget very carefully and then Sam I will see for will explain a little bit more about the CapEx.

So mainly what we have seen is that European markets have been let's say impacted by the reduction on filling carry core subsidies.

And this is something that we also we were expecting and we consider for Jinko Solar and opportunity in order to get market share thanks to our good cost competitive structure.

But anyhow we need to have the internal implementation of our strategy to develop our business in new markets outside Europe, especially for North America for USA and also outside of US that will be mainly our focus in the countries we just explained during our [evening] scope, so mainly will be our focus in Canada, in Australia, in South America and also in South Africa.

So obviously what we are initiating is more investment in these countries by opening an office, representative office, and a small team that will be the one leading the relationship with our distributors and partners in each of these countries.

So the investment from our side is not so deep.

It's more on our, on the next common future when we see that there are really benefits from these developments of these countries.

Sam, you want to --?

In terms of dollar sign I think of issue if you look our Q2 I think the operation expenses is around 7.3%, 7.5% and also had one-off actually items there because the CB issue costs in the G&A.

And in Q3 our total operation cost is around $41 million, of which you also have one-off I think the onetime items that is AR, accounts receivable, a provision is around $18 million.

If excluding that you see our operating expense is around $23 million.

We think we can keep our operation expenses even though in today's tough market because the [SU] model drops so dramatically.

Even the volume slightly go up also there I see and the total revenues go down.

So the operations strategy in terms of the percentage of the revenue we think that we will keep around in Q4, Q1 will be around 80% and afterwards we continue within 7.5%.

Okay.

And can you talk a little bit about what you expect for capacity utilization in the fourth quarter?

You mean the capacity utilization, right, in Q4, right?

Yes.

I think I just mentioned I think actually the Satya also asking that question, considering the end of the inventory of Q3 and also considering the Q1 shipments, and definitely we want to keep a little lean inventory at the end of this year, then we will take December as most of time to maintenance our equipment.

So we think the Qs in overall the Q4 the utilization may be around 50% to 60%.

And that's helpful.

Oh, thank you.

Thank you.

Your next question comes from the line of Dan Ries of Collins Stewart.

Please ask your question.

Hi.

Thank you guys.

Actually just, Sam, on that last question would you expect the under utilization to impact processing costs in the fourth quarter if you're only running at 50% or 60%?

Yes.

I think if we run the 50%, 60% I think the depreciation maybe will increase I think around $0.01.

But we also on the materials side we will continue to go down.

So basically I think it will not affect too much our the target non-silicon cost.

That's one of I think differentiates from Jinko from other people.

If you look our non-silicon cost, $0.68, of which the depreciation cost only $0.04, actually the whole fixed asset or fixed costs are on our Jinko is either non-silicon cost maybe around $0.08.

So even though our utilization only used like a 50%, 60% it's not added too much our non-silicon costs.

Does that mean you can flex with your workforce and not pay them on an hourly basis when the plants are idle?

They can see see] that we can on the shifts adjust to the shipments and there are some employees that we pay by the piece segments, the hour payments.

We can reduce a little so, yes, we will adjust on that the labor cost side.

Okay, great.

I just earlier in response to a question I think it was indicated that polysilicon maybe you're buying it right now for $25, $26, something like that.

What do you think that the with the higher cost stuff that you have what do you think the average price realized in the fourth quarter would be?

Do you think you could it get it below $40 given this spot price, or would it still be above that?

Consider that I think it tends of the inventory we have by the end of the Q2, as you can see around $174 million.

Even you can see our guidance given out for the revenue is around $200 million around okay just amount, so basically the inventory we are going to buy in Q4 actually is lower, a little lower.

So I think with the average, yes, around $40, $35 or $40, yes it's reasonable.

Okay.

Thank you very much.

Your next question comes from the line of Mark Bachman of Avian Securities.

Please ask your question.

Sure thing.

Thanks for taking my question.

Sam, I just want to make sure that I understand your guidance correctly.

From the guidance it looks like you're guiding Q4 modules to be approximately 180 megawatts at 210 megawatts.

And this guidance excludes wafer and cell.

Is that correct?

Yes.

But if I read the release then correctly you are also guiding the total revenues, which would include wafer and cell, of $180 million to $210 million.

Is that also correct?

Yes.

So is it (inaudible)?

(inaudible) we are also including in.

The total revenue is already including -- the revenue side is already including the more is also including [possible] within cell, but in Q4 we are not going to sell too much I think wafer and cell, so majority is the module.

Right.

But that would imply then that you're going to be selling on average your modules for less than the dollar a watt in Q4.

Is that correct?

It's around $0.95 to $1.05.

Okay.

And then, Sam, I just want to ask about Jinko's ability here to continue to roll over your short-term debt, your short-term revolving debt.

Given the fluoride spill and the fact that you compete with several other solar companies there in China for financing, are you leading with more stringent financial requirements right now?

And have you been denied any financing requests?

Mark, I think this is a good question.

Basically if you look at our Q3 end of the Q2 our short-term banking loans is more than $334 million, of which is $168 million is due in Q3 with all extended.

So basically if you look at our Q3 I am also mentioned that by the end of the Q2 we have total banking facilities of around $1 billion.

We only used $534 million.

Still left is $529 million.

By the Q3, end of Q3 we have more banking facilities available.

We total have $1.56 billion available.

We withdraw around $613 million.

We still have $951 million.

So you can see we can more I think credit facilities available to Jinko.

The reason is because we have two facilities in China.

One is in Jiangxi.

One is in [Xuija].

The local bank is very supportive of Jinko, not only that.

Also you need to have to remember that we also I think issued around RMB1 billion that's I think in the balance sheet around I think $160 million, the local renminbi about it's for one year.

And the government has right now also approved in us to issue another tranche, the medium and long term.

It's three years and five years.

And that we will occurred I think in the first half of next year to retire the bank, the short-term banking loans and also some expired I think at the [box].

So we are really to --

(Technical difficulty)

Ladies and gentlemen, your speaker is currently experiencing technical difficulties with their line.

Please stand by while we address the situation.

Your line will be placed on a muted call.

We are now ready to re-begin.

Hello.

Hey, Mark, are you there?

Mark?

(Operator Instructions)

And your next question comes from the line of Parnab Samah of Daiwa Capital.

Please ask your question.

Yes.

Thank you for taking my questions.

My first question is on this thing on top of your accounts receivable could you give from which country you have the maximum accounts receivable at this point, and the bad debt that you have taken that about $18.3 million from where those bad debts have come, which country?

Okay.

First of all I think for the accounts receivable the reserve for bad debt we basically are on the year staffed in this quarter we are very I think conservative.

Basically we are basing it on the Asian report and based on the time of (inaudible) the accounts receivable, and based on percentage we do have calculations the reserves.

Then we also select in some clients we think is the most scenario maybe have collection problem.

We also reserve them.

So that's why we got total amount in $18 million.

And that is not meaning we cannot collect receipts because this is just the reserve for the bad debt.

And for the detail I think the clients I cannot tell you because this is confidential.

And answer this hoping for like which country and like whether it's more from Germany, Italy or any color on the country if you can give some --

This is Arturo, the CMO.

Mainly we as you know 50% is coming from only two countries, so it's Germany and Italy.

And the situation of lack of financing in these two countries has been especially in Italy has been creating some kind of at the difficulties in order to have the collection on the money on time.

It doesn't mean that these customers they will not finally pay, but we prefer to be conservative and to put them in provisions, but mainly it is coming from Italy and some of the customers that were not our partners that they have not (inaudible) before.

Okay.

And my next question is on you indicated like you expect some good demand coming out from South Africa and South America.

Could you elaborate a bit what is the market situation in South Africa now and what type of demand you are expecting for 2012 as a result on America?

Yes.

This is Arturo again.

Let me start by South America because I'm actually coming from one month trip there, and was quite intensive visiting Mexico, Argentina, Brazil and Chile.

So as I reported in my speech we see a lot of potential in some of these four markets, especially in Chile with a high demand and the need for energy in northern mining industry, especially in the north of Chile in San Pedro [Atacama].

So there are some big projects like still utilities that Jinko is already is active in giving offers and positions for these bids.

So we will expect to have some of the results coming in the next coming months in 2012, the same for Argentina.

We have a good relationship with one of the provinces going up and we were having the opportunity to have a meeting with the governing person for two days, this concerning a project of 50 megawatts.

So we were very happy finally with the concluded construct.

So the marketing agenda is also definitive of energy, especially in the north of the country.

And for Brazil even the half of (inaudible) if energy mainly coming from hydro we have identified some opportunities in terms of these initial due to recalculate quite high expenses electricity, the same for Mexico.

We think that the business will remain in this solution rather than not stability projects.

And then for South Africa we attended the last PV exhibition and there mainly German partners from JinkoSolar they are down developing largely still community projects there with very big mark of megawatts in the pipeline.

So we have foreseen some of these big opportunities, but I think it's too early right now to disclose any of these projects.

And my last question is on what is your CapEx plan for 2012 and what should be the capacity of (inaudible) for next year?

I think basically if you look at our Q3 the CapEx is around $57 million.

And the Q4 definitely and we're I think just maintenance, maybe around $10 million to $15 million.

And for 2011 I think the first half of the year we were not going to do any I think the major CapEx, so it is (inaudible) just the mainland is maybe every quarter is around $10 million to $15 million.

And for the second half of next year we will evaluate the market situation from time to time and from (inaudible) I think from for can really speaking I think for 2012 I think I think our CapEx ratio around $15 million to $16 million.

That's our planning right now.

(inaudible).

Okay.

Thank you very much.

Welcome

Your next question comes from the line of Jessie Pichel of Jefferies.

Please ask your question.

Hi.

Good morning.

We keep hearing that the price of solar modules varies greatly depending on the power output.

Can you give us an average module power output for the quarter for Jinko, and how that's trending and versus your peers?

And I think we would be interested in 240 watt and below and then 250 watt and above.

Hi, Jesse.

This is Arturo.

And I will answer your question.

Mainly what we have been very successful is increasing power efficiency of average in our critical grows in our production.

So we are mainly targeting high efficiency modules when referring to 60 so modules we can reach 240, 245 watts for polycrystalline.

So we are also into this in the (inaudible) technology with reaching 18.5% efficiencies for the cells.

But still these high efficiency modules have not shown demanded, so mainly most of the projects are still at 235 to 240 watts as an average for the polycrystalline, and more monocrystalline mainly in the range of 190 to 195 or 72 cells five inches mono.

Mainly what we are seeing is that the tendencies to large modules in the USA were within reach at 285 to 290 worth modules for 70 per cells six inches.

So the prices for these high modules is slightly higher and the prices for 240 to 245, as a I mentioned before, is slightly higher, but no more than $0.02 to $0.03 per watt.

That's helpful.

And could you help us understand the mono-casting or quasi mono, what the rollout of that technology has been like?

Yes.

We are identifying which customers really are able to pay a higher cents of highest price for this pseudo mono that call quantum technology.

And so far our production is according to the request from customers.

So right now no more than five megawatt has been produced and sold to customers that really require these high efficiency modules.

Great.

Thanks very much.

Probably in the next future in 2012 we will increase the volume of this production according to the demand of customers.

And mainly it will be for [rooms] installations within the higher efficiency per square meter.

Thank you very much.

Thank you, Jessie.

Your next question comes from the line of Amy Song of Goldman Sachs.

Please ask your question.

Hi.

Good morning.

I just have a question your ASP in the third quarter.

Can you break down by different segments?

I think, Amy, I think for our client, one of the clients is not it's not just to keep the SE for confidential, but it's easy for the calculations if our silicon cost for Q3 is around $0.29 and the non-silicon cost is $0.68.

So our total cost per watt is $0.97 and our in-house gross margin is 18.4%.

So it's easy for you to calculation the FT module.

And for weave in sale I can you call later I can tell you individually.

Okay.

Thank you.

Okay, then a follow-up question on the cost structure.

So let's say going forward the for a wafer right now we in spot price at a $0.30 plus or minus, but you reflect a poly cost roughly $25 plus or minus.

So going forward are you going to still produce internally or if you cannot secure poly at below $25 you might rather just buy from external vendor just from pure calculation.

So do you -- so would you consider outsourcing wafer if wafer is cheaper rather than producing internally going forward in 2012?

Yes.

We will evaluation I think of that situation, I think, Amy.

Let's say if the -- that we buy the poly from market is let's say $25, and that is around I think $0.14, $0.15, if our wafer exports for example are inside the cost is around $0.19 and the noncash cost maybe is around $0.16 or $0.17, so $0.17 plus the $0.15 is $0.32.

If the market price is below $0.32 it's no reason for Jinko to manufacturing, right?

So basically if it's dramatically below $0.32, yes, we will buy from market exam.

Essentially you are buying some right now, so we do see a pricing point below $0.33 right now, right?

So are you saying you are buying some already or just --?

No.

We are not buying it right now because basically we first of all we haven't digested our inventory, okay, essentially is yes we still think right now the poly prices continue to go down and sometimes even below $25, the market right now.

Some vendors just rush to sell.

It's even they say $23, $22.

We also can go], so that's I think based on that we still can buy some and the manufacturing.

Okay.

Got it.

All right, thank you.

Yes, last question.

That's all.

Okay.

I would now like to hand the call back to Rene Van Kosten.

Thank you.

Thank you, operator.

Again, thank you all for joining us today.

If you have any further questions, please do not hesitate to contact us.

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

Good morning, good day or good evening depending on where you are and from JinkoSolar's management thank you all.

Goodbye.

Bye.

Bye.

Bye-bye.

That does conclude our conference for today.

Thank you for participating.

You may all now 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.