晶科能源 (JKS) 2012 Q2 法說會逐字稿

Good morning.

My name is Felicia, and I will be your -- thank you for standing by, and welcome to the JinkoSolar Second Quarter 2012 Conference Call.

All lines have been placed on listen-only mode.

(Operator Instructions)

Please be advised that this conference is being recorded today, August 23, 2012.

I would now like to hand the conference over to your speaker today, Sebastian Liu, JinkoSolar Investor Relations Director.

Please go ahead.

Thank you, operator.

Thank you, everyone, for joining us today for JinkoSolar's second quarter 2012 earnings conference call.

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

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

On the call today from JinkoSolar are Mr. Chen Kangping, Chief Executive Officer, Mr. Arturo Herrero, Chief Marketing Officer, and Mr. Zhang Longgen, Chief Financial Officer.

Mr. Chen will discuss Jinko's business operations and Company's highlights, followed by Mr. Herrero, who will talk about the Company's business strategies, and Mr. Zhang will go through the financials and the guidance.

Then we 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 Security 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 the form of 20-F for the fiscal year ended December 31, 2011, 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 be noted that no -- to supplement its consolidated financial results presented in accordance with United States generally accepted accounting principles, or GAAP, Jinko uses certain non-GAAP financial measures.

The Company believes that the use of non-GAAP information is useful for analysts and investors to evaluate Jinko's current and future performances based on a more meaningful comparison of the net income and the 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 viewed together with GAAP results.

It is now my pleasure to introduce Chen Kangping, CEO for JinkoSolar.

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

Please go ahead, Mr. Chen.

(interpreted) Thank you, Sebastian.

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

I am pleased with the improvements we have made in our performance in the second quarter, as the market conditions remained increasingly difficult due to continued module oversupply and global economic weakness.

During this difficult time, we remained focused on our core business and have worked to maintain the performance and the reliability that our high quality modules are known for across the globe.

As we compete globally, our results in the second quarter demonstrate the effectiveness of our strategy.

Through this strategy, we shipped total shipments of 302.1 megawatts of solar product during the second quarter of 2012, representing a sequential increase of 21.3% from 249 megawatts in the first quarter, of which 223 megawatts were solar modules.

Total revenue were $194.9 million, or RMB1.2 billion.

We were able to maintain our industry leading position in terms of cost structure through efficiency improvements and our substantially reduced non-silicon costs, which are rapidly approaching our target for the end of the year.

We successfully managed to bring down our blended silicon costs to around US$25 per kilo, or [US$0.14] per watt, and reduced non-silicon cost to US$0.52 per watt in the second quarter of 2012 from $0.58 in the first quarter.

This is primarily due to the decrease of cost of consumable materials and increasing efficiency of our production.

We are very confident that we can achieve our yearend target of less than US$0.50 non-silicon cost per watt and keep improve our gross margin.

This allowed gross margin to improve sequentially, despite falling ASPs.

As we work to further strengthen our company's brand equity and quality of services, we anticipate that, going forward, the falling ASP will slow down and begin to stabilize.

In-house gross margin improved to 11.2% in the second quarter of 2012, compared with 10.8% in the first quarter.

To support the strengthening of our brand equity and quality of services, we launched JinkoSolar Priority Solar Club partner program for our strategic customers in this past month.

With over 140 customers, we are now active in 21 countries, which demonstrates our global reach and appeal of our brand, as well as our reliability as a partner.

We understand that brand image and price are, to a large extent, driven by the quality of our products and services.

The success of our partners is critical to our future growth, while rewarding customer loyalty by providing our partners with strong marketing support, product training, and technical services.

Through this, we hope to create powerful partnerships that will strengthen our brand and help us to expand geographically.

This initiative is aided by the solid technological innovations that are behind our high quality solar products.

I am pleased to announce that the Company's polycrystalline modules passed the potential induced degradation test at 85 degrees centigrade and 85% relative humidity.

This achievement has made JinkoSolar the first Company that has passed both forward and reverse bias voltage tests under [dual] 85 conditions and was awarded with Anti-PID certification by TUV-SUD -- 85 degrees centigrade and 85% relative humidity, the hottest test condition of the PID test.

Anti-PID certification demonstrates the high quality selected materials and (inaudible) we use, as well as our strict quality control during the production process.

Our consistent investment in R&D contributes directly to our success in passing this stringent PID test and ensures the stable output of JinkoSolar's PV systems over a 25-plus year lifetime.

Our global customers are increasingly aware of the importance technology plays in the quality of solar modules, and we are committed to providing them with the world's best.

We are confident that our modules will continue to gain recognition from our customers and significantly boost our module sales.

Our global presence continue to expand as we diversify risk away from Western Europe by seeking out opportunities in new emerging markets.

Shipments to Germany and Italy were particularly strong this past quarter, as customers anticipated the upcoming reduction in the feed-in tariffs.

With the demand from Italy and Germany expected to be reduced as we move into the third and fourth quarters, we continue to push deeper into Eastern Europe, where sales continue to show strength, as they do in Greece, Canada, Australia, Brazil, and Japan.

Our strength allows us adapt to the different environments and conditions of our diversified markets and locations and to nurture long-term relationships.

China remains on track to deliver increasing opportunities as we continue project developments of solar power plants as well as increased module shipments.

We recently signed substantial supply agreements with a number of large state owned utility group in China as we continue to strengthen our relationship with them.

With the existing subsidies and market conditions in China, we also have more than 200 megawatts of government approved project development plans in the pipeline this year alone, which will provide opportunity and the prospect for our downstream project business.

Having worked diligently during the first half of the year, we expect to see benefits from these projects and record revenue in the second half of the year.

Looking forward, I believe that by leveraging our industry leading cost structure, wide reaching brand name, and global presence, strong balance sheet and flexible decision making process, we will be able to take full advantage of our strengths to achieve future sustainable growth.

For the third quarter of 2012, we expect total solar module shipments to be in the range of 250 megawatts to 280 megawatts, as compared to the 223 megawatts of module shipments in the second quarter of 2012.

We reaffirm our full year 2012 guidance where total solar module shipments are expected to be in the range of 800 megawatts to 1,000 megawatts, and total project development scale expected to be in the range 100 megawatts to 150 megawatts.

The Company expects that its in-house annual silicon wafer, solar cell, and solar module production capacities will remain at [approximately] 100 -- 200 -- 1,200 megawatts each by the end of 2012.

Arturo Herrero, our Chief Marketing Officer, will now discuss our major achievements in the sales and marketing for the second quarter in further detail, as well as our strategy and market outlook for the third quarter and second half of 2012 in key countries and regions.

Thank you.

Thank you, Mr. Chen.

Good morning, and good evening to all of you.

I mentioned during our earnings call in Q1 that at that time we were seeing encouraging signs of recovery, compared to the previous quarter.

Our Q2 results have turned out to be much better, and we are confident that the worst is behind us, as we see a good recovery of the demand after such difficult previous two quarters.

In Q2, we managed to deliver more than 300 megawatts, reached almost US$200 million in revenues, and registered a prominent increase in customers and brand recognition.

Despite the challenges in the PV industry and the global financial crisis, we managed to get better results thanks to our consistent strategy to adapt to changes in the PV environment by reinforcing the loyalty of our existing partners to substantially increasing our customer portfolio, entering new emerging markets, and successfully switching from larger scale projects to more residential and commercial rooftop installations.

We are resisting successfully in a very hard period, one of the most challenging for the PV industry.

Due to the impact of very negative market conditions, including the worsening financial crisis in Europe, which has resulted in very hard restrictions in borrowing from banks and even cancellations of loans to investors in several PV projects.

We are also suffering the consequences of further reductions in feed-in tariffs in the most important PV market, and the cancellation of subsidies in markets such as Bulgaria and Belgium.

The current oversupply situation, coupled with aggressive competition, has created a sharp decrease in PV module market prices.

However, we have benefited from some recovery in certain markets during second quarter, mainly in major markets such as Germany and Italy, due to the upcoming feed-in tariff cuts.

We are confident we have already seen the worst in the Eurozone, as not only we are seeing good signs of recovery in the PV market and improving Eurozone stability, but also stronger lending environment for PV projects in Southern Europe and a strengthening of Euro currency.

These developments should help our sales in our major European market.

[We have] maintained an effective and successful communication, PR, and branding effort, reinforcing our message and being consistent with our slogan, building your trust in solar, building this way confidence from customers, investors, and the banking community.

Sales reached a historical high in Germany, exceeding 120 megawatts, while sales in Italy increased strongly, allowing us to maintain our leading position in Italy as a major crystalline PV module supplier.

In Spain, we are seeing good results in terms of brand recognition after renewing our sponsorship of the Valencia football club.

We have continued our sales to Spanish customers who are focused on distribution in the Spanish PV market and also in emerging markets, especially in South American countries, such as Chile, Argentina, Mexico, or Brazil.

We have continued to sell in Bulgaria, Canada, Australia, and Greece and entering into new countries, such as Slovenia, Chile, Japan, and Brazil.

In the USA, we achieved a quarterly record of 16 megawatts that were not subjected to the anti-dumping tax.

Due to our lower shipments to the US, in Q1, we were not much affected by the [unfair] anti-dumping taxation on imported Chinese cells.

We have developed a strategy to overcome such import taxes by producing cells from our own wafers outside China.

In line with our brand and focus expansion and diversification strategy, we continue to strengthen our global sales and marketing teams, while closely controlling our costs.

We are especially reinforcing our presence in Asia-Pacific countries.

In China, in anticipation of the booming demand, we established a Beijing team.

We are now seeing good results for the second half of 2012, with contracts for more than 200 megawatts.

Thanks to both the feed-in tariff for larger scale projects and the Golden Sun program for roofs, we expect the total market to reach around 4 gigawatts in China during this year 2012.

We expect our [forge] in emerging markets to be successful in the coming quarters, especially markets such as India, South Africa, Australia, Canada, and South America.

In South Africa, we have finished the first PV system with JinkoSolar PV modules.

This is just the first step.

We have managed to gain the trust of customers, local authorities, and financing banks to succeed in being selected for several projects in the first and second round of the public tender for PV solar larger scale projects.

These projects in South Africa, in the first tender, will be the largest in South Africa, but also in the African continent, with a size of 81 megawatt nominal and shipments starting at the end of this year.

We are continuously growing our market share, reaching over 3% in the major 15 PV countries, and keeping our position as a top six of the world crystalline module producers, according to the IMS Research Institute.

During Q2 2012, the number of new and existing customers reached a new record, exceeding 140 customers in over 20 different countries.

In line with our strategy in mature PV markets, as we anticipated the new market trend, we have been moving from larger scale projects to many commercial and residential installations.

We have been successfully in switching our focus to wholesalers and EPC contractors dedicated to roof installations.

The second quarter has been much stronger than the first quarter in this market.

With respect to marketing, our primary goal over the last three years has been to broaden the appeal of our brand around the world, particularly in various important markets of Europe, but also in the USA, Asia-Pacific, and African markets.

We have achieved this goal while conserving our budget and spending much less for marketing than our peers.

Valencia football club will be playing the European Champions Cup against all major European football clubs, and they already started the Spanish league with good results against Real Madrid.

During the second quarter, we actively attended SolarExpo in Verona in Italy, Intersolar in Munich in Germany, SNEC in Shanghai, China, and Renewable Energy Asia in Bangkok, Thailand.

For Q3, we'll be also attending major PV exhibitions in Israel, USA, and Australia.

We proudly announced the launch of the Jinko VIP program called Priority Solar Club, focused on strategic partners to increase loyalty from our most important customers.

More than 40 customers have already registered, and we aim to get 100 customers having the benefit of being our VIP partners.

We also promoted during this quarter our new development product [that] called WING series is a second generation solar module.

It represents a great technical achievement, as it is a PV model designed for roof installation -- lighter, thinner, and with higher efficiency, and round corners to reduce handling risks.

We have worked hard to rebuild our company image, and we believe that the progress we have made is responsible for the improvements of ASPs, versus our peers, from Q4 last year to Q2 this year.

As of today, more than 40 banks have been financing PV systems with our modules in 10 different countries, and we are still in discussions with more than 60 banks in 12 countries.

Despite the difficulty environment during the first half of the year, we have established a basis for a good second half and much better 2013.

We are on the list of the [tier] first PV manufacturers, and our modules are being included in most of the big tenders for 2012 and 2013 with important, well-known developers, EPC, and installers.

With that, now I would like to turn the call over to [Sam], our CFO, who will introduce our financial results and guidance for the second quarter.

Thank you.

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 second quarter of 2012, followed by third quarter and full-year 2012 guidance.

As Mr. Chen mentioned earlier, total solar product shipments in the second quarter of 2012 were 302.1 megawatts.

Total revenues in the second quarter of 2012 were US$194.9 million, an increase of 16.8%, sequentially, and a decrease of 45.5%, year over year.

The sequential increase was primarily due to the increase in the sales volume of the Company's solar modules, which was partially offset by the decrease in ASP.

Gross margin was 8.4% in the second quarter of 2012, compared with 0.7% in the first quarter of 2012 and 25.4% in the second quarter of 2011.

In-house gross margin, relating to in-house silicon wafer solar cell and solar module production, was 11.2% in the second quarter of this year, compared with 10.8% in the first quarter of 2012 and 30.5% in the second quarter of 2011.

Gross margin and in-house gross margin improved from the first quarter of 2012, primarily due to the continued reduction in costs for our polysilicon and auxiliary materials and improvements in our operating efficiency, which was partially offset by the declines in the ASPs of the Company's module -- solar modules.

Loss from operations in the second quarter of 2012 was US$13 million, compared with a loss from operations of $48.6 million in the first quarter of 2012 and income from operations of U$63.4 million in the second quarter of 2011.

Total operating expenses in the second quarter of 2012 were $29.3 million, a decrease of [45%] sequentially, and an increase of 11.8%, year over year.

The sequential decrease was primarily due to a provision for the advance to suppliers of $20.6 million in the first quarter of this year.

The Company's operating expenses represented 15% of its total revenues in the second quarter of 2012, representing a decrease from 29.5%, sequentially, and increase from 7.3%, year over year.

Excluding non-cash charge for the provision for the advance to suppliers for the first quarter of 2012, the operating expenses represented 17.3% of total revenues in the first quarter of 2012.

Operating margin in the second quarter of 2012 was a negative 6.7%, compared with a negative 28.9% in the first quarter of 2012 and a positive 18.1% in the second quarter of last year.

Net interest expense in the second quarter of 2012 was $8.6 million, a decrease of 6.8%, sequentially, and an increase of 19.9% year over year.

We recorded a foreign currency exchange loss of $28 million in the second quarter of 2012, primarily due to the exchange loss of $19.7 million and a loss in fair value of forward contracts of $8.3 million.

We recognized a loss of $0.5 million in change in fair value of convertible senior notes and capped call options.

The Company recognized income tax benefit in the second quarter of 2012 of US$1.6 million.

The Company did not recognize any tax benefits in the first quarter of 2012 and an income tax expense of $7 million in the second quarter of 2011.

Net loss in the second quarter of 2012 was $48.9 million, compared with a net loss of $56.6 million in the first quarter of this year and a net income of $36.4 million in the second quarter of last year, which translates into basic and diluted loss per ADS of $2.20.

Non-GAAP net loss in the second quarter of 2012 was $46.8 million, compared with non-GAAP net loss of $52.5 million in the first quarter of 2012 and a non-GAAP net income of $44.3 million in the second quarter of 2011.

This translates into non-GAAP basic and diluted loss per ADS of $2.11.

As of June 30, 2012, the Company had [US$97 million] in cash and cash equivalents and restricted cash.

Operating cash flow in the second quarter of 2012 was $24.6 million.

Capital expenditures during the quarter were $6.9 million.

As of June 30, 2012, total short-term borrowings, including the current portion of long-term banking borrowings, were US$366.5 million, compared with $380.2 million as of March 31, 2012.

Total long-term borrowings were $43.3 million as of June 30, 2012, compared with $27.8 million -- $27.4 million as of March 31, 2012.

As of June 30, 2012, the Company's working capital deficit was US$174.7 million, compared with a deficit of $141.8 million as of March 31, 2012.

Now, let me turn to our guidance.

For the third quarter of 2012, we expect total solar module shipments to be approximately 250 megawatts to 280 megawatts.

We expect the Company's in-house annual silicon ingot wafer, solar cell, and solar module production capacity -- each expected to be approximately 1.2 gigawatts by the end of 2012.

At this moment, we are happy to take your questions.

Operator?

(Operator Instructions)

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

Hi.

This is Brandon Heiken speaking on behalf of Satya Kumar.

Thanks for taking the question.

You guys mentioned that you think that prices may decelerate in their declines and that they may even stabilize.

Do you have a timeline of when you think that will happen?

And what gives you confidence that prices' declines may be decelerating?

Well, we are seeing, obviously, very little room for decrease in prices, due to the situation in this industry that is affecting and impacting strongly most of our peers.

So I don't think this sustainable -- farther decrease in the pricing.

However, still, we are seeing some room for improvements in cost reduction, both in silicon and also in the process.

This is why we think that probably prices in the market will be, especially in the second half of the year, reduced from the first half, but not dramatically.

So it will be a small reduction, until we are seeing less oversupply, and then the prices will be stable during the next year, 2013.

Okay.

And it sounds like the second quarter shipments were pretty strong to Germany and Italy.

You mentioned, I think, 120 megawatts to Germany out of the 300 -- or, excuse me, 233 total.

Is that right?

Yes, that's right.

Yes.

So, 120 has been Germany, including most of our major customers.

Okay.

And so, I assume that mix will shift more toward China in the second half.

How would that affect Jinko's gross margin?

Well, I can tell you -- I will pass to Sam.

Before that, I can tell you that in China, we foresee a big boom on -- as I told in my speech, and also, our CEO was mentioning, we have over 200 megawatts in contracts, but we will not know how many will enter into Q3 or into Q4.

And then, with the gross margin, Sam will respond.

I think, Brandon, as you can see, our second quarter, our comprehensive gross margin -- actual gross margin is 8.4%.

Right?

And our vertically integrated in-house gross margin is 11.2%.

So, as you can see, that our silicon and non-silicon cost together is $0.66.

So it's easy for you to see the ASP -- how much we selling.

Even in the second quarter, you see, we selling in China is almost 11%, and we -- so far, we -- in the second quarter, all our China selling ASP is only maybe around $0.01 to $0.02 below the average ASP.

For the further, you have to consider that.

We also starting down streaming to the projects.

As I mentioned last time, we have a [30] megawatts project is going to finish.

So it's salable in the third quarter -- we maybe sell in third quarter or even fourth quarter.

That also will help us to improve gross margin.

More important, in a (inaudible) Chinese project, we not own the project, but we also participated the EPC project.

So that's also help us.

It not only bring our gross margin from module sales.

We also got the revenue from the EPC construction service.

So we believe the third quarter, the gross margins compare with second quarter, we're going to more improve.

Okay.

And just to clarify again, the 800 megawatts to 1,000 of module shipments for the year, does that include module shipments into the project development that you're doing as well?

Does that -- is that 100 to 150 --

No.

No, no.

That's beside that.

Those are separate.

Okay.

Thank you.

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

Hi, Vishal.

Looks like he's in mute.

Hello?

Vishal?

Vishal, your line is open.

Hi.

Can you hear me?

Yes, Vishal.

Good morning.

Hi.

Yes.

Thanks for taking my questions.

Wanted to understand what you think about the China market this year.

I mean, how big do you think it's going to be?

And you said 200 megawatts for 2012 and -- if that's the case, what was the first half shipments in China?

This is Arturo again.

I will respond for the shipments.

In fact, we have been doing all the work for opening our business here in China with our team in our office in Beijing.

So we're having a lot of preparation, so we have not been selling actively so much in this few quarters -- I mean, during this half.

So, in total, it has not been more than -- yes, around 35 megawatts.

But important thing is that we have to [have] it coming from now to the end of the year, and this is where we foresee quite enthusiastic on the Chinese market.

Yes, Vishal, this is Sebastian.

Okay.

So, total is 235 megawatts totals 200 megawatts in the second half, 35 megawatts in the first half.

How big do you think the market will be this year?

The market will be around 4G is what we predict.

Okay, great.

That's helpful.

You said 120 megawatts in Germany in the second quarter.

How many megawatts do you expect to sell into the Europe and German market in the second half?

How about the second half for Germany and the Europe markets?

Yes.

For European markets, mainly, we will see a decrease in terms of the total percentage of the distribution portfolio in our Company in terms of sales, especially with the reduction on the feed-in tariff in Germany on a monthly basis, and also the reduction on the feed-in tariff in Italy that will be implemented with the new law at -- on the 27 of August.

So we will predict that the market will be lower in these two countries.

However, we are seeing Eastern Europe strongly, starting especially in Romania, where we have quite a lot of developments going on and also in [Ukraine].

So, in Eastern Europe, we will see a rebound.

A part of Greece -- I think is a market we need to focus also.

And then, our major focus will in emerging markets outside Europe, such as India, for example, I think we will be very strong and also some countries in South America, Australia, Canada, and, at the end of the year, South Africa.

That's very helpful.

One of your competitors recently talked about 10% price decline in third quarter.

And historically, you guys have sold at a somewhat of a discount to some of these competitors.

Where do you think prices are going in the third quarter?

Are you talking about low $0.70 per watt in Europe?

Well, let me clarify that we don't have so much discount in ASP versus our competitors.

I think Q1 and [Q4] last year we need to have that mainly because of the impact on the Hanin incident, but not anymore.

In Q2, I think ASP has been quite better -- much better.

And if you see the news from Canadian Solar, the average selling price was at $0.75, if I'm not wrong, and we were at $0.74.

And also, the main reason is because we didn't have so much impact in the US market, where ASPs is higher than Europe.

So our ASP is not discounted versus our peers.

And then, for your second question, yes, probably we will see a reduction in ASPs, around 6% to 10%, I would say, in the second half of the year.

That's very helpful.

Thank you.

Yes.

Your next question comes from the line of Pranab Sarmah with Daiwa Capital.

Thank you for taking my questions.

First of all, could you elaborate at bit like what would be the ASP of your product in China versus you are selling in outside in second half?

Basically, I just mentioned that, in the second quarter, our ASP and selling in China, the purely the module price is around $0.01 to $0.02 below the Europe.

So, for the third quarter, we think the pricing will be more [closely], because the reason -- even $0.01 to $0.02 below, but also, the shipping costs, the transportation, the timing, deliver, it's also help us.

So, basically, but -- selling in China, you have to aware that is not only we're selling module, but we also can generate revenue from the EPC projects that we now own.

Then, also, we were down streaming to our own solar projects.

So this is all help us to increase our revenue and improve the gross margin.

But definitely, we will justify which projects, especially the solar projects when we start.

We have to justify the IRR and the salable possibility and et cetera.

Thank you.

And you have decreased your non-polysilicon production costs quite nicely on second quarter.

How much we can expect by end of the year, by 4Q, will be able to be non-polysilicon production cost, and from which directions you'll be able to bring it, whether it be module materials or some other materials -- you'd like to use some more domestic [conductive] based?

Okay.

First of all, in the second quarter -- and our non-silicon total is $0.52, and our silicon cost is $0.14.

That, together, is total $0.66.

And our target by the end of this year is $0.60.

So, our target is from -- silicon cost we will reduce from, right now, second quarter, $0.14 to around $0.12.

So the non-silicon cost, from right now, second quarter, is $0.52 down to $0.48.

The major -- I think, the cutting on the non-silicon cost side, while the efficiency continues to improve; secondly, it's consumable product in our cost.

So, all these, I think, add together, especially, I think, the consumer products including the (inaudible) and all those stuff.

And then, also, on the wafer (inaudible) segments, we have to continue to reduce our cost on the [profile], packing liquid, also use the diamond saw.

So this is all help us, I think, continue down to $0.48.

So, our target is $0.60 by the end of this year.

Okay.

Then, my last question is on your accounts payable that I have seen -- like the account payable to third party has gone up quite nicely -- three times, roughly.

Could you elaborate like whether you are getting these credits from polysilicon makers, or who is giving those credit?

Okay, basically, right now, if you look at Jinko today, our first quarter and second quarter all is a cash flow positive.

What we are doing is we are managing - it's not only because the market is tough today.

If you look -- the European situation.

On the accounts receivable side, it's very tough right now -- the collection.

Also, the DSO also is going -- Jinko is -- second quarter is still 140 days.

We're still in very consistency with the first quarter.

So we only have to improve cash also to control on accounts payment side.

Yes, most accounts -- the material supplies is come from local, from the Chinese supplier.

So that why we also (inaudible) from another side to save some cash payments, yes -- from accounts payable side that we increased a lot so -- but we still got pretty good, I think, on negotiation on the price side and the payment terms.

Okay.

Thank you very much.

Thank you.

Your next question comes from the line of Rob Stone with Cowen and Company.

Good evening, gentlemen.

Thanks for taking my question.

Wanted to follow up, Sam, on the accounts receivable situation.

This is because customers are having trouble with financing or to what do you attribute that?

And, do you see a risk of charge-offs between now and the end of the year?

Rob, I think -- to answer your question, very luckily, we not allow our compare peers, just aware of the accounts receivable in the second quarter.

We are aware these accounts receivable, actually, in the first quarter.

We already see some clients, especially Italy, I think, the payment slow -- also face a financial situation.

So, if you look our first quarter, we -- I think, on the accounts receivable provision, we raised a lot.

And so, that's why I think we very prudent on the [clients], especially in the Europe, in Italy and Spain and those countries.

So, if you look our accounts receivable this quarter, our (inaudible) is $1.6 million, and it's -- basically, we look all [over] due accounts receivable, and we have the general provision -- then, plus some special clients -- the accounts receivable.

We go ahead also to write off some accounts receivables.

So we very comfortable on today on our accounts receivables -- the quality and the credible.

Right.

This is Sebastian, to follow Sam's comments, I think we are mainly affected by some big Italian clients who have a little bit trouble in financing, and our current and new clients [in the wafer world] are very stable with normal period -- payment periods.

Great.

A question for Arturo with respect to project development opportunities, I think most of what you're doing up to now is in China.

One of your peers was talking about an aspiration to grow downstream business from maybe 10% in the next year or two as much as half of their revenues by 2015.

How do you think about project development opportunities for Jinko?

Thank you.

Well, this is Arturo.

Let me clarify that the project development in China is obviously much easier for us, because we can control much better the market, and we are here in Shanghai.

We have the team with engineers, and we can do the start of understanding how to do the engineering, the planning, and the installation, finally.

So, once we have experienced this good achievements in China, I think we will be starting to develop other markets nearby, like Thailand, like Indonesia, or Asia-Pacific, even India.

And all the emerging markets that we have seen right now will be mainly needed -- they will needed the support from the supplier directly from the manufacturer.

In Europe, however, we don't want to compete, and, in fact, I think was a [bad] strategy for some of our peers that they bought -- acquired some EPC contractors, and then, more of the customers they had before, they had to look for other suppliers, and they come to Jinko.

We're happy for that.

So when we're not doing this to compete and to do our own development in countries like in Europe or in the USA.

We still believe that we have to go together with our close partners.

Rob, also, I just to put some -- add some -- downstream projects -- we are very, I think, cautious and especially overseas.

So far, we still didn't [start] any, I think, our own solar projects.

In China, we're right now (inaudible) 30 megawatts.

We have 80 megawatts -- [four] projects right now all got approved.

Not only is the projects approved, but also feed-in tariff is approved.

So we also -- very [crucial] is the financing and also the location and also, in the future you see who is going to buy.

So we were justifying and -- in a feasible study, all those situations, and we're starting the projects.

The reason because, you see, we have to manage the cash flow, so that's most important.

The cash flow is a key to us.

Great.

Final question, Sam, if I may, how do you think about your FX exposure for Q3?

I guess Q2 was the relatively big change in the value of the euro, so how are you thinking about it for this quarter?

That's a good question.

I think, if you look at our forecast -- the foreign exchange, I think, for the contract, I think (inaudible) the majority still is the euro depreciation against reminbi, and the foreign contract only loss is $80 million.

I think that -- in the future, I think it will be maybe zero, maybe even positive.

So what I think is, for the third quarter, maybe around -- if the euro continue against the reminbi depreciation, I think maybe around $5 million to $10 million -

Great.

Thank you.

-- foreign exchange loss.

Yes.

Your next question comes form the line of Ben Schuman with Pacific Crest Securities.

Hi.

Sam, just to follow up on the payables, do you think that this level is sustainable for the next couple of quarters, or are we going to need to see some kind of reversal, as that was probably the biggest source of cash for you guys in the quarter?

For the accounts payable, I think, in today's scenario, the balance will continue, I think, stick on that.

If our revenue continue to increase, especially the downstream projects continue to going on, I even think the accounts payable will be the [DPR] whatever -- the accounts payable period may be even longer.

So that's the -- we manage it -- I think, also, these are the partnership with our suppliers, and that's -- we have the ability to do that.

Okay, great.

And then, can you comment on, maybe, your outlook for standalone wafer sales over the next couple quarters?

Is the Q2 level a sustainable level?

And then, what are you seeing right now, in terms of wafer pricing and costs?

Okay.

First of all, our major product is module.

For the wafer and the cell, as you understand, because of the US anti-dumping and countervailing taxes, we have to outsourcing our cell to Taiwan.

Then, also, because temporary -- some oversupply on the -- maybe, over -- the capacity, where we try to using, you see.

So that's why we're selling some -- also, you see different -- the converting efficiency, based on market demand.

Sometime, we maybe produce the high efficiency cells more than the demand -- outside demand -- clients is less, so we have to sell some to outside.

All this is unbalanced, yes.

So, we sell some wafer and cell, but that only accounts for revenue is less than 10%.

So our major selling is module.

So, for the wafer, if you want to know the price, I can tell you, you see.

The wafer price in second quarter is ASP is around $0.28.

The cell is $0.42.

Great.

Thanks.

Your next question comes from the line of [Joung Liu, Pacific Epic].

Thank you for taking my question.

Can you give us some color about your ASP for wafer, cells modules for the second quarter and the trend for third quarter?

I think, maybe -- I think, we -- for the module price, I think we already said -- I think our total module cost -- in-house cost is $0.66.

Yes, we can calculate based on the total module cost and gross margins, and how about the cell and the wafer price.

Okay.

The wafer is -- on the second quarter, as based on our ASP, is -- the wafer is $0.28, the cell is $0.42.

Okay.

We think the second quarter, the wafer price will be slight up - wafer and the cell price should be a little slight up.

For the third quarter, right?

Yes.

Okay, thank you.

And a follow-up question -- as you develop the solar projects in China and if you don't sell them, will we record a huge inventory in your balance sheet?

Okay.

First of all, if you look right now, the projects under construction is our projects.

If we not sold, then, if we going to collect the (inaudible) revenue, yes, we will move to the fixed assets.

Yes.

Okay.

Yes.

Thank you.

Thank you.

And there are no further questions at this time.

I would like to hand the call back to management for any closing remarks.

All right.

Again, thank you, everyone, for joining us today.

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

We have all the contact details on our IR website at www.jinkosolar.com.

Thank you, everyone.

Bye-bye.

Thank you.

Thank you.

Thank you for participating in today's call.

You may 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.