晶科能源 (JKS) 2013 Q3 法說會逐字稿

Hello, ladies and gentlemen and thank you for standing by for JinkoSolar Holding Company Limited Third Quarter 2013 Earnings Conference Call.

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

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

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

I would now like to turn the meeting over to your host for today's call to Mr. Sebastian Liu, JinkoSolar's Investor Relations Director.

Please proceed, Sebastian.

Thank you, operator.

Thank you all for joining us today for JinkoSolar's third quarter 2013 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 services.

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

On the call today from JinkoSolar are Mr. Chen Kangping, Chief Executive Officer; Mr. Arturo Herrero, Chief Strategy 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 who will go through the financials and guidance.

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

Please be noted that today's discussion will contain forward-looking statements made under 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.

JinkoSolar does not assume any obligation to update any forward-looking statements except as required under applicable laws.

Please be noted that to supplement its consolidated financial results presented in accordance with the United States Generally Accepted Accounting Principles, or GAAP, JinkoSolar use 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 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. Chen Kangping, CEO of 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 to everyone and thank you for participating.

I am extremely proud to report that JinkoSolar's second consecutive quarter of profitability following robust quarter-over-quarter growth in revenue, module shipments, and net profits.

We have picked up considerable momentum from the strategic investments we made during the downturn.

During that time, we have successfully penetrated new markets, broadened our geographic reach and expanded our downstream business, which has already resulted in net profitability for the entire year, a goal we initially set for ourselves to complete by the end of 2013.

We now look forward to closing out the year on an even stronger footing.

JinkoSolar is now solidly among the leading global solar PV companies with gross margins, that have steadily improved to 22.3%, thanks to our leading cost structure, improving global ASPs and growing profits from solar projects.

I believe our strong operational and financial performance demonstrates the management's effectiveness and ability to execute its strategy.

Having regained profitability for the second quarter and having achieved net profitability for the entire year a quarter ahead of the schedule, we are now devoting our substantial resources and attention to expanding our downstream business as we continue our transformation from a traditional manufacturer to a one-stop energy solution provider.

The follow-on public offering of 4,370,000 ADSs we issued during the quarter is another vote of confidence by the market in our future and the direction we are headed.

We raised approximately $67.8 million to further improve our working capital and cash reserves and are eager to put the cash to work.

The capital will be used to supplement our working capital and invested into one of the most exciting business segments, our downstream projects.

Our transformation from a traditional manufacturer to a one-stop energy solution provider is truly an exciting business and I am very optimistic about the opportunities that it will bring.

We have already connected 105 megawatts to the grid so far and focused on connecting another 108 megawatts during the fourth quarter of 2013.

This will be followed by an additional 300 megawatts earmarked to be connected by the end of 2014 with the support of financial partners such as China Development Bank, as we plan to be more focused on distributed PV systems.

The Chinese government recently increased its solar installation target for 2014 by 20% to 12 gigawatts, a clear commitment towards the renewable energy that is expected to result in increased demand for both solar farms and distributed PV systems.

Our pipeline now includes 700 megawatts in utility scale projects and more than 400 megawatts for distributed systems, putting JinkoSolar in a unique position to benefit greatly as this market grows.

While still in its early stage, this growing revenue stream is currently generating revenues from power sales and services related to solar power projects.

This quarter, we recognized approximately RMB40 million in revenue from our downstream business, where gross margins and net profit margins exceed 60% and 30%, respectively.

With the number and scale of our projects growing rapidly, we expect that this revenue stream will contribute meaningfully to our profit in the future.

Our state-of-the-art products continue to lead the global PV industry in terms of technology and efficiency.

During the quarter, we completed preliminary research on an advanced version of our Eagle series of modules which we call Eagle Plus.

These new modules continue the traditional set by earlier Eagle modules by being certified PID free, but with higher power output and lighter in weight, making them ideal for rooftop installations and extreme weather geographies.

JinkoSolar's multi-crystalline cells have now achieved conversion efficiency of 18.5% in lab tests.

With this technology expected to be utilized in mass production next year, these results have been confirmed by third party institutions including TUV NORD and the National PV Product Quality Inspection Center.

Our smart modules are currently in the process of internal reliability tests following the completion of function testing earlier this year.

I am very excited about the potential these smart modules will provide to our customers and I believe they will revolutionize the way in which solar modules are managed and optimized.

With ASPs continuing to stabilize and demand for our solid portfolio of the products growing, we are well situated to take full advantage of our strong relationships across the globe and constant investments into R&D to leverage our technological leadership in solar product development.

Our exposure globally has continued to grow as we leverage our reputation to diversify our geographic presence globally.

As European markets slow, we continue to seek out new opportunities in exciting solar markets such as China, Japan, US, South Africa, and India.

JinkoSolar maintains leading market position in terms of shipments and market share in China with recent data showing China maintaining its position as a global leader in solar product shipments.

We will continue to focus on securing our leading position with our strong brand and global reputation.

China's ASPs have recovered nicely during the quarter and contributed to the overall increase in The Company's ASPs.

While the European market has slowed significantly, we expect a good percentage of the shipment quota assigned by the Chinese Chamber of Commerce machinery and electronic products.

Given our solid reputation and strong track record on the continent, our loyal customer continued to place orders with us, we will move into (inaudible) markets such as the UK, where we recently signed 18.5 megawatts contract with Lightsource, the UK's largest solar energy generator.

Our share of the North American market continued to grow as deeper recognition of our brand.

We consider North America to be a strategically important market and have sought out reputable partners there, and so we expect that it will account for 12% to 15% of our total shipment in 2014.

Shipments to Japan continued to grow steadily, sets for green market and our investment today.

The Japanese market is also expected to account for approximately 12% of our total shipments in 2014.

Our reputation continued to grow in South Africa following the 274 megawatts contract we signed with Acciona.

Meanwhile, we will have to continue our effort to penetrate in new emerging markets in Middle East and Latin America.

In summary, with another quarter of profitability behind us and optimistic about the opportunities ahead of us, as we confidently look towards the future, even during the toughest times we never lost the hope and the courage we needed to push forward as one of the industry leaders.

We continued to manage our business prudently and have thus been able to adjust our vision and hone our ability to strategically execute.

I believe that our industry leading technology, cost structure, steady downstream expansions and brand recognition have yielded the formula for our robust, sustainable future growth.

With that, let me now turn to the guidance.

For the fourth quarter of 2013, we expect total solar module shipments to be in the range of 500 megawatts to 530 megawatts.

Full year 2013 total solar module shipments has been revised upwards and we are now being in the range of 1.7 gigawatts to 1.8 gigawatts compared to the previous guidance of 1.5 gigawatts to 1.7 gigawatts.

By the end of the year, total operational solar PV projects are expected to be in the range of 207 megawatts to 213 megawatts.

Arturo Herrero, our Chief Strategy Officer, 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 in key countries and regions.

Thank you.

Thank you, Mr. Chen.

Thank you to all of you for attending our third quarter earnings call.

As JinkoSolar's Chief Strategic Officer, I am pleased to provide you with an overview of our successful business and highlight some of our achievements in the third quarter 2013.

We are now seeing the success of the strong brand awareness, high-quality modules and excellent service that Jinko name now represents to the customers.

According to our analysis based on several well-recognized sources, we can see a big decrease on the utility market, by largest percentage over the past year felling from 17, 18 gigawatts last year to approximately 10 gigawatts to 11 gigawatts expected in 2013.

Despite challenging electrical markets since 2011, Jinko which has to succeed by adapting our business through market diversification and expansion into both consolidated and emerging PV markets.

Our services now cover residential, commercial and utility segments.

Our strategy has been to take local approach to each of these markets and countries where we identify interesting opportunities.

Following this strategy, we have successfully reduced our exposure to the European markets and we are now focusing for the promising PV markets such as China, USA, South Africa, Japan, India and Latin America.

We successfully anticipated the changes that have taken place in the market and have been investing heavily into new geographies, the proven resources and recruiting professionals in local countries as part of our local efficient strategy.

In the third quarter, we continue diversify our customer base and develop relationships with new customers.

So far, we have established strong commercial relationships with more than 250 customers across more than 30 countries.

During the quarter, we improved our sales and deliveries across a range of markets.

We continued the business in China, a key market for Jinko, where we have a clear leadership position.

We also expect our business into South Africa, Japan, India and Latin America.

We are becoming more and more international as we develop new markets with a clear, long-term strategic approach.

In China, JinkoSolar has become the market leader in terms of shipments and market share and our downstream business has become more promising, following the Chinese government generous and sustainable support of renewable energies.

We have connected 105 megawatts to the grid so far and are focused on connecting another 108 megawatts during the fourth quarter 2013.

This year, we plan to connect an additional 300 megawatt with the support of major financial partners, such as CDB, China Development Bank.

In South Africa, we account with over 30% market share and we already signed contracts for over 300 megawatts, including 94 megawatt in Acciona as part of the large five-year contract signed with them.

In the last quarter, we already shipped 84 megawatts in this country and it became the second position of shipments after China.

Shipments to Japan continue to grow steadily.

Thanks to a booming market and our focus there.

We just became one of the first Chinese solar PV companies to obtain JIS Q 8901 Certification from TUV Rheinland.

The JIS Q 8901 Certification was established in February 2012 to create an assurance system for solar PV modules with the aim to encourage a wider adoption of PV power-generating systems.

We have also made substantial headway in the USA, where we are seeing great future potential.

We have been reinforcing our partnership with sales supplies from outside China in order to continue providing the best support for our partners and growing sales and market share in the US.

The USA, during the third quarter, has been accepting over 40 megawatts of JinkoSolar modules.

We have also done good products in South America, especially important is the rooftop system in Honduras for a Pepsi installation.

We have also sold, for the first time, in African countries, like Namibia.

Total solar product shipments were 519 megawatts, consisting of 19 megawatts in wafers, 11 megawatts in cells and 489 megawatts in modules.

We delivered approximately 45% of total module shipments to China, 17% to South Africa, over 15% to Asian Pacific regions and over 10% to Europe and 10% to North America with our remaining shipments to other regions.

We succeeded in building a strong partnership with distributors, PV developers and PV contractors across the globe and now rapidly emerging markets and are using JinkoSolar modules in tenders for larger scale projects.

In Latin America, we are now progressing in opening offices in Chile, Brazil and Mexico.

In South Africa, besides the 300 megawatt worth of contracts, we expect to sign another 90 megawatts in the near future and while we keep the option open to building local production facilities.

We have increased, in terms of marketing, our global footprint and brand recognition, thanks to our marketing activities, which include attending exhibitions, placing advertisements, direct marketing and extensive market communications.

Our communications have been successful focusing on the quality and competitiveness of our products as well as our reliable customer service.

We remain committed to our extensive marketing efforts during the quarter by attending and participating in conferences and exhibitions.

We have participated in several conferences in the world, including Solar Power International in the USA, Renewable Energy in India and so on.

We have been attending Solarplaza Conferences also in Riyadh in Saudi Arabia, where we have huge target for renewable energy and we are currently in Doha, Qatar for the Solar Summit.

In terms of subsidiaries, we are committed to become localized in those markets, in which we operate so that we provide our customers with better service.

For example, our success in South Africa, but also our US subsidiary that has strengthened our relationship with existing North American customers and succeeded in attracting new business in the regions.

We are now locally established with over 13 offices globally in five continents.

Regarding ASP, we have increased this quarter.

Thanks to our focus on continued higher government support and merchants, such as Japan, South Africa.

And ASP in China have also stabilized and improved.

ASP improving faster JinkoSolar brand recognition, higher quality differentiation, better communication, branding and market demand recovery.

So far we have seen in Q3 an ASP of $0.63 per watt from previous quarter that was $0.60 per watt to continue to trend higher in the next coming future.

We are in a strong position to maintain growth as a result of several important agreements with the strategic partners, not only for existing orders in 2013, but also for the next year, 2014 in residential and commercial and also utility sectors.

During the quarter, our sales teams signed several important contracts, with more than 15 customers, including agreement to supply Lightsource Renewable Energy in the UK with 18.5 megawatts or Swinerton Builders in the USA with 23 megawatts and State Grid Corporation of China with 20 megawatts of solar capacity.

We have built credibility with our customers through our excellent service and reliability as well as high-quality solar products, supported heavily by our vertical integration strategy and bankability has placed an important advantage over our competitors in the ability to supply modules for future projects on large PV systems.

Then moving forward in our transformation, from a module supplier into a producer of electricity and providing also service thanks to our own PV project developments.

Our mission is to be a leader in providing clean energy solutions by not only selling products, but also providing full services.

Now, I would like to turn the call over to Zhang who will introduce our financial results and guidance for the fourth quarter and full year 2013.

Thank you very much.

Zhang?

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 2013 followed by fourth quarter and full year 2013 guidance.

As Mr. Chen mentioned earlier, total solar product shipments in the third quarter of 2013 were 518.9 megawatts.

Total revenues in the third quarter of 2013 were $320.7 million, an increase of 11.2% sequentially and an increase of 47.6% year-over-year.

Gross margin was 22.3% in the third quarter of 2013 compared with 17.7% in the second quarter of 2013 and 5.8% in the third quarter of 2012.

The sequential increase in gross margins was primarily attributable to improving solar module ASPs and high gross margins generated from solar products.

The year-over-year increase in gross margin was due to improvements in operating efficiency and continued cost reductions for the Company's polysilicon and auxiliary materials, and higher gross margin from electricity revenues of solar projects, which were partially offset by declines in solar module ASPs.

In-house gross margin relating to in-house silicon wafer, solar cell and solar module production was 21% in the third quarter of 2013, compared with 18.3% in the second quarter of 2013 and 12.6% in the third quarter of last year.

Income from operations in the third quarter of 2013 was $39.9 million compared with income from operations of $25.4 million in the second quarter of 2013 and a loss from operations of $17.7 million in the third quarter of last year.

Total operating expenses in the quarter of 2013 were $31.6 million, an increase of 24.1% sequentially and an increase of 2.3% year-over-year.

The sequential increase was primarily due to the decrease in reversal of provisions for bad debt by $4.1 million and an increase in shipping and warranty costs resulting from the increase in the solar modular shipments.

The Company's operating expenses, excluding the provision of bad debts, represented 11.1% of its total revenues in the third quarter of 2013 representing a decrease from 11.9% sequentially and a decrease from 13.3% year-over-year.

Operating margin in the third quarter of 2013 was a positive 12.5% compared with a positive 8.8% in the second quarter of this year and a negative 8.4% in the third quarter of last year.

Net interest expenses in the third quarter of 2013 was $9.2 million, a decrease of 3.7% sequentially and an increase of 8.8% year-over-year.

We have recorded an exchange gain of $4.1 million in the third quarter of 2013, primarily due to a foreign currency exchange gain of $3.4 million and a gain in fair value of forward contracts of $0.7 million.

We have recognized a loss of $14.5 million in exchange in fair value of convertible senior notes and capped call options.

The Company recognized income tax expenses in the third quarter of 2013 of approximately $3 million compared with a tax benefit of approximately $35,000 in the second quarter of 2013 and an increased tax expenses of $0.2 million during the quarter of last year.

Net income in the third quarter of 2013 was $16.9 million compared with a net income of $8 million in the third quarter of 2013 and a net loss of $18.2 million in the third quarter of 2012.

This translates into basic and diluted earnings per ADS of $0.76 and $0.72 respectively.

Non-GAAP net income in the third quarter of 2013 was $32.2 million compared with non-GAAP net income of $12.1 million in the second quarter of 2013 and a non-GAAP net loss of $14 million in the third quarter of last year.

This translates into non-GAAP basic and diluted earnings per ADS of $1.44 and $1.36 respectively.

As of September 30, 2013, The Company had $218.7 million in cash and cash equivalents and restricted cash.

Operating cash flow in the third quarter of 2013 was $127.5 million that mainly is coming from accounts receivable reduced.

Capital expenditures during the third quarter was $17.5 million.

As of September 30, 2013, total short-term borrowings including the current portion of long-term banking borrowings was $330.2 million compared with $386.2 million as of June 30, 2013.

Total long-term borrowings were $62.6 million as of September 30, 2013, compared with $62.4 million as of June 30, 2013.

As of September 30, 2013, The Company's working capital balance was negative $288.8 million compared with a negative $337.4 million as of June 30, 2013.

As of September 30, 2013, the Company's in-house annual silicon wafer, ingot and solar cell production capacity was approximately 1.5 gigawatts each.

The Company's solar module production capacity was increased to approximately 1.8 gigawatts.

Now let me turn to our guidance for the fourth quarter of 2013.

We expect total solar module shipments to be approximately 500 megawatts to 530 megawatts.

Full year 2013 total solar module shipments have been revised upwards and will now be in the range of 1.7 gigawatts to 1.8 gigawatts compared to the previous guidance of 1.5 gigawatts to 1.7 gigawatts.

And by the end of this year, total operational solar PV projects, we expect to be in the range of 210 megawatt to 230 megawatt.

At this moment we are happy to take your questions.

Operator?

Thank you.

We will now begin question-and-answer session.

(Operator Instructions).

Your first question comes from the line of Philip Shen from ROTH Partners.

Your line is open.

Please go ahead.

Hi everyone.

Thank you for taking my questions.

Hi, Philip.

So the first question is on projects, with more than 200 megawatts coming online by the end of this year and another 300 megawatts in 2014, can you update us on your plans for these projects, can you talk about when you expect the potential timing of the YieldCo spinoff or other ideas that you may have?

Thanks.

Philip, to answer your question, I think by the end of this year the total 213 megawatts, a total of, I think, 10 projects will be connected with the grid by the end of this year.

So these projects will be fully -- run electricity by whole year 2014.

During 2014, our plan is to add another 300 megawatts to 400 megawatts, it's upon -- you know, our financial situation.

So basically from now on we believe I think we are planning to hold the project rather than to sell the project, because most -- all the projects as we developed, so as we -- and I think on the roadshow, we also say that existing right now, currently 230 megawatts without leverage, our average IRR is about 12%.

So to be -- the future yes, we will consider the window and the capital window and the possible to spin-off either in US market or Hong Kong market it depends on the regulations and also capital market.

But in the worst, to maximize Jinko's shareholders, the value profit I think we will consider the timing and also the valuation to go to the market.

Great, thank you Zhang.

Let's talk about ASPs, can you talk this about what you expect for Q4 ASPs I think you talked about in your prepared remarks potential upside to $0.63 in Q3 and then what do you see for ASPs beyond Q4 given the global supply and demand dynamics?

Basically I think Q4, I think you already know the ASP figure, I think basically compared with the Q2, we increased a lot . The major is the geographical distribution is in the third quarter as also Arturo mentioned that around more than -- around 46%, 45% in China, then Asia-Pacific is around 18%, Europe is 16% and North America is 10% and also other emerging markets.

I think, especially in the US, Japan, the sales percentage continued to increase with the help of the ADS.

And for the fourth quarter, because most of the contract is already signed, the pipeline is already signed actually before its earnings.

So we think the ASP will be stable to slightly increased maybe.

Okay.

Great.

Let me add that we are seeing quite stabilizing on the pricing of the ASP globally, but also globally you have seen that global demands also have increased.

So what we are seeing that the dynamics of the market has been changed for the last few months and there is not anymore, such a big oversupply also because some of our competitors has been also out of the business.

So it's a good point that we probably will see ASPs getting stronger in the global basis and some countries like, for example, Japan and a few of the first tenders in South Africa has been helping in the past quarter.

Arturo, how much longer do you see ASP strength for?

I mean, do you see it going through Q1 and Q2 of next year as well?

Yes, I think so.

The visibility we have today is much better than definitely one year ago.

So we have already contracts signed for 2014 in some markets and we are seeing the demand is still strong, especially China, Japan, markets like South Africa for Jinko, especially USA and it helps also that in Europe there is high price for the agreement between the European Commission and the Chinese government.

So definitely, next year, if we see the growth of emerging markets like South America, Africa and Middle East, definitely we will see much more demand that will increase the ASP at least for the next two quarters.

Great.

And Arturo, what do you see for Q1, you know, historically it's a seasonally soft quarter, but do you expect some potential strength, do you see some channel demand coming through given the strong markets through the end of this year, what are your thoughts in Q1?

Yes, I think there is a continuation.

So there is not a big change as we saw other years before when winter was coming.

Now, it's quite stable, because there is a kind of complementary demand coming from markets when Europe is in cold winter, right or China also is in the winter, but there were countries that still, the weather will be okay and we will still be seeing some demand coming, especially as I was telling you the contracts we have already signed in South Africa will help a lot for the Q1.

Great.

One last question, I will jump back in queue.

Can you talk to us about 2014 shipments, I know you haven't given official guidance, but any kind of color that you can provide would be helpful?

I think to answer your question, 2014 we will give the guidance in Q4 earnings release.

Basically if you look our Q4, I think guidance that you can, because I think the demand just like Arturo said also in 2014 so far, our capacity almost half is already contracted out.

So basically we were very optimistic in 2014.

We will give guidance in the next earnings release.

Okay, thank you, Zhang, Arturo and the rest of management team.

I will turn back in queue.

You are welcome.

Your next question comes from the line of Brandon Heiken from Credit Suisse.

Your line is open.

Please go ahead.

Hi, team.

Congratulations on the quarter.

Hi, Brandon.

Thank you.

Can you help us understand the different milestones and the hurdles for developing the distributed generation projects in your pipeline versus the utility scale projects, it looks like you have 400 megawatts of distributed generation and 700 megawatts of utility projects in the pipeline?

Okay.

Basically I think for the solar farms, the distribution between the solar farm and distributed projects is for distributed projects, we have to find the consumer, for example, to the buyer, the final buyer, user, the utility user.

So basically for the two projects you say you have more extra step of work, you have to find who is the final user to pay the general -- the fee, see then the government, their top feed in give you $0.42, especially, I think distributed right now, the projects, most is running in China in the Eastern Coast area.

For example, the projects we announced in Jiangsu Province, basically the economic zone is 220 megawatts.

That project is strategic right now, the contracts, because to develop that project should be step by step is solid, because you have to sign contract to see who is the final user, the industry that you generated then they pay the regular -- the fee, for example, right now in Jiangsu Province is $0.70 to $0.75, then the governments give you extra feed-in tariff of $0.42.

So if you add together, it's around $1.17 whatever, in that range.

So it should be higher than right now, solar farm divided in the four areas in China.

But solar farm is easier to do -- to install to implement it, because as soon as we got approved, got connected with the grids, you don't worry about the sale, so you now connect with the final consumers.

So basically I think to us, I think we -- in the majority of our future still is solar farm and for distributed projects yes, we also will do that, but we are very cautious and prudent to do that.

Does that answer your question?

Yes, I think so.

It is around 10% to 20% in kind of our total I think -- the downstream projects.

I am sorry, what is 10% to 20%?

I think in the future maybe distributed projects maybe accounted for our downstream, I think around the 10% maybe 20%.

Got it, okay.

And have you heard any updates from the government on when the monthly feed-in tariff payments are expected?

I think so far, we already connect you see as this quarter I am not sure you read the announcement basically, PWC's audit is also starting this quarter to recognize the electricity revenue based on -- you see principals starting this quarter.

Basically, we already collected you see all the fees by the end of December 30 last year.

And this year we will also step -- some projects is already collecting this year fees.

Basically the governments right now is encouraged to pay the fee feed-in tariff on time, but maybe some projects like one month, two months or even three months delayed, but the overall guidance is government is going to pay the feed-in tariff on time -- [but not the people].

Okay.

And do you have any new plans for capacity expansion?

That I think you can see the pipeline is almost right now the solar farm is 700 megawatts, distributed projects is 400 megawatts and it's not only the projects you see we have in the pipeline, but also we have to consider our CapEx, the cash flow consider all the situations, so, so far we think we believe you see our own planning is underway.

Okay, thank you guys.

And by the end of this year, yes, we will connect 230 megawatts then maybe also around 50 to 100 megawatts will be under construction maybe even more.

I guess my question was on the capacity, manufacturing capacity, have you decided on when that if there maybe expansion?

The manufacturing side I think as of September 30, we have the capacity on the ingots, wafer cell is 1.5 gigawatts and on the module is 1.8 gigawatts.

And basically as the last time, we also right now is looking for some distressed assets on the wafer and the cell segments.

If it's appropriate, if it's efficiency we will also increase without too much we will also maybe do expansion slightly.

But on the module side we will continue maybe by the end of this year to continue to increase maybe to 2 gigawatts or even above 2 gigawatts.

Great.

Thank you.

That means we are not evenly to increase our capacity.

Basically we will increase our module capacity faster than our capital intensive investments on the cell and wafer segments

Okay, thank you.

Your next question comes from the line of Colin Rusch from Northland Capital Markets.

Your line is open.

Please go ahead.

Thank you so much.

Thanks for taking the question.

Can you talk a little bit about the development of the African market as well as the Latin American market, it looks like there are some very sizable projects notably one in Uganda that looks like it's started construction or slated for construction here in 2014 through 2016 and the potential for those markets, obviously they are fairly immature markets but if you can talk about how you see those two continents starting to evolve over the next couple of years, it will be appreciated.

Okay, this is Arturo.

Yes, I will answer your question.

Mainly being in charge, I am focusing a lot on the emerging markets right now will give us a lot of visibility in the short, mid and long-term.

So what I can answer to you is that part of my team has been already having very high level meetings with government in Uganda as you mentioned, also in Kenya and in other African countries where we are seeing some huge potential for the next future.

The only thing is that this process definitely will not happen easily and will not happen in the short-term.

And the main reason is because there is a lack of financing and even if the governments are very keen to support the price of electricity in some of these countries is quite low.

And they don't have the financing support unless there are international companies from Europe or international banks supporting these initiatives.

We are seeing also some good development in -- outside Africa in countries like Middle East or like South America where there are still more possibilities in terms of financing, but also there is long way to go in terms of negotiation for PTAs.

So countries like Chile is material we are very active there, we have already installed over 2 megawatts and we are in big vendors where there is PTA possibilities and we will see them coming especially in the second half of next year.

So countries like Mexico, Brazil will take be a little bit longer but definitely the next two years will be very interesting for these emerging markets.

And can you talk a little bit about the potential for micro-grid projects in some of these regions, are these only the large grid connected products or are you starting to see real legitimate micro-grid products trying to move forward?

Well, there are three different segments where we are also identifying opportunities and being very active with our partners.

One is the large scale utility connected grid projects that as I told you they are huge.

There are some projects of 50 megawatts, 80 megawatts like in South Africa the ones we are used to in these markets.

But then there is also opportunities with the industrial companies like mining, they are negotiating right now with our developers with companies that we supply the modules to.

And in this negotiation between the mining companies and developers from Europe, for example, we are reaching agreements of PTAs for 15 or 20 years.

So in these cases, there are medium-sized projects where I think there are much more probabilities to come board and to be connected in next few months.

And finally, the third segment is residential and only we have seen residential demand in countries where there is kind of legislation for self consumption net metering, like for example in Brazil or in Mexico.

Okay, thanks so much.

You're welcome.

Thank you.

Your next question comes from the line of Paul Strigler from Esplanade.

Your line is open.

Please go ahead.

Hello.

Hello, Paul.

Hi, I didn't recognize my name.

Just a couple of questions on your Chinese projects, Zhang, did you say you have spent $70 million in CapEx in the quarter and does that include solar project investments?

No this is, okay.

$70 million is just as the CapEx, okay it's not including the project under construction, is that clear?

Yes.

The projects under construction is the current assets.

So as of September we, in total, invested around $220 million on the project side.

So that $50 million purely is to increase the module capacity and also other maintenance CapEx.

Yes, great.

And then just a couple of modeling questions on the projects, I know it costs you guys about $1.30 to $1.50 or $1.60 per watt just to build the projects, but you are also capitalizing other costs into there, what are you capitalizing on the balance sheet per watt for cost?

Okay first of all I am not sure of the financial figure you are coming from.

For the 230 megawatts, by the end of this year, if we totally completed, it will cost around, per watt, is around like CNY9, it is around $1.50.

As soon as we are finished we generate electricity, so we move the assets from current assets -- projects under construction to fixed assets.

So we recognize the general, recognized -- for example this quarter we recognized I think a total -- it is actually around $6.53 million revenue.

Of course, of which partially is before Q3, so then we also to take the depreciation cost as the cost of revenue.

Is that clear?

Yes, and then one last modeling question when I think about the cost of goods on that electricity sale, what's the useful -- how long are you depreciating that dollars -- CNY9 per watt over, what's the useful life?

It's 20 years.

20 years.

All right, great, thanks guys.

Great quarter.

Thank you.

Thank you.

(Operator Instructions).

No I think is it clear, question basically in Q3 if you look our gross margin, total is around 22.3% excluding that the downstream products, the revenue and the cost because the product side is gross margin and is above 60% and then excluding that, purely the manufacturing side, our gross margin is 21%.

Next question?

(Operator Instructions).

Okay, so on behalf of the entire JinkoSolar's management team I want to thank you for your interest and participation on the call.

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

Have a good day.

Thank you and good luck.

That does conclude our conference for today.

Thank you for participating.

You may all disconnect.

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

The interpreter was provided by the Company sponsoring this Event.