晶科能源 (JKS) 2014 Q2 法說會逐字稿

Thank you for standing by and welcome to the JinkoSolar Quarter 2014 Earnings Conference Call.

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

There'll be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you can press star, followed by the number one on your telephone keypad.

I must advise you that this conference is being recorded today, 18th of August, 2014.

I would now like to hand the conference over to your first speaker today, Mr. Sebastian Liu.

Please go ahead, sir.

Thank you, operator.

Thank you, everyone, for joining us today for JinkoSolar's second quarter 2014 earnings conference call.

The Company's results were released earlier today and available on the Company's IR Web site at www.jinkosolar.com, as well as on the news wires services.

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

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 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 and guidance.

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

Please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. 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 these and other risks is included in JinkoSolar's public filings -- Securities and Exchange Commission.

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

Please be noted that to supplement its consolidated financial results presented in accordance with the United States Generally Accepted Accounting Principles or GAAP, JinkoSolar uses certain non-GAAP financial measures.

The Company believes that the use of 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. 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 joining us today.

I'm pleased to our fifth consecutive quarter profitable as we confidently look forward to the second half of they year.

We are gaining considerable momentum during the quarter as we expanded our sales and downstream business, increased our geographic reach, secure financial support from globally respected financial institutions and solidified our position in important emerging markets, where we have made business investments such as South Africa and Latin America.

Total revenues increased 20.8% sequentially and 37.8% year over year with total shipment production increasing 13.5% sequentially and 34.8% year over year to 669.5 megawatts.

We are confident in our ability to continue to deliver solid results for the rest of the year.

Our revenue streams continue to diversify with continuing growth of our downstream business.

Revenue from power generation includes 26.1% sequentially to [61] RMB as we generated 63.48 million kWh during the quarter.

We secured $225 million in private equity financing during the quarter for Jinko Power, our subsidiary that they will (inaudible) operate our solar power project business.

This vote of confidence in our management team and the long-term prospects for our downstream business by China developing (inaudible) international with China and new [horizons] will not only contribute capital to further expand our projected [recommend] comparabilities, but we are also providing a wide range of support to drive [further] growth.

This is in addition to one [billion] RMB strategic financing agreement we signed with China Minsheng Bank, mainly for our distributed -- PV generation systems.

These agreements underscore of a continued success in expanding our market share to also demonstrate the maturity of China's solar powered downtrend framework as the market enters a rapid growth space and it attracts growing interest from domestic Chinese capital.

With the added strength of these new partners, we will watch our four-year -- 2014 projected revenue guidance upwards of 400 megawatts to about 600 megawatts.

The construction and connection schedule is backloaded as of June 30, 2014 we have completed 232 megawatts worth of a solid project and are ready to connect another 100 megawatts during the third quarter.

We believe that Chinese market will remain the largest market this year as we work to maintain our leading position there.

We manage and ship 200 [term egg watts of] China during the quarter and expect to see a strong second half of the year with national energy [administration intuition] of 813 gigawatts [competitive] target, and we're strong support for solar industry, solar power generation, and distributed power generation in [specific].

Our market share [in this risk] grew substantially with shipments increased to 150 [decercern] megawatts are 51% quarter of quarter increase.

While this was partially a result of rush orders, it demonstrate our commitment to the U.S. market and our growing customer base there, regardless of the situation.

We're disappointed to see the U.S. Department's for Commerce preliminary decision on imposing tariffs and believe that it will negatively impact the solar industry by eliminating jobs, increasing the price of energy, and ultimately end up hurting U.S. customers.

Despite this, we will continue to make shipments to the U.S. under the [2012 tariff] which imposed a combined one of 29.18%.

We're [continually reading the markets].

We are growing rapidly and have become the market leader in [manning] new emerging markets.

South Africa and [treaty along who cannot afford] 125 megawatts of our shipment this quarter.

This new emerging markets are increasingly forming a larger and more meaningful portion of our total shipments as part of our geographic diverse [educative] strategy.

We recently established our first oversea production facility in South Africa, which will aid us in [causing] our global production chain, managing risk, and further diversify our customer base [of course in region by luring] local produced products.

With the focus increasingly being directed towards the distributive generation systems, we have increased our mass production of high efficiency PID-free eco [class] modules as -- as smart modules and light-weight modules.

We are in the process of increasing the mass production of our module output to 270 watt.

By continuing to innovate our products, we're not only promoting our reputation as industry technology co-leader by showing potential customers that we're able to rapidly bring products to meet the requirements.

In some way, I'm pleased to what we have accomplished and even more excited about our future.

We will continue to manage our business prudently going forward as JinkoSolar continue its transformation into one-stop energy solution provider.

Our strong financial position, [stately downstream] expansion, industry-leading technology, and diversified geographic presence are all contributing to our [willwatt] sustainable, and long-term gross.

As for the guidance for the third quarter of 2014, the Company has [spent total solar market shipment] (inaudible) 800 megawatts, 850 megawatts, which includes 650 megawatts to 680 megawatts module shipments to third parties and 150 megawatts to 170 megawatts [for its own] downstreams [projects].

For the full year 2014, the [Company] estimates the total module shipments to be in the range of 2.9 gigawatts and 3.2 gigawatts, which include 2.3 gigawatt to 2.5 giga [to-module] shipment to third parties and 600 megawatts to 650 megawatts for its own [industrial projects] total project development scale is expected to be about 600 megawatts.

Arturo Herrero, our Chief Strategy Officer, will now discuss our major achievements (inaudible) for the first quarter (inaudible) strategy and market [are loop] for the second quarter in key countries and regions.

Thank you, Mr. Chen.

Hereto 2014 has been another good quarter for JinkoSolar.

We once again reached our shipment and profitability target for the quarter, helping to once again reinforce our confidence to meet our whole year guidance.

Despite reviews, Chinese PV demand, that amounted to only 3.3 gigawatt in the first half, we manage to sell more than 210 megawatts.

We expect to see strong recovery during the second half in order to meet the [any ace] 13 gigawatt annual target.

JinkoSolar has positioned itself as leader in the Chinese PV market thanks to our strong customer base, big team, and good brand recognition.

We announced [the connection] of two solar PV projects totalling 13 megawatts in [Yansar] Province, [following] our (inaudible) progress China.

JinkoSolar has become also the market leader in this country in terms of shipment and market share.

And our advanced [term] business has become more promising for the second half.

So we can proudly announce our target increase from 400 to 600 megawatts for our own developments from Jinko Power in 2014.

In the USA, we have also been very successful, with another quarter of record of shipments totalling 157 megawatts for Q2 and accounting for 255 megawatts during the first half this year.

We expect to see total installations for this year reaching over six gigawatts in the USA.

[Only the solar exports] were surprised of the high level of [countervailing preliminary] duties that were announced that will affect both Chinese and Taiwanese [products] entering into the U.S. market.

Regarding the decision of the U.S. Department of Commerce, we are disappointed by the announcement, that we consider completely unfair.

We are sure -- I see this also happening in Europe.

This measure will negatively impact the solar industry, job creation, and end up increasing the electricity bill for the end consumer.

Solar prices for China to the USA have increased more than 9% over a short period while export from China to Europe fell over 62% last year.

Despite this, we are able to make shipments to the U.S. under the 2012 tariffs, which impose a combine one of 29.18% tariff, which leaves room for a reasonable profit while we seek out other solutions.

After China and USA, under our well-defined and well-implemented strategy of localization and diversification, our force in new markets has been the most important resource we have seen in JinkoSolar this quarter came from the emerging market, accounting for over 121 megawatts during the quarter and 200 megawatts for the first half of this year.

These markets offer enormous potential despite difficulties in terms of conditions of financing, maturity of the sector, and grave conditions.

In new emerging markets, we have secured big contracts in Chile for utility-scale projects, and also we have continued fulfilling contracts for the South African market.

First to these big deals, JinkoSolar is now the market leader in South Africa and Chile with a market share of over 30% this year in both of these countries.

Being the market leader opens the door to many new and interesting opportunities as we expand our brand recognition.

In the Asia-Pacific region, which includes both Japan and India, we are a little bit slow.

While we expected more from this region, we are confident that sales will increase significantly in the second half of the year.

As the market is booming, I would have been investing a lot in terms of [sales and structure] marketing.

We will see a market which [will probably] 11 gigawatt this year as [only in April the typical installations] were accounted for one gigawatt.

In India, under the new prime minister, Narendra Modi, it has been announced that the [binding process] of up to 1.5 gigawatt [with big] installations accounting for 10 to 15 megawatts will begin in August, so later this month.

We have signed a [strategic dissolution everyone in proinso] I will recommend a [strong distributor] with a strong presence in the Indian market.

Regarding Europe, while we expect over seven gigawatts for the whole year, 2014, we are facing [anti-argo countervailing] diverse challenges.

Additionally, the [south consumption facing prelimented] in Germany, as part of which energy form hasn't been received well by the renewal energy community.

The good news in Switzerland comes as the [interviews of self-consumption study] for the first time ever.

And U.K. so far is the best country in Europe for the PV solar market.

We have seen demand growing rapidly as it approach three gigawatt during the first half of the year.

We expect the U.K. to continue [this strong demanding] the coming quarters at least until the reduction of the subsidies that begin of next year in April.

Challenges in the PV industry remain with a reduction of subsidies for renewal energy and uncertainty, [goldway inter-ramping our protect missions that darmane packing projects] and consequently, the reduction of demand and enter of solar modules.

However, despite all difficulties, and according to [Solarverse] it is expected that PV market could reach 100 gigawatt by 02-2018, generating $50 billion in revenues for PV module producers like JinkoSolar from recurrent number of $30 million in 2014.

We expect to see a five-year period of rapid growth beginning this year, with 91% of PV module demand coming from silicon poly-crystalline modules.

We are increasing production from our previous 30 gigawatt in 2013 to 42 to 45 gigawatt in 2014 for the whole producer in the world.

Reaching 3% of the total grower production by 2018.

Yet, the (inaudible) is rising as cost of electricity generated approaches great parity [ph].

This will trigger demand in new and emerging PV markets such as Chile, Mexico, Brazil and numerous other countries in Africa.

The [vision] JinkoSolar strategy, we have been reacting to anticipated changes in the market, building upon our first [move] advantage, investing resources in growth, PV markets and developing and operating our own PV projects.

We are confident that we are moving in the right direction, as we seek out further growth opportunities and transform into [well-stocked] solution provider.

During Q2, we announced the assignment of big construction Chile totaling 100 megawatts for one the largest utility companies in Europe.

We also signed another [more] construct of 7 megawatts in the same quarter in Chile with our partner [Laxianna].

That represents the first step for another 31 megawatt to be signed with the same [investor] in the coming months.

The improvements in JinkoSolar's brand awareness has now expanded to over 65 banks and over (inaudible) recognized customers.

These demonstrates the quality of (inaudible) and it has supported growth in [ASPs] and market visibility and predictability in the coming quarters.

We are now benefiting from our efforts to build a strong partnership with global and local distributors, PV developers and EPC contractors.

These partners are now active outside Europe and are entering into new emerging markets.

Regarding marketing, we have been attending conferences and exhibitions around the world, including in the USA and Europe, particularly in the UK, Asia Pacific and emerging markets.

While JinkoSolar is not only active as a sponsor, but also invited as a speaker to technical and professional specialized conferences as recognized professionals in the industry.

Recently, we organized a ribbon-cutting event for our new 120 megawatt capacity factory in Cape Town South Africa that attracted the attendance of over 150 people, including local authorities, banks, developers and EPC customers.

We are the only manufacturers so far to establish this size of capacity production locally in South Africa.

So our customers can benefit from local produced products, reaching the levels of local content required by the local authorities.

Our highly professional sales technical professionals -- production employees and logistics teams were pleased to work [with] our customers.

Our cooperation both with solar [PV-TV] and solar [plasma] has been very successful in our communication and strategy.

Also, being part of IPVA Association help us align ourselves with our peers, partners and customers.

Model ASPs in Q2 were $63.

(inaudible) 2014 to remain stable.

Regions such as Europe, USA have highly (inaudible) to the European Commission every month for a minimum selling price from Chinese market producers.

To the USA is due to the Taiwan [in sales].

In emerging markets, we ended with US$0.64 per watt despite the lack of subsidies in most of these markets.

And Chinese and Indian markets are the lowest on that list.

We will continue to implement our strategy to maintain growth going forward in different and more diversified range of countries around the world.

Now I would like to turn the call over to Zhang, our CFO, who will introduce our financial results and guidance for the third quarter 2014 and rest of the year.

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 second quarter of 2014, followed by third quarter and full-year 2014 guidance.

As Mr. Chen mentioned earlier, total solar product shipments in the second quarter of 2014 were 659.5 megawatts.

Total revenues in the second quarter of 2014 were $392.1 million, an increase of 20.8% sequentially and an increase of 37.8% year-over-year.

Gross margin was 22.6% in the second quarter of 2014 compared with 24% in the first quarter of 2014 and 17.7% in the second quarter of last year.

With a slight decrease in our gross margins compared with that in the first quarter of 2014, was due to a slight decline in solar module ASPs.

Year-over-year increase in gross margins was mainly due to improvements in operating efficiency and continued cost reductions for the (inaudible) silicon of poly silicon and auxiliary materials, and improved ASP.

The Company also enjoyed higher gross margins generated by solar project electricity revenues.

In-house gross margins relating to in-house silicon wafer, solar cell and solar module production was 25.4% in the second quarter of 2014, compared with 26.6% in the first quarter of 2014, compared with 18.3% in the second quarter of 2013.

Income from operations in the second quarter was $40.6 million compared with $32.7 million in the first quarter of 2014 and $25.4 million in the second quarter of last year.

Total operating expenses in the second quarter of 2014 were $48.1 million, an increase of 6.8% sequentially and an increase of 91.7% year-over-year.

The year-over-year increase in operating expenses was mainly due to the increase in shipping and warranty costs and research and development expenses.

The Company's operating expenses, excluding non-cash charges, represented 12.1% of its total revenues in the second quarter of 2014, representing a decrease from 13.1% sequentially and an increase from 11.9% year-over-year.

Operating margin in the second quarter of 2014 was a positive 10.3% compared with 10.1% in the first quarter of 2014 and 8.8% in the second quarter of last year.

Net interest expense in the second quarter of 2014 was $11.5 million, an increase of 17.3% sequentially and an increase of 22.3% year-over-year.

We recorded a exchange loss of $0.8 million in the second quarter of 2014 primarily due to foreign currency exchange loss of half million and a loss in fair value of forward contracts of 0.3 million.

We recognize a loss of 4.2 million in charge -- in fair value of convertible CD notes and a gain from change in fair value of [capital] options of 1.3 million.

The Company recognized income tax expense in the second quarter of 2014 of approximately $3.4 million U.S. compared with a tax expense of approximately 1.3 in the first quarter of 2014 and income tax [benefits] of approximately $0.2 million during the second quarter of last.

Net income in the second quarter of 2014 was $22.3 million compared with a net income of $1.5 million in the first quarter of 2014 and a net income of $8 million in the second quarter of last year.

This translate into basic earnings per ADS of 72 and diluted earnings per ADS of $64, respectively.

Non-GAAP net income in the second quarter of 2014 was $27.9 million with a non-GAAP net income of 6 million in the first quarter of 2014 and a non-GAAP net income of 12.1 million in the second quarter of last year.

This translates into non-GAAP basic and diluted earnings per ADS of $0.92 and $0.80, respectively.

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

As of June 30, 2014, the Company had $252.7 million in cash and cash equivalence and [restricted] cash.

As of June 30, 2014, total [shipment] borrowings including the current portion of long-term bank borrowings were $324.7 million compared with $265.9 million as of March 31, 2014.

Total long-term borrowings were $144 million as of June 30, 2014 compared with $56.7 million as of March 31, 2014.

As of June 30, 2014, the Company working capital was positive U.S. $41.5 million compared with a [net of] $63.7 as of March 31, 2014.

As for the guidance for the third quarter of 2014, the Company estimate total solar module shipments to be in the range of 800 megawatts to 850 megawatts, which includes 650 megawatts to 680 megawatts module shipments to third parties and 150 megawatts to 170 megawatts for its own downstream projects.

For the whole year 2014, the Company estimates total solar module shipments to be in the range of 2.9 gigawatts to 2.3 gigawatts, which includes 2.3 gigawatts to 2.5 gigawatts module shipments to third parties and 600 megawatts to 650 megawatts for its own downstream projects.

Total project development scale is expected to be about 600 megawatts.

I would also like to briefly conclude by addressing [top points] manufacturing assets.

We have been using those capacity -- under operation lease agreements from the manufacturing assets of [top points], which is -- I think the capacity is -- is around (inaudible) 270 and extra capacity and the [sale] is 150 megawatts.

And investor (inaudible) outbid JinkoSolar for the acquisition of these assets of [top points] by a substantial amount and (inaudible) is selected to proceed with the, you know, reorganization.

We bid at an amount that we thought was reasonable and we -- and what, you know, make economic sense.

According to the operating lease agreements, we will operator [top points] manufacturing assets until the completion of (inaudible) organization, which is expected to be completed next month.

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

Operator?

Thank you very much, sir.

(Operator Instructions).

Sir, your first question comes from Philip Shen from Roth Capital Partners.

Your line is open.

Please go ahead.

Hi everyone.

Thank you for taking my questions.

I'd like to start off with Zhang.

Zhang, what you mentioned about the top (inaudible) assets, I want to make sure I heard you clearly.

It sounds like you lost out on -- you know, there's somebody who outbidded you.

How do you expect to replace that capacity?

And additionally, in your PowerPoint, I think, you know, between Q2 and year end, you expect to increase your capacity 900 megawatts per module.

You know, with 120 megawatts coming from South Africa, is the remaining 780 megawatts module capacity going to be based domestically in China or do you expect it to be -- you know, to have some capacity internationally as well and if so, which countries?

OK, I think to your question -- because you know, in China, I think for the asset (inaudible), the [chapter] 11 is a little different from, you know, the U.S.

Basically, you know, we are on the, you know -- during the [proceeding], I think we -- you know, the operating lease contracts.

And actually today, the [top points] assets were used -- you know, actually, production capacity is around, you know, (inaudible) 270 and the [sale] is around 150 megawatts.

And we believe, you know, because we lost, you know, the bid, the reason is because, you know, the -- the -- the [sort of] bid actually is also -- come from, you know, the (inaudible) Group.

And they are, you know, I think a bit out of, you know, our -- I think the reasonable price.

So that's why we dropped the bid and we believe, I think, you know -- you know, I think we -- I think we -- by the -- you see, most scenario, I think we -- if no other -- since what happened, I think we -- I think (inaudible) -- you see, the third party got the assets and we are in the second position.

In terms of the capacity, you know, today, without, I think, you know, the [top points], we also can -- we're also starting, actually, to buy some used assets from market, you know.

It's actually on the (inaudible) and the [sale] production line.

So we [already] estimated, I think -- without [top points], you know, by the end of the Q3, our (inaudible) capacity will reach 2.3 gigawatts and the [sale] is around 1.8 gigawatts and the (inaudible) is 2.8 gigawatts.

So we believe, I think, you know, with that capacity -- and we believe we can meet our target, the guidance.

OK, great.

And what is your utilization in Q3?

How has it changed relative to Q2 and -- and how do you expect it to trend throughout Q3?

Basically, right now, the Q2 -- we are also right now (inaudible), I think, utilization, you see.

And, therefore in Q3, given that guidance into the shipment and some orders, you know, used our old downstream portals, we think that we will continue, our signal [foura] capacity will be used, even some -- you know, to some extent exceeding, you know, the theoretical design capacity.

So, that's why I think I've already given that by the end of Q3 our capacity, design capacity, you know, 2.3, 1.8, 2.8 on the [weaver] cell and the module, capacity level.

OK.

Thank you, Zhang.

I'll jump back in queue.

Thank you.

Your next question comes from [Patrick Jobin] from Credit Suisse.

The line is open, please go ahead.

Hi, good morning.

Good evening.

Thanks for taking the question.

First question, just thinking about the mix outlook, [where does it fall in] to the U.S. Q2, just thinking about how the mix will change and how that should impact ASPs and their margins, given the AD now in the U.S,, just some helpful -- any color around mix as to be helpful.

And I have a followup, please.

Do you want to answer question?

I'll (inaudible) answer question.

Well -- this is Arturo, the CSO.

So, mainly ASPs have been quite stable.

As we announced for Q2, we have 63 (inaudible).

As you mentioned, yeah, we are compensating the low ASP prices in China for higher ASP prices in USA and in Europe, mainly Europe.

As you know, it's 53 euro cents per watt, so it's around -- around $72, $73 per watt.

So, going forward, still, our sales in U.K., for example, this is a big market for Jinko, will continue.

So we will -- we will see higher ASPs in -- coming from these regions from Europe.

And also our ASP in the emerging markets is quite stable, at around $62 to $63 per watt.

In the future, probably will be a reduction in these ASPs, by $0.02 or $0.03.

And the sales in North America, USA, it will compensate also with higher rates.

So overall, we expect Q3 to be stable ASPs in the line of Q2.

OK.

And then a follow-up question, just on the balance sheet, looking at the working capital change.

It seems like it was driven really by your receivables line.

Zhang, how much of the receivables are part of the projects and how much of it is for the manufacturing business?

Thank you.

I think that the receivables -- I think (inaudible).

I think a majority I think is the manufacturing.

You know, right now, it totals $438 million.

I think for the -- for the utility I think is -- utility's what?

(inaudible).

Only $24 million.

So the major I think is coming from the manufacturing side.

Are there any specific regions where you're seeing the degradation in payment terms or--

OK.

not, because, OK, the real -- because accounts receivable increase is because, you know, for the second quarter, OK, it is -- most shipments, is, you know, I think they concentrate on the June, the May, you know, the I think end of the second quarter.

Second is, you know, and also I think, you know, shipment to China.

And so that's why I think, you know, the collection -- accounts receivable increase, you know, is just seasonal.

Hey, Patrick, this is [Charlie].

And the increase of accounts receivable is, you know, primarily due to the increase of shipments in the second quarter and the rate of returns of [DSO] at the 90 days, which is the same, probably, as the last quarter.

Thanks, [Charlie].

Your next question comes from Gordon Johnson from Axiom Capital.

Your line is open.

Please go ahead.

Thanks for taking my question.

Just focused on the balance sheet.

I just wanted to maybe make sure I understand something.

It looks like your total debt balance is up roughly $154 million, sequentially.

Last quarter, it was up $60 million.

When I look at the change in your cash balance, last quarter it was up, your cash balance, $8 million, or roughly $9 million.

This quarter it's up roughly $9 million again.

Can you help us understand the puts and takes around where the increase in debt is being primarily focused?

I think -- Gordon, I think, you know, these balance sheets actually we combined, you know, consolidate, I think that with manufacturing, also downstream [products].

So, as for this year, we continue to -- you know, to invest on the downstream [projects].

So that's why you can see that, you know, this year, we already connect with the whole year, I think, you know, and [39].

And then we have also, you know, under construction around more than 200 [megawatts].

All these investments, you see, were, you know, [projects] finished, and [projects about further finished] and the [projects] under construction.

We increase more investments on the current assets (inaudible) and, you know, finished assets.

So, that's why, also we increased the debt, the size.

So, does that answer your question?

Yeah, that's helpful.

And then, I guess, on the electricity revenues generated, I guess this quarter, it was $9.8 million.

You guys have $252 million of total projects installed.

We had heard that there were some issues associated with the recent, I guess, crackdown on fraud, just investigations, in China and the ability to collect cash on actual projects had taken a little longer as the paperwork to get projects approved is taking longer.

Have you guys seen any issues with cash collection on projects you have connected to the grid from the government?

OK, first of all, to answer your question, you know, so far, you know, I think that we have two -- finished -- OK, the 252 megawatts downstream projects, of which 58 megawatts actually is, you know, joint venture with Jinko Group.

We own minority interest.

And most of our (inaudible) projects, I think, you know -- first of all, we'll track all the regular.

I think that (inaudible).

That's main, you know, the regular, the [sacred], repairs.

For the (inaudible), I think, for the first one-third and half, we also collect the (inaudible), you know, the [tariff], the partial for this quarter is more than I think $40 million, that means the [U.S.] and collect until the end of the May 2014.

For the rest of the [projects] and when we're finished connecting the grids, (inaudible) I think it's because they have actually approved, you know, by the [Safe Energy Bureau].

And we believe I think at least approval is in the -- it is in the line.

So in the future, we think that the [collection] is certain, so that's why, you know, we, you know, use accrual method to recognize whatever actually we generate and [collect] with the grid and as revenue and also, you know, accounts receivable and both accounts receivable and cash.

So we're very comfortable.

And as the government, you know, I think get back to the business, understanding, you see, because of, you know, the empty (inaudible) is all of the issue, but I think that the governments right now were, you know, step by step, you know, streamline all the processing.

And I think it's the timing, you know, for the second quarter, and, you know, the collection will become more I think streamlines.

OK.

And then, lastly, if you guys could just give us some insights into, should we expect gross margins to be up sequentially in Q3 or down, given some of the issues?

And then, given your projects appear to have certain payments, do you guys have any updated plans for launching a potential [yield co]?

Thank you.

OK.

To answer the first question, I think, you know -- about, you know, the future, the growth margin.

I think, Arturo, just, you know, mentioned that.

We believe the SP in the third quarter may be, you know slight down.

The reason is because I think China, you know, the SP will go down.

But we also diversify our -- you know, the sales to, you know, other countries like the U.S. and Japan and other countries.

You know, the SP is higher.

So basically, you know, talking about SP, it means nothing, OK.

But we come back -- in terms of gross margin sales, yes, the SP is higher, but (inaudible) are high.

So (inaudible) Jinko -- for Jinko, because we are the cost leader.

We still make efforts, you know, the gross margin, I think, you know, make up to about 20%.

So we give a range either around 19% to 21% on the gross margin.

So on the second question.

What's the second question?

Oh, I'm sorry.

The second question was it seems like you're saying that your project payments from the Chinese Government are much more certain, moving forward.

So do you have any updated plans with respect to launching a potential [yield co] on the projects you have?

OK.

I think, in a way -- you can see that.

We just finished the [equity], you know (inaudible).

And as you can see McCrory and CDB International and also New Horizon, all of those, I think, you know, famous strategic investors, you know, invest total $225 million in downstream.

That means, you know, this is really, I think, the (inaudible) in China is really hot.

And also we see the market, you know, separate market, you know, separate market to see, you know, so you can -- I think the [yield co] is very, I think, you know, (inaudible) see.

So we (inaudible) are right now is focus -- continue to develop, you know, the project, downstream project.

So that's why we increased our target for this year from 400 megawatt to 600 megawatts.

Meantime, we will consider, you know, the market, you know, capital market now -- window is open.

Then also our, you know, the execution.

And yes, we will consider that -- an evaluation to decide when we go to IPO.

Thank you again.

Thank you.

The next -- your next question comes from Colin Rusch from Northland Capital Markets.

Your line is open.

Please go ahead.

Thank you so much.

Can you talk a little bit about the potential for the seizing of imports into China on poly silicon and what your plans are for -- you strategically moving around with those sourcing ply silicon going forward?

So you're talking about, you know, this -- the U.S. (inaudible) CBD, the issue the issue right, then also, what's our --

I'm talking about the potential for China's (inaudible) imports of poly silicon into China.

OK.

I think, you know, that because of (inaudible) you know, the issue, I think, you know, (inaudible) by the U.S. and maybe the other country would follow.

And Chinese government also seem to take action, I think, you know, to stock, you know, a certain, I think, you know, the record for the imported silicon -- poly silicon.

But I -- we do not think, you know, the poly silicon price.

For the second quarter, our average of silicon cost is around $21.5, you know.

And we do not think the market, you know, the price would go up.

The reason is because, you know, we see a lot of Chinese producers, like [Dashrai] is going to increase capacity, for example, in (inaudible).

And also, you see that, you know, when you saw the earnings release, they're also going to starting, you know, full capacity running, then [GCL].

So today as a technology continuing import, especially [using] technology.

And the cost of continued, you know, reduction and you know, then plus some imports from OCI, those you see the skew is there.

We do not think (inaudible), you know, the [poly] silicon price would go.

And we believe or think maybe just, you know, around $20 to $21, even -- I even think and you see this, fourth quarter the silicon price would go down -- slight, go down.

OK.

OK.

And then just thinking about all of your exposure into emerging markets, can you talk a little bit about the project finance market and environment for, you know, these emerging markets in Latin America and Africa.

And the numbers are sources of capital and how much of those capital sources are and what sort of risk that poses to your business in those regions?

Yes.

We would have to distinguish the countries in Africa that has already submitted some tenders, public tenders, like the case of South Africa?

Are they quite as stable and even there has been some delays.

But there is a (inaudible) on the [rise].

So in South Africa, as you probably have following for Jinko, we were selected as the major supplier for the (inaudible) in most of the projects that has been submitted in the round one and round two.

So we gained, thanks to our customers, over 300 megawatts we have already signed.

And we are still negotiating one more that probably will be reaching another 90 megawatts for the round one and round two.

And then, going forward, in fact, today is the deadline for the submission of the round four -- for the South Africa contender.

And even the prize will be lower, but we expect also to be awarded by some of these projects with our partners, with our customers.

And then there are other countries that are not South Africa, that are countries on the north of Africa or Central Africa that they still [voltage] are very small.

We have seen some good deals and we are participating in some developments in Kenya and we expect something to happen also in other countries in Africa in the next coming years.

But mainly our focus has been South Africa, Namibia, Botswana, where there are some public [and] we are participating with our partners.

OK.

So you're -- the utilities in the government are the real source of all [seg] agreements in these countries.

You're not seeing anything independent of the utilities at this point.

Well, there are forums -- they're public forums with [tenders] public [tenders] for IDP companies.

And then there is private initiatives that, as long as they have PPA signed with mining companies, for example, they are quite promising also.

You can understand that in Africa, especially the countries that are developing like South Africa, for example, they got a huge need of energy and it is not so easy to put in place so much production in a short time.

So they are using diesel [ph] generation that represent in some of these countries more than 3 gigawatt annually.

So there is a big potential for substitution with solar solutions.

Perfect.

Thanks a lot, guys.

Thank you.

Your next question comes from Pierre Maccagno from Dougherty.

Your line is open.

Please go ahead.

Congratulations on the quarter.

Thank you.

So I wanted to confirm the gross margins you are saying for the next quarter should be 19 to 20% and that is driven mostly by, would you say, the U.S. or could you give a little bit more color on that?

OK.

I think basically, I'm not giving guidance of the gross margin.

The reason is because it's very, I think, complex, you see, because you're selling the product, you see, [the SP], different country's different.

Then also, you know, I think associated with the cost also different, right?

You understand?

So -- so basically, I give [a sale], you know.

We will make an effort.

I think we believe the gross margins weigh about 20%.

So if you want me to give a range then maybe around, you know, 19% to 22% or whatever.

So did I answer the question?

OK.

Then regarding your electrical production, how much do you expect that to be in kilowatt hour or what was it during the quarter?

You mean the -- the total electricity we're running, right?

Yes.

I don't have the figure, you know, right now with.

But I think basically, you know, based on the revenue, you divide by one, (inaudible) calculation, you know.

How much revenue we have?

The revenue is roughly $9 million so in electricity, we generated -- you know, second quarter is around 6 million kilowatt hours.

I think we discussed this during the [phone] -- this is Sebastian -- we generate 51 million [RB] during the quarter.

Definitely next quarter, we expect there will be increase because we'll have more capacity online.

OK.

And then regarding your 600 megawatt project business, in terms of modeling, shall we say, that 55% belongs to Jinko or when does that take effect, the (inaudible) ownership?

Yes, you are right.

Because if it start in Q3, we can (inaudible) financial statement.

So we have -- we should have the [minor interest there].

So basically, yes, we will take the minority 45%, you know, as the [software] item.

Yeah.

Out of the 600, correct?

It's not 600; it's total, you know, all the product, you know, together.

Whatever -- yeah, actually is not total 600 because also add another 200 beginning, we always finished.

So at the end of this year, we connect with (inaudible), it should be more than 800 megawatts.

OK.

OK.

Thank you very much.

Thank you.

Your next question comes from [Alex Lao] from Goldman Sachs.

Your line is open.

Please go ahead.

Thanks for taking my question.

My first question is for (inaudible) capacity, you already set up the South Africa capacity.

So will you consider build anymore capacity in other regions?

And my second question is for the [buyback] provision in the second quarter.

Is it a recurring issue in following quarters?

Thanks.

OK, the first question, I think, you know -- as you see, (inaudible), you know, the capacity, I think -- at the module capacity, 100 megawatt in South Africa.

We're also, you know, looking for other opportunities, you know, especially, I think, you know, considering the (inaudible) because you know, in the future, you know, we not only [purely just] sell the module but also, you know, possible -- (inaudible) downstream product.

In China, we're also looking for, you know, other opportunities overseas, especially in U.S., other, you know, countries.

It's also possible, you know, to provide, you know, one-step solution on the EPC side.

So therefore, yes, we -- we are looking for opportunities, you know, in a possible two-step plan you know.

I think in U.S., that's possible because of [anti-] (inaudible) issue.

So the best (inaudible) is the sale and the module capacity in U.S. to meet the U.S., you know -- the demand.

So your next question--

OK.

Yeah?

It's for the [buyback] provision.

Is it a recurring item for next quarters?

No, we didn't have any -- you know, the items -- we didn't have any [collection] for the, you know -- the (inaudible).

The -- the -- the -- the -- right now, though, [reserve] is just based on the account receivable, you know, the balance, you know, the provisions.

We -- we -- we -- we put on that.

OK.

I got it.

Thank you.

The balance from the provision -- (inaudible) provision for the accounts receivable in prior years.

So we are taking the efforts to, you know -- to [connect] part of the (inaudible) accounts receivable.

The accounts receivable--

(inaudible)

-- that reserve provision is based on the accounts receivable [agent] -- you know, the agent list and also, you know, based on possible (inaudible) -- we cannot collect, you see?

So that's why it's all provisioned there.

So we're based on the [common] -- the U.S. gap to -- you know, to -- to reserve the (inaudible) -- you see, the (inaudible).

OK.

Thanks.

Thank you.

Your next question comes from Jonathan Fishman from PTT Research.

Your line is open.

Please go ahead.

Hi.

Thanks for taking the question.

(inaudible) Jinko (inaudible) early 2015, maybe [December] 2014?

Thank you.

OK, Jonathan, as I said, you know, because, you know, right now, we -- you see, actually, (inaudible) right now is a joint venture, OK?

We have, you know, three other (inaudible) investors, you see?

We also have to -- we have (inaudible) so we also have to, you know -- I think, you know, to consider evaluating the market, check the market situation.

Also, you know, they're executing our -- the [project's], you know, ability then also the -- you know, the -- the future, I think, of the financial -- the model and the capital needs.

So all these -- we think we were, I think, going to evaluation, you know, there then to [make the scene] with [win], we're going to [appeal].

Of course, from our side, you know, we also want to make efforts, you know, to go into -- I think to maximize the Jinko shareholder's value to, you know -- to listing, you know -- (inaudible) the -- the downstream projects, you know, as high value as possible and as early as possible to meet the capital needs, you know, for the future in our growth.

OK.

Thank you.

And my second question is about the cost target for year end 2014.

What are the potential reductions we can see in the next quarter?

OK, basically, you know, for the Q2, our [silicon] cost is around 10.5 cents and non-[silicon] cost is around, you know, less than $0.37.

Total [steel] is $0.47, compared with the last quarter, Q1, is stable.

And we believe, I think, in Q3, Q4, if, on the non-[silicon] site, we will continue to go down, maybe $0.01 cents, $0.02 cents.

And on the [silicon] side, we just mentioned that maybe, you know, we're -- on the Q3, maybe [steel] is around $0.11 cents and hopefully, Q4, we'll, you know, go down a little because [silicon] price, we -- we expect, you know, to go down.

So basically, I think, by the end of this year, we believe, I think, we can reach the non-[silicon] cost maybe around, you know, $0.44 to $0.46 -- $0.34 to [$0.30, you know, $0.35] and on [silicon] side, maybe around, you know, $0.10, $0.09 to $0.11.

OK.

Thank you very much.

Thank you.

Your next question comes from [Pradab Sama] from AM Capital.

Your line is open.

Please go ahead.

Thank you for taking my question.

I have some questions about -- on your [downstream] projects.

The projects you are taking, what type of I.R. [unlivered] I.R. [are you] expecting and with this all this new quantity have put in, what is your cost of capital of this plan?

Okay, I think that's a good question.

You know, two right now, they -- this thing you see the projects we connect with grids right now so far have 252 megawatts, I think, of the projects.

Without leverage, our I.R. is around 8% to 12%.

And it averages around like 10 -- 10 point whatever, you know, less than 11%.

With the leverage right now, because we -- I think, you know, got the loans from China Development Bank, and we can leverage up to 70%.

But actually leverage should be high than 70%.

The reason is because you see the loan arrangement with the CDB is 15 years long term.

But for first five years, we didn't pay the principle.

Then starting the sixth year, we're going to pay principle equal to the [air loft] you know, in the 15 years.

So the actual leverage is -- is still higher than maybe, you know, 70%.

So with the leverage our I.R. right now is around 18% to 22%.

So, so far, you know, all we're [prosseting] is we're going to developing the projects first.

As soon as we, you know, finish the projects, connect it with the grids, then we apply the loan from the CDB, okay?

So for the capital, we already, you know, I think financed from three [stretching] investments is around 225 [million].

Allow with our, you know, capital, our Jinko-owned capital is [one in 90 million] plus, you know, the return -- earning returns -- return earnings.

We believe if we leverage 70% with the cost right now, the kind of cost I think per watt is around 8.6 whatever -- nine [lemme be] per watt.

We think that we [can bute] theoretically, we [can bute], you know, around 1.1 keywatts.

But I just mentioned that because we need, you know, [budo of] the projects first then, you know, apply the loans.

So we believe the capital is enough to support us in a [list-year guidance] to finish a second -- an additional 600 megawatts to existing right now, I think, beginning of the year 200 megawatts.

That means by the end of this year, we will finish 800 -- more than 800 megawatts connect with the grid.

Then we still have, like, you know, one or two maybe 300 megawatts under construction.

Does that answer your question?

Yeah, that answer my question.

Obviously, [on related dack] there is a prospect acquisition cost as well.

I think build-up cost is below nine -- or [amended].

But project acquisition cost how much you are paying now is it couple of (inaudible) watts or less than that?

You mean the license cost of -- is that mean --

Well, the --

-- you mean the product license cost?

Yeah, project license cost solution from whatever the (inaudible).

(inaudible) leverage of CDB loan cost?

No, not CDB loan cost.

Project license acquiring cost.

Okay, I think I say -- at the beginning I think two years ago those licensing fee, just like we did at the project maybe the cheaper because not too much people you know interesting in that.

But as you can see there, in [shadow right now] the product is -- is -- is very attractive a lot of investors, you know.

Frank speaking right now, I think, you know, per watt even for those license we [run] now, I think if we go to market, you know, to [gut] we maybe need to pay a $0.50 to $0.60 per watt.

You know, (inaudible).

So you can see that.

In the history, maybe, you know, only paid nothing, maybe only $0.10, right?

So right now, (inaudible) you know, the good news is Jinko we have strong, I think, team and also we have the pipeline there.

So most project is we develop our own selves.

Yes, we possible also maybe go to market to [acquire] some product, you know, but that's -- major our projects develop our own self.

[Robbie]?

And my last question is on the [dizzy power side].

I guess China is going to announce some new policies by end of this month.

Do you have any idea like what type of things we might expect on this [dizzy power] promotion [politics] from China (inaudible)?

I think people right now expecting the distributor generation, you know, the new products that come out.

The reason is because the old policy is [now increased], you know, the people to do the PV in the eastern coast area.

The reason is because, you know, related to solar power credit ability, you know, credit risk.

So the governments right now aware of that.

I think right now, the governments, I think, you know, try to change, you know, to the new policy, as you can see that.

It's already people [aware of that].

First of all, it's not [third party to pass].

It always [stay grace to pass] you know than to avoid third party, I think, quite a risk.

Second is, also we can call counter party, third party, you know.

Second is, the governments, in order to -- that encourage people to do the PV in the eastern coast area encourage each, you know, I think government level to give more stimulus, you know, to the DG.

As you can see, a lot of [parties] like [Shanghai, Jonso, and JoJohn] that even local governments also, you know, give more, I think, you know, subsidized to -- to encourage that.

So that's why we see that distribution -- you know, the generation I think a power plant in the eastern coast area also is a one -- one of the very attractive for Jinko.

And as you can see, we already have, you know, several projects right now.

The pipeline's there.

We believe, I think, you know, maybe for the additional 600 megawatts, you know, maybe accounted for around more than 25%, you know, is a DG.

Thank you very much.

Thank you.

Your next question comes from Gordon Johnson from Axiom Capital.

Your line is open.

Please go ahead.

Thanks for the follow-up, guys.

Just one question on your silicon costs.

You said they were roughly $10 this quarter using 5.5 grams of watt.

Does that indicate that you guys are paying roughly $18 for poly-silicon this year?

Is that the right way to think about that?

No, I think that we -- okay, the average cost -- Gordon, I think every cost in this quarter, Q2, is around $21.5 for kilograms.

All consumption average I think [ammono and amodi] is around four point --

Nine.

-- nine, 4.8 grams per watt.

So that's why our silicon cost is 10 point of $0.05 per watt.

Okay, got it.

Thank you.

Thank you.

There are no more further questions.

At this time, I'd like to hand back over to Sebastian Liu for any further remarks.

Well, thank you everyone for joining us today.

And you have -- you have further questions, you can go to our -- our website.

And good night and have a good day.

Bye-bye.

And that does conclude today's conference.

Thank you for your participation.

You may all disconnect.