晶科能源 (JKS) 2014 Q3 法說會逐字稿

Thank you for standing by and welcome to the Q3 2014 JinkoSolar Holdings Co.

Ltd.

Earnings Conference Call.

(Operator Instructions).

I must advise you, that this conference is being recorded today, 20th of November, 2014.

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

Please go ahead, Mr. Liu.

Thank you, operator.

Thank you everyone for joining us today for JinkoSolar's third 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 Newswire 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 this and other risks is included in Jinko'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 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 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 joining us today.

I am pleased to report our sixth consecutive quarter of profitability.

Total revenues increased 13.5% from the same period last year, with module shipments reaching a record high of 758.1 megawatts, including 100 megawatt for our downstream projects.

We remain on track to deliver a highly successful year in terms of top and bottom line growth, and near completion of our targeted solar power project expansion.

With strong backing from financial institutions, a constantly expanding geographic presence and a host of new products coming online in the near future, we are confident to finish the year on a strong note, and look forward to a successful 2015.

Our downstream business continues to pick up pace, as we further diversified our revenue streams and reinforce our leadership position in this promising industry.

Electricity revenue excluding reversed VAT payments from the solar project of RMB67.3 million representing an increase of 10.4% sequentially.

We currently have 15 projects for a total of 488.5 megawatts under construction, which are expected to be connected to the grid at the end of 2014 and early Q1 2015.

Looking forward to 2015, we plan to gradually increase the percentage of our DG project construction, in order to create a more balanced project portfolio.

Management continues to evaluate the spinning-off and listing our downstream business, given the increased interest we have seen from investors and our project in the pipeline over the past few months.

Our goal remains the same however, to support the sustainable growth of our downstream segments, and to maximize shareholder's value.

By efficiently allocating our resources, we are able to maintain our market leading position in China and new emerging markets, such as South Africa and Chile.

We are increasing our share in the U.S. and Japan.

This new and emerging markets are increasingly forming a larger and more meaningful portion of our total shipment, as we continue to execute our geographic diversification strategy.

Shipments to China, which will remain the largest solar market for the rest of the year, increased 81.4% sequentially, as China market continues to recover.

We also continue to build our position in the U.S. to serve our growing customer base, despite tariff uncertainties.

The European market remains stable, with demand from the U.K. in particular increasing significantly.

With landmark agreements between the U.S. and China to cap carbon emissions (inaudible), where we are optimistic about growth in both countries and globally, where the market has seen some turbulence caused by the sharp decline in oil prices, we are confident about the solar power's potential in the future.

With global ASP stabilizing, we plan to further increase our module capacity, including expanding overseas facilities.

The added capacity will enable us to meet growing demand from our clients, as well as our own projects, overseas production facilities.

We will also in-house our ability to localize products and diversify our production capacity.

We will update on this trend next quarter, as details have not yet been finalized.

With our focus increasingly shifting towards DG systems, we increased capacity to produce our high efficiency PID-free Eagle + modules.

We are attracting to increase the power output in mass production to 270 watts by the end of the year from the current of 265.

By constantly working to improve our products, we are not only promoting our reputation as industry's technological leader, by showing potential customer that we are able to rapidly bring modules to the market, with other specific needs.

But devoting resources towards technological innovation would also increase yield and stability of our smart modules, light weight modules, and double glass modules.

In summary, I am pleased to have closed our sixth consecutive quarter on a strong note.

We eagerly look forward to seeing the investments that we have made in building our downstream project portfolio, diversifying our geographic presence, developing industry leading technology, and building long term relationship with financial institutions; create a strong foundation for our future growth.

As for the guidance for the fourth quarter of 2014, the company estimates total solar module shipment to be in the range of 1,030 megawatts to 1,120 megawatts, which include 730 megawatts to 770 megawatts module shipments to third parties and 300 megawatts to 350 megawatts for its own downstream projects.

For the full year 2014, the company estimates total solar module shipments in the range of 2.9 gigawatts and 3.2 gigawatts, which includes 3.3 gigawatts to 2.5 gigawatts module shipment to third parties.

Total project development scale is expected to be above 600 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 marketing outlook for the fourth quarter and regions.

Thank you.

Thank you, Mr. Chen.

Q3 2014 has been a good quarter for JinkoSolar.

As a result of the recovery of the Chinese markets and solid growth in Japan and in emerging markets, where JinkoSolar has positioned itself as the top module supplier.

We sold more than 380 megawatts to the Chinese market, and expect to see a strong fourth quarter also.

JinkoSolar has positioned itself in several key markets as a leader, thanks to its strong customer base, professional teams and good brand recognition.

Thanks to our well defined and well implemented strategy of localization and our success in diversifying and positioning in new markets, we have also seen good results in markets outside China.

Shipments to the U.S. declined compared with Q2, because of the rush orders placed during that quarter, before the implementation of anti-dumping measures on Taiwanese cells.

We do however expect to see a recovery in Q4.

Europe improved significantly from Q2, reaching over 90 megawatts, compared to previous 30 megawatts in the second quarter, despite the challenges of anti-dumping and countervailing measures.

We sold over 73 megawatts in the U.K., the best market in Europe this year, where demand continues to increase.

We expect a strong demand from U.K. also in Q4.

Emerging markets became another important region in terms of revenues for Jinko this year.

We shipped 370 megawatts this year, despite the difficult market conditions in terms of financing, maturity of the sector, and conditions of the grid.

In emerging markets, we are executing a big construction in Chile for utility scale projects, and also completed deliveries under existing contracts for South African markets.

Thanks to these large deals, in both countries, Jinko is now the top solar PV module.

We are reaching a market share in emerging markets of over 30%, with so far over 300 megawatt sales, and this opens the door to many new opportunities, as our brand recognition keeps increasing.

In Asia-Pacific, including both Japan and Australia, we saw substantial growth this quarter and expect to see more over the next few quarters, especially in Japan.

Despite challenges, it is important to remember that the PV market globally is expected to reach 100 gigawatts by 2020, with $50 billion in revenues according to Solarbuzz, substantially up from the current $30 billion.

We expect to see a five year period of rapid growth, beginning in 2014, with 91% of PV modules in the form of polysilicon modules as a global industry, is increasing capacity, from 37 to 40 gigawatts in 2013 to 45 to 50 gigawatts in 2014.

We have feeding tariffs and other subsidies that have given us of PV projects, in markets where cost of electricity generated is reaching parity, will trigger demand in new and emerging markets, such as Chile, Mexico, Brazil and countries in Africa.

We expect also to keep growing in countries in Middle East in the next coming years.

To implement our strategy of being a first mover in new markets, we have been investing resources in PV markets with high demand, and are confident that we are moving in the right direction, to maintain growth.

This is your conference consultant.

It appears, the speaker Mr. Arturo Herrero has disconnected from the call.

Please continue standing by, while we reconnect the speaker.

You will be placed on hold, until the speaker rejoins the call.

Once again, please continue standing by, while we reconnect the speaker.

Thank you for standing by.

Mr. Herrero has just joined the conference, please go ahead sir.

Okay.

Sorry for the interruption on the line.

As I was saying, to implement our strategy of being a first mover in new markets, we have been investing resources in PV markets with high demand, and we are confident that we are moving in the right direction to maintain growth and increase our market share worldwide.

During Q3, we announced the signing of big construction in Chile and Panama, totaling 120 megawatts for one of the largest utility companies in Europe, which will be supplied in Q4.

In China, where downstream business has become more promising, we are targeting to finish over 400 megawatts by the end of 2014, and expect strong growth in 2015 as well.

Total product shipments in Q3 were 708.2 megawatts, consisting of 30 megawatts in wafers, around 20 megawatts in sales, and over 658 megawatts in modules.

These represent an increase of over 7% from last quarter and over 36% from the same quarter in 2013.

We delivered approximately 65% of total module shipments to China, 8% to Asia-Pacific regions, 14% to Europe, over 10% to North America and over 6% to South Africa and South America, with the rest going to the other regions.

ASPs are stable, thanks to JinkoSolar's improved brand recognition, higher quality, better communication, branding and market demand recovery.

Module ASP in Q3 was $0.60 per watt.

We expect ASP to increase slightly in the last quarter Q4.

We are now benefiting from our reports over the past few years, in building a strong partnership with global and local distributors, PV developers and EPC constructors across the globe, that now are active outside Europe and pushing to enter into emerging markets.

JinkoSolar's brand is now supported by over 70 banks that has financed all our projects around the world, and over 300 world recognized customers, a demonstration of our high quality modules, with resource in higher ASPs and increases visibility and predictability over the coming quarters.

Regarding marketing, we have been actively participating in conferences and exhibitions around the world, including Intersolar in North America, in San Francisco; CREC 2014, we have been also in Green Expo, Solar Tech, so entering in Brazil, in Australia exhibitions, in Chile, also in Tokyo, Japan and in Osaka, and finally New Delhi, India; and Mexico for the Green Expo 2014.

We have been also very supportive, thanks to also the recognition in the solar industry of both solar PVTV and solar plate, which are excellent platforms to promote JinkoSolar as a company in expanding our brand.

JinkoSolar is active at the Solar United Association, the former [IDVA], and we are also actively involved in the Solar Future Today initiative, that has been launched by leaders of the solar industry, including Jinko.

Solar Future Today is a non-profit platform, quite new, that is promoting solar energy around the world, that is supported by advisors to government, known influential companies, professors at Stanford University and even famous Hollywood stars.

We have been attending also conferences, where we are speaking actively in USA, Brazil, South Africa, Chile, or Mexico.

We keep our strategy to maintain consistent growth, as we enter new markets around the world, showing the success of diversifying in the new PV market outside Europe.

Now I would like to turn the call over to Charlie, our CFO, who will go through our financial results.

Thank you very much.

Thank you, Arturo.

Good morning and evening to everyone on the call.

First, I'd like to walk you through our financial results for the third quarter of 2014, followed by fourth quarter and full year 2014 guidance.

As Mr. Chen mentioned earlier, total solar product shipments in the third quarter of 2014 were 708.2 megawatts.

Total revenues were $417.3 million, an increase of 5.3% sequentially, and increase of 30.5% year-over-year.

Gross margin was 20.6% compared to 22.6% in the second quarter of 2014, and 22.3% in the third quarter of 2013.

The slight decrease in our gross margin was due to a slight decline in solar module ASPs, with a change in our geographical mix.

In house, gross margins related to in-house silicon wafer solar sales and solar module production was 23.3% in the third quarter of 2014, compared to 25.4% in the second quarter of 2014, and 21% in the third quarter of 2013.

Income from operations was $39.1 million compared to $40.6 million in the second quarter of 2014, and $39.9 million in the third quarter of 2013.

Total operating expenses were $47 million, a decrease of 3.4% sequentially and increase of 49.3% year-over-year.

The year-over-year increase in our operating expenses was mainly due to the increased shipping costs, warranty costs and R&D expenses.

The company's operating expenses, excluding our provision for doubtful accounts, represented 11.7% of total revenues, down from 12.1% sequentially and up from 11.3% year-over-year.

Operating margin was 9.4% compared to 10.3% in the second quarter of 2014, and 12.4% in the third quarter of last year.

Net interest expense was $11.9 million, an increase of 2.1% sequentially and increase of 29.8% year-over-year.

We recorded an exchange gain of $0.2 million, primarily due to a gain in fair value of forward contracts of $12.6 million, offset by our foreign currency exchange loss of $12.4 million.

We recognized a loss of $2.2 million in change in fair value of convertible senior notes, and a loss from a change in fair value of capped call options of $1.9 million.

The company recognized an income tax benefit of approximately $25.1 million compared to a tax expense of approximately $3.4 million in the second quarter of 2014, and income tax expense of approximately $3 million during the third quarter of 2013.

Net income was $45.7 million, compared to net income of $22.3 million in the second quarter of 2014, and net income of $16.9 million in the third quarter of 2013.

This translates into basic earnings per ADS of $1.48 and diluted earnings per ADS of $1.32 respectively.

While GAAP net income was $52.5 million compared to $27.9 million in the second quarter of 2014 and $32.2 million in the third quarter of 2013, this translates into non-GAAP basic and diluted earnings per ADS of $1.68 and $1.36 respectively.

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

As of September 30, 2014, the company had $340.7 million in cash, cash equivalents and restricted cash.

As of September 30, 2014, total short term borrowings, including the current portion of long term bank borrowings was $347.1 million compared to $324.7 million as of June 30, 2014.

Total long term borrowings were $152.9 million as of September 30, 2014, compared to $144 million as of June 30, 2014.

As of September 30, 2014, the company's working capital was positive $165.4 million [as per dictation] compared to positive $41.5 million as of June 30, 2014.

For the fourth quarter of 2014, the company estimates total solar module shipments to be in the range of 1,030 megawatts to 1,120 megawatts, which includes 730 megawatts to 770 megawatts module shipments to third parties, and 300 megawatts to 350 megawatts for its own downstream projects.

Revenues will now be recognized for the modules shipped to its own downstream projects, as required by U.S. GAAP.

For the full year 2014, the company estimates total solar module shipments to be in the range of 2.9 gigawatts to 3.2 gigawatts.

Full year project development scale is expected to be above 600 megawatts.

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

Operator?

(Operator Instructions).

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

Hi everyone.

Your next question comes from Patrick Jobin of Credit Suisse.

Your line is open.

Please go ahead.

Hey good evening and good morning guys, appreciate taking the question.

First question, if I just think about margins into Q4, I think you mentioned ASP is up a little bit, but increasing a mix to the U.S., I guess how should we think about gross margin sequentially?

Then I have a few follow-ups, thanks.

Hey Patrick, we expect that gross margin in Q4 will improve compared to the third quarter.

On the ASP side, we expect the ASP will go up slightly; firstly in China, after the Yingli announced a new distributed generation policies; we saw a lot of feeding and construction activities and all the big utility companies are constructing the projects and target to connect by the end of this year.

The ASP in China increased b y $0.01 to $0.02; currently the ASP is $0.57.

In Q4 secondly, we expect a big shipment in the U.K., which will help the ASP as well.

We also saw the pickup demand in Japan and United States, and on the other hand, we are facing some pressures from the foreign currency movement, particularly in Euro and Japanese yen, but however the company has entered formal contract to hedge the exposures.

So all in all, we believe the ASP will go up slightly in Q4 compared to Q3.

On the cost side, we have successfully reduced the non-silicon costs to $0.36 in Q3.

The total module cost was $0.46 in Q3, including $0.10 silicon costs and $0.36 non-silicon costs.

For the polysilicon plants, we believe its going to be stabilized at $20 to $21 by the end of this year, and we target to another $0.01 for the non-silicon costs, and reach total module costs $0.45 by the end of this year.

And lastly you know, in the third quarter, we made adjustments for the electricity revenues are around $3 million.

For the Q4, we expect electricity revenues will constitute more, because in the third quarter, we connected 100 megawatts.

The project was connected in September and contributed a very small amount of revenue in the third quarter, and we expect to contribute fourth quarter results in the fourth quarter.

So just back to your question, we believe the gross margin will go up in Q4, compared to Q3.

That's really helpful, thank you Charlie.

And so I guess two follow-ups, one is you completed or you shipped 100 megawatts to your own downstream projects in the quarter.

I think you're guiding to 150 to 170 previously.

Just wanted to understand if something slips from Q3 into Q4 or kind of what drove that?

And then when I think bigger picture, I think you said you would convey your capacity expansion targets next quarter, but just roughly how we should be thinking about your ability to expand capacity, considering you are running at full utilization?

Thanks.

Sure.

For the third quarter, we shipped 100 megawatts for our downstream projects.

The reliance, based on our previous guidance, is 150 megawatts -- 180 megawatts.

Due to the capacity constraints, we already rescheduled the shipment around 150 megawatt from September to early October.

And for the capacity expansion plan, at the end of Q3, our total capacity is 2.3 gigawatts for wafer and 1.8 gigawatts for sale, and 2.8 gigawatts for solar module.

We expect to expand our capacities to 2.5 gigawatts for wafer, 2 gigawatts for sale, and 3.2 gigawatts for solar modules.

And moving to 2015 capacity expansion plans, we are very optimistic for 2015.

We believe 2015 is another strong year for the solar sector.

We will give the detailed guidance for the 2015 outlook in Q4 earnings release.

And for the global demand, we believe its around 55 gigawatts, representing 20% compound annual growth rate.

As tier-1 companies, Jinko would believe, we are in the best time to continue the capacity expansion, maintain the cost leadership, and penetrate the market share.

So we tend to expand our capacity by 20% to 25% in 2015, including the capacity in China, and overseeing markets, and we are actively looking to expand our global factory footprint, particularly in North America and Latin America.

In third quarter, we opened South Africa solar module factories of 120 megawatts, and we believe that the overseas factories will give Jinko more flexibility to serve the important market to its local content.

On top of that, we believe it will help us to tap into a global project development.

Back to the project development scale, we now have a downstream project, we have 350 megawatts currently in operation.

We target to connect 461 megawatts in Q4, and reach 830 megawatts by the end of this year.

So our construction is on schedule.

We are very confident that we can achieve the goal.

Thank you very much, Charlie.

Just really simply, just a follow-up on the tax benefit, what drove the tax benefit in the quarter?

Thanks guys.

We recognized an income tax benefit of $25 million, and for Jinko, we adopt a very prudent approach to recognize the deferred tax assets.

In 2011, we started to recognize deferred tax assets during a downturn period; and you know, we are the first Chinese company to return to profitability from the second quarter 2013, and we continued to demonstrate strong learning power in the past six quarters.

So in the third quarter, we believe it's the right time to start to recognize a deferred tax asset.

The deferred tax asset, is mainly relevant to the accrued warranty, as well as projects for the modules shipped to our downstream projects, provision for doubtful accounts.

Its not a recurring item for the third quarter, and going forward, we expect our effective income tax rate is in the range of 10% to 15%.

The next question comes from the line of Philip Shen of Roth Capital Partners.

Your line is open, please go ahead.

Hey guys, can you hear me?

Yes.

I don't know what happened earlier, but let's see here.

In terms of the ASPs, I think you guys talked about $0.60 on a blended basis in Q3, can you share with us what the ASPs were by region in the quarter?

The third quarter ASP is $0.60 compared to $0.63 in the second quarter, a slight decline of the ASP is driven by the sales mix.

Particularly in third quarter, we have significant shipment in China, and the ASP in China is typically lower than international markets.

The China ASP is around $0.55 in the third quarter.

Great.

And it sounds like they are $0.57 now?

Yes.

And what were the ASPs in Q3 from Japan and how are they trending in Q4?

The Japan ASP is at $0.61 to $0.63.

But for the fourth quarter, due to the foreign currency movements, the depreciation is -- we believe the ASP is around $0.59 to $0.62.

But again, we have entered into a formal contract to hedge exposures.

So we don't expect any significant impact on the net profitability for Jinko.

And also, our sales in Japan around 50% is down in U.S. dollars, which is [immune] to the foreign currency movement.

Great, thanks Charlie.

One more if I may; in terms of your U.S. business and strategy, you're on track to hitting 300 to 400 megawatt of shipments in 2014.

It appears that negotiations may have stalled between the U.S. and China on the trade case.

If the two countries cannot reach a settlement agreement, then how many megawatts would you expect to ship into the U.S. in 2015?

Would you increase in 2015 relative to 2014, stay the same, or perhaps see a decline?

Firstly, we are happy to see the two governments working closely and trying to reach a settlement agreement by the end of this year, and we are still optimistic that the underwriting agreement, that the use in case is still options for the tariff issues.

And we are the member obviously of the SME, so we cannot add more comments in detail for the negotiation status.

Back to our U.S. strategy, now we go back to the 2012 tariff, produce a module with internal wafer and sale, and our shipments for the U.S., you're right is around 400 megawatts for 2014, and we can manage the gross margins, in the 15% to 18%, because we are the cost leader in the industry.

And moving to 2015, we are very optimistic, because I think its not a secret; U.S. is going to be very strong in 2015, around 7 gigawatts, due to the push demand before the (inaudible) by the end of 2016.

So a lot of EPC developers are in discussion with Jinko, and they have very concrete plans to construct projects in Q2, Q3 2015 and complete the project in 2016.

So we are confident that we can achieve, let's say over 30% of growth in the U.S. market, and this year 400 megawatts is 100% from the utility customers, and next year we are going to penetrate the initial market in the U.S. as well.

Again, last week we closed the $20 million working capital loan with Wells Fargo, the world class famous financial institution.

The working capital loan will fund our operations in the U.S., which is another vote of confidence for our U.S. markets.

So Phil, this is Sebastian, back to your question, with the uncertainty of the tariff, we expect that our shipment in the U.S. will increase.

Great.

Thank you both.

I will jump back in queue.

Your next question comes from the line of Frank He from Goldman Sachs.

Your line is open.

Please go ahead.

Thanks for taking my question.

First is about the other -- the backlog on your self-operated solar power projects.

So in addition to the 400 megawatt you can complete by the end of this year, what's the outstanding project backlog you currently have?

Okay.

On top of 830 megawatts, we targeted which by the end of this year, we have 1.8 gigawatts project pipelines, including 1.1 gigawatts utility scale projects, and 700 megawatts distributed generation.

And for our downstream project business, we are taking two steps to diversification.

The first step is to diversify the projects in China, across different regions this year; and we are also shifting our focus from the Northwest region to the east and south China, and for the 830 megawatts, the total projects will be located in over nine provinces, around 40% is in East and South China, and this year 830 megawatts, 10% is distributed generation projects, and 90% is utility scale projects.

Moving to 2015, our focus is still in China, but we are also looking to oversee project development opportunities, including Japan, United States, Chile, Brazil and Mexico.

In China, we targeted 10% to 20% distributed generation projects, and 80% to 90% utility scale projects, particularly including the new definition of DG, 20 megawatts, build that, abandon that, and so in China next year, our focus in DG, because we believe that DG has more economics than utility scale projects in North and Western regions in China.

Firstly as you know, the total system cost for the DG is lower, compared to utility scale projects, (inaudible), the equipment is cheaper.

And secondly, the local government is providing extra subsidies to develop the disability generation projects.

Certainly the permitting process is quicker, and also the payment for the feeding tariff is even quicker, because the DG projects that all need for the additional approval procedure, unlike the utility scale projects.

Okay, got it.

And second question is about the VAT reversed bookings that you mentioned in the announcement, which you treated as a one-off impact, right?

Yes.

The value added tax in accordance with relevant tax regulations, the feeding tariff is not subject to the value added tax.

However in the third quarter, for one of the projects, when we tried to connect the feeding tariff, the stake wage that allowed Jinko to pay the value added tax.

For the accounting perspective, for prudent ratings, we started to recognize revenues for the VAT margins, for the feeding tariff, and made our cumulative adjustment to the prior quarters and expected revenues for the VAT portion.

I just want to highlight that VAT portion has no very significant impact on the economics of our margin of returns.

Taking into consideration VAT, our Chinese projects, the IRR without leverage is in the range of 8% to 12%, and IRR with leverage is in the range of 15% to 20%, because firstly, the VAT 50%, we can get refund by the end of 2015, based on relevant regulations.

Secondly, the output VAT is going to be offset by the input VAT we paid to consolidate projects.

So we estimate for the first five years, there is no any cash flow impact for the VAT.

So Frank, this is Sebastian.

For first, you're right.

It is definitely one time for the reversed VAT.

Second, like Charlie said, it has almost zero impact for the let's say first five or six years for our cash flows.

Okay.

When we look at the gross margins for the utility projects in Q4, what kind of gross margin should we project for the downstream?

Its around 60%.

60%?

Yes.

60.

Okay, perfect.

Thank you.

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

Your line is open, please go ahead.

Hi, can you hear me?

Yes.

Please go ahead.

Yes hi, thanks for taking my question.

Just a couple of questions on -- first on the China market; I think you mentioned pricing in China has improved, can you maybe talk about demand levels, volumes actually, how you think about Q4 shipments, also specifically if China can achieve the 13 gigawatt target for this year, and how you think 2015 demand shapes up in terms of megawatts?

We will reach a 13 gigawatt installation target for 2014, and for the 2015, our estimation is 15 gigawatts.

You know the NEA, the National Energy Administration, in August they iterated a 13 gigawatt installation target, and in September the NEA announced new distributed generation policies, which expanded definition of DG, and also allowed DG developers to sell 100% electricity to the stake wage, which result kind of higher risk and certain positive returns.

And China is encouraging the financial institutions to provide project loans for the solar projects.

We are seeing that Chinese commercial banks are working under detailed guidelines to promote solar projects in China.

Just to give you an example, China Merchant Bank, issued detailed guidelines to promote the project.

The bank targets to provide aggregate RMB10 billion in the near future for the solar project.

So we expect that DG is picking up in the fourth quarter, and will surge in 2015.

And also China is developing a plan to establish the new portfolio standards for each province, with minimum installation targets.

We expect the policy will come out in Q1 2015, and which will have long term positive impacts to the solar markets in China.

And again during last weeks -- during the APEC meeting, China and United States reached agreement to cap the carbon emission, and that China is committed to increase fossil fuel consumption to 20%, by 2030.

So the Chinese determination to promote the solar projects is quite evident.

That's helpful.

But if you look at the demand growth in China this year, it was very back end loaded.

Do you expect similar trend in 2015, or are you seeing strong demand continue in Q1 as well?

This is a good question.

Q1 2015, we are very optimistic.

We expect -- it's a perfect mix.

Strong pushed demand from Japan and the U.K., and the similarity in China will not be obvious, compared to the Q1 2014, because China is promoting the DG projects in the East and South China, and the construction in the East and South China can continue in the winter season.

So we believe Q1 2015 is stronger than Q1 this year.

That's exactly -- the question we got here.

Can you maybe just talk about where you think pricing is going to go in Q1?

I mean, what kind of signs you're seeing right now in terms of your utilization rates for Q1?

Are you fully booked for Q1 as well?

Thank you.

We have strong visibility in Q1 of 2015, over 60% compared to what's booked.

And for the ASP side, in terms of local currency, the ASP is stabilized in Q1 compared to Q4.

Thank you so much.

And then one last question, on the Jinko or the proposed Jinko, can you may be talk about the composition of projects that you plan, are they going to be mostly all China projects that you expect to also grow in other international markets or M&A?

Thank you.

So this year, 100% in China, and we are diversifying in projects in China in different regions.

I just said, 830 megawatts is located in nine provinces.

And next year, we are looking to the overseas projects, including Japan, United States, Chile, Brazil, let's say 10%.

Your next question comes from the line of Boris Kan from JP Morgan.

Your line is open.

Please go ahead.

Hi.

So I have got a few quick questions, I just want to check on the U.S. sales in the quarter, could you share with us -- did you achieve gross margin and as well based on more anti-dumping tariff?

And the second question is, I just want to know the percentage of contribution coming from the downstream solar farm business in third quarter of this year, and say on a full year basis, how much of a percentage contribution do you expect from this business?

Thank you.

Okay, in terms of U.S. market, Q3, the demand is soft compared to Q2, because the pre-buy activities before the tariff.

As to the tariff, the ASP in U.S. increased to $0.73 to $0.74, and we are seeing the pickup demand in the fourth quarter for the U.S. market.

For the downstream project contribution, we estimate the total electricity revenues for 2014 is in the range of $40 million to $45 million.

The gross margin is around 60%.

Hey Boris, this is Sebastian; but you cannot only look at this thing from only the revenue perspective.

If you look at the high margin business from the net profit perspective, it may account for up to 25% or even more as our net profit.

Thank you.

It appears that we have run out of time for question-and-answer session.

I will now hand the call over to Mr. Sebastian Liu for any additional or closing remarks.

So on behalf of the entire JinkoSolar's management team, I want to thank you for your interest and contribution on this call.

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

Have a good day and a good evening.

Thank you and good bye.

That concludes our conference for today.

Thank you for your participation.

You may all disconnect.