晶科能源 (JKS) 2016 Q1 法說會逐字稿

Thank you for standing by and welcome to the first-quarter 2016 JinkoSolar conference call.

(Operator Instructions).

I must advise you that this conference is being recorded, today May 27, 2016.

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

Please go ahead, Mr. Liu.

Thank you, operator.

Thank you, everyone, for joining us today for JinkoSolar's first-quarter 2016 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 the IR's website.

On the call today from JinkoSolar are Mr. Chen Kangping, Chief Executive Officer; Mr. Cao Haiyun, Chief Financial Officer; and Mr. Gener Miao, VP Global Sales & Marketing.

Mr. Chen will discuss JinkoSolar's business operations and the Company's highlights, followed by Mr. Gener Miao who will talk about sales and marketing.

And then, Mr. Cao will go through the financials.

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

Please note that today's discussion may contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties.

As such, our future results may be materially different from the views expressed today.

Further information regarding this and other risks is included in JinkoSolar's public filings with the Securities and Exchange Commission.

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

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 happy to announce a strong performance of this quarter.

Total module shipment during the quarter reached 1.6 gigawatts as global demand continues to grow, particularly in a number of emerging markets.

Revenues due in the first quarter reached $847.8 million, representing an increase of 98.9% over the same period of last year.

GAAP net income and non-GAAP net income for the quarter reached $48.6 million and $64.3 million respectively.

This June marks our 10-year anniversary, and proud of what we have achieved throughout the years in becoming a global leader of the solar industry.

In 10 years, we have shipped about 13 gigawatts of solar modules to more than 1,700 customers from more than 70 countries and regions.

We developed and operated over [1] gigawatt of solar projects.

We began our journey from a humble beginning and sustainably built our way into a globally recognized brand.

In Q1, we became the biggest module supplier among our peers.

We will continue to grow our business in a sustainable and conservative way and generate long-term returns for our investors.

Our position as a market leader in China was solidified as large orders continued to come in before the [fisc cut] due at end of June.

We expect the trend will continue in this quarter.

In the US, we continue to grow market share.

Although the extension of ITC has resulted in some of the projects being postponed, we are very confident to meet our shipment target in the US for the year.

Our new [added] overseas production capacity is ramping up very fast, which will give us more flexibility and generally larger margins.

The increasing recognition of our brand name is also generating greater opportunities in exciting emerging markets such as Chile, Thailand and India, which Gener will go over details later.

Electricity output during the quarter reached 210 gigawatts, up 36.4% sequentially, and generated RMB185.5 million in revenue.

Power output was still impacted by curtailment in China western regions and Chinese New Year holiday, but the shortfall was partially offset by ramping up of our project, especially in China's eastern regions.

We expect power output to improve substantially next quarter as curtailment impact decreases and more projects ramp up to full capacity.

Our total capacity of connected projects remains at 1,007 megawatts as no new connections were made during the quarter because most of our projects under construction are located in China eastern regions where approval and connection process require a longer period of time.

We expect a number of our projects to be connected next quarter before the fisc cut, and we will remain on track to hit our development guidance of this year.

The management continues to work on the spinoff projects and will update the market when appropriate.

Global solar demand continues to grow as costs go down.

We have been hearing [Muck Rack] express concerns over some [evidence case] and a ripple effect, and in particular, oversupply during the second half of the year.

Despite these concerns, we have always been confident in the industry's future and our ability to stay high performance in the second half of the year and going forward.

On the technology front, I'm pleased to say our 1500 volt Eagle module immediately becomes available for sale in North America, where I'm sure that they will help us further increase market share there.

We are also working on the mass production of our next generation of high-efficiency wafers and cells, which will again increase output and stability of our solar products.

In terms of quality control, we have always maintained the highest quality standards in the industry to ensure that our customer receives reliable products and investment returns.

The spot price for polysilicon has begun to rise following years of a [decreased] price.

While this would typically impact our cost structure to some extent, we pre-ordered and built up some stockpiles before the price jump which will mitigate the impact.

We expect to see in the second half of the year the poly price will stabilize.

It will be after all driven by the price of the solar products.

During the quarter, we were awarded three solar PV projects totaling 188 megawatts-ac in Mexico during the nation's first tender auction.

This is a separate business from our overseas module sales, and marks our expansion into overseas project developments.

This also demonstrates our brand name recognition, technological strengths, and financial capabilities in overseas markets.

Management closely follows the overseas project opportunities, especially in emerging markets such as Latin America, Asian countries [along with] (inaudible), and Sub-Saharan African countries, as well as opportunities in mature markets.

We would also like to work and cooperate with our partners and stay open and flexible to those opportunities.

I'm always confident in the long-term growth of solar industry and JinkoSolar's growth prospects, and I'm pleased to see such a strong start to the year for us.

Before turning the call to Gener, I will quickly go over the guidance for the second quarter and full year 2016.

In the second quarter, the Company estimates total solar module shipment to be in the range of 1.6 to 1.7 gigawatts, which includes 1.45 to 1.6 gigawatts module shipment to third parties.

For the full year 2016, the guidance stays the same.

The Company expects the total module shipments to be in the range of 6 to 6.5 gigawatts, which includes 5.4 to 5.7 gigawatts shipment to third parties.

The Company expects to connect solar power project with new capacity of 600 to 800 megawatts in 2016.

Thank you, Sebastian.

With that, I will turn the call to Gener.

Thank you, Mr. Chen.

I'm happy to report another great quarter of sales results in which we shipped a total of 1.6 gigawatts of solar modules, making us the largest solar module supplier among our peers.

With such a strong growth momentum to start the year, we are optimistic about our prospects for the next quarter and the rest of the year.

During this quarter, we continue to balance our geographic distribution in 45 countries in the regions.

We shipped 1,434 megawatt of solar modules to third parties, during which 37% went to China, 30% to North America, 7% to Asia Pacific, 7% to Europe; and 18% to emerging markets.

We have devoted efforts to strengthen our relationship with our global partners and meanwhile focus on increasing payment terms and receivables management.

I will now take a closer look at each of these important markets and provide a little bit more color.

China continues to be our largest market.

While the Q1 is typically a slow quarter due to the Chinese New Year, we still received a large number of orders and the momentum will continue at least to end of June cut in fisc.

While demand may slide after that, we expect it could pick up in the fourth quarter, especially towards year end.

We may see some price fluctuations, but in general, it should stabilize.

China market will remain the world's largest market this year, and we are optimistic for this year's final results.

The US market will be our big growth driver this year, and we are devoting much of our time and resources there proportionally.

The extension of ITC has resulted in some of the projects this year to be postponed, which will make ASPs drop slightly, but it will not impact our sales target in the US for this year, and we believe it will be a long-term positive for the US market.

For the market sentiment, we believe demand for utility scale projects will remain high throughout the year and well into 2017.

The residential and the commercial solar installation market continues to grow steadily, which will also create a more balanced market for the solar products going forward.

With our new capacity ramping up very fast in Malaysia production facility, a big portion of our shipments to the US will be coming from our overseas production facility in the second half of the year, which will generate a better profit and flexibility.

In European market, we are still (inaudible) framework.

Demand in Europe is slowing down.

The UK continues to be one of the region's most promising markets and one in which we are very active.

Turkey also continues to show promise, as its solar market gains momentum.

In the Asia Pacific region, shipments to Japan remain steady.

In India, we are seeing active bidding on several big projects that are being formulated following the steady stream of supportive policies issued by the government.

Thailand is also showing great future potential as its market grows in size and scale.

We have already begun planning to redirect our resources towards this key market once opportunities come along.

In emerging markets, we have forged a strong relationship with local government and strong partners in Middle East and Africa which we expect will help us to grow in this region and further balance our geographic mix in a sustainable way.

We performed especially well in Latin America this quarter, while our brand names have helped us to secure the largest market share in a number of key countries.

We rank the number 1 in Chile in terms of market share, where it accounted for approximately 17% of our total shipment numbers this quarter.

Globally, our ASP remained stable during a traditionally slow quarter in most regions, and we expect ASPs in the second quarter to further stabilize with a slight decline.

In this quarter, our ASPs came in at $0.55, down $0.01 from the fourth quarter.

Moving to marketing and branding, we participated in a number of events, exhibitions and conferences during this quarter.

In January, we attended World Future Energy Summit in Abu Dhabi, and in March, we attended Power and Electricity World Africa in Johannesburg, which are the most important three shows in the Middle East and Africa region.

During the PV Expo in Japan in March, we launched Eagle Black, black silicon module, and Eagle Dual, dual-glass module, along with interviews on several local well-known media.

Through these events, we further strengthened our leading position in brand value and recognition worldwide.

Now I would like to turn the call over to Charlie who will go over to our financial results of the first quarter of year 2016.

Thank you, Gener.

I'd like to walk you through our financial results for the first quarter of 2016.

Total solar module shipments were 1.6 gigawatts, up 103% year over year.

The shipments exceeded the high end of first-quarter guidance.

By the end of Q1, we had 1,007 megawatts of solar power projects in operation.

Total revenue was $848 million, up 99% year over year.

Revenue generated from solar power projects was $29 million, up 36% sequentially, and up 82% year over year.

Gross margin was 21.3% compared to 19.5% in Q4 2015, and 20.3% in Q1 2015.

The increase was due to a lower module manufacturing cost and higher gross margins associated with electricity revenue.

ASP was $0.55 per watt compared to $0.56 per watt in Q4.

We continued to cut our in-house manufacturing costs to $0.37 per watt from $0.39 in Q4.

The blended cost, including the US power costs, was $0.41 per watt compared to $0.42 in Q4.

Our operating expenses represented 7.8% of total revenues compared to 11.8% in Q4 2015, and 11.9% in Q1 2015.

Operating margin was 10.5% compared to 7.7% in Q4 2015, and 8.4% in Q1 2015.

Net interest expense was $20 million, up 30% sequentially, and up 101% year over year.

The increase was due to the increase of loan yields for solar power projects.

By the end of Q1, we had two outstanding convertible bonds.

After the repurchase, the first one was $47 million due in May 2016, and the second one was [$137] million due in 2019, with put options in February 2017.

In May, the convertible bond of $47 million for the first one were fully repaid.

EBITDA was $125 million compared to $119 million in Q4 2015, and $36 million in Q1 2015.

EBITDA related to solar powered projects was $13 million compared to $9 million in Q4 2015, and $12 million in Q1 2015.

Net income was $49 million.

This translates into basic and diluted earnings per ADS of $1.56 and $1.44 respectively.

Non-GAAP net income was $64 million.

This translates into non-GAAP basic and diluted earnings per ADS of $2.04 and $1.72 respectively.

Now let's move to the balance sheet.

At the end of Q1, cash, cash equivalents and restricted cash were $523 million compared to $654 million at the end of Q4.

Our accounts receivables was $611 million compared to $528 million at the end of Q4.

Inventories were $482 million compared to $495 million at the end of Q4.

The total debts were $1.61 billion compared to $1.59 billion at the end of Q4.

The debts related to solar power projects were $855 million compared to $760 million at the end of Q4.

Total CapEx plan to our module (inaudible) in 2016 is expected to be in the range of $150 million to $200 million.

At this moment, we're happy to take your questions; operator.

(Operator Instructions).

Philip Shen, ROTH Capital Partners.

This is Justin Clare.

I'm on for Philip today.

So first off, I just wanted to ask about the mix in China for Q2.

What is your expectation there?

And then, could you tell us what percent of your Q3 bookings are for the China market?

Justin, this is Gener.

Thanks for the questions.

For approximately the first half, the China and the US will take approximately 30% to 35% each for the first half of shipment numbers expected.

And for this Q3, since we are pretty fully booked for the first half, so we are expecting lots of orders for -- goes to Q3.

So we are expecting around 20% to 25% of shipments are coming from China during Q3.

Great.

Thanks.

And then wondering about pricing for Q2.

Can you give us the sense for what the ASP might be?

And then, based on your bookings for Q3, what kind of sequential pricing decline could we see?

You mean China or you meant globally?

Maybe for China and globally; if you could talk about both.

Yes.

So as we have talked about this, for this Q1, our ASP is $0.55.

So we're expecting a similar level price, maybe a little bit lower in Q2, but relatively it could be stable.

And for the China, we are expecting the similar situation; for the global ASP as well that in Q1, our China ASP is around $0.50, and we are expecting the price will be stable.

It may slightly [increase], but in general, it could be stable for the first half.

Okay.

And then one more from me.

So you had reiterated your downstream development guidance, 600 to 800 megawatts for the year.

We've heard that the Chinese Government may be considering an extension in the feed-in tariff to the end of August instead of the end of June.

Could you help us understand how likely this is and how this could impact either your downstream plans or the market in China?

I heard the news today, but no, it's not confirmed with the relevant authorities.

And for our downstream project guidance, 600 megawatts, 800 megawatts, we are very confident and we are on track to achieve the goal.

And by the end of the first quarter, we had around 600 megawatts projects under construction and we target to connect 400 megawatts or 500 megawatts before June 2016.

So I think even if the deadline delays to August, there is no significant impact for our construction [cap].

Okay.

Great.

Thanks.

That's it from me.

Patrick Jobin, Credit Suisse.

This is Maheep on behalf of Patrick, and congratulations on the quarter.

Just to follow up on the previous questions, are you seeing any signs on [NEA's] next subsidy approval list?

Assuming the current one [comes into effect in] Q3, when do you expect the next one to come out and how many megawatts [do you have there]?

I think no substantial updates for the catalog approval, but we believe it's on the track for the approval process.

The government completed a preliminary review for the six renewable catalog and they requested more documents for some projects in China.

For Jinko, all [documents submitted] to the government have passed the preliminary review.

Our expectation is we will (inaudible) the cash payment in the second half year.

Got that.

And just on curtailment, you said it was high in this quarter as well.

Could you just tell us how much it was and what gives you more confidence that it will decline in the next quarter?

During the first quarter, in the rest of the regions, including the Zhejiang and Jiangxi Provinces, and it's included in the second quarter, particularly in Zhejiang Province, and there will be strong visibility for the second quarter (technical difficulty) reduce and improve in the second quarter.

I think you know in Zhejiang Province, the curtailment is due to the winter season.

Local grids want to use a coal plant to generate the heating for the people living in that area.

So we are very confident.

For the second quarter, we expect significant jump for the [specific] revenues.

It's going to be around, I think, 40% to 50% (technical difficulty).

I think the recent policies are very positive.

NDRC issued the regulation, the currency purchase a minimum for energy to protect the (technical difficulty) return, and the NDRC has sought for the approval of new projects in curtailment areas.

And for Jinko, the impact of curtailment is [smaller].

All the projects which are developing in 2016 is in the East and South China, and our exposures to the projects in the [grass] regions will drop to below 30% in the middle of this year.

Thanks.

That's helpful color.

And the last question from me.

The guidance implies a decline in shipments in the second half.

Can you help us understand whether this is primarily from the decline in shipments to Chinese markets, or are you seeing any demand deceleration in other markets?

Thanks for taking my question.

Firstly, I just want to say, okay, we have more and more visibility for the second half year, and now around [30% capacity] (inaudible).

And for the guidance of 2016, I think we can remain up to the guidance in second quarter.

And if you look at our second half year, I think in the first half year we totally shipped around [30%] of total shipments, and based on the current guidance.

Right?

And for the second half year, it's based on the [progress] and we [may up] this in the second quarter.

This is Gener.

So in general, we are keeping our [countenance] for the whole year demand for the cell side.

However, Jinko is always let's say conservative and more responsible for the guidance we release so we would prefer to have -- to update it when we have more confidence and visibilities.

Thanks for taking the question.

Sheng Zhong, Morgan Stanley.

Congratulations on the strong results.

My first question is about -- as we extend our module capacity significantly in the first quarter, so wondering is there any capacity expansion in our Malaysia plant?

You mean the capacity expansion in Malaysia, right?

Yes.

Capacity in Malaysia.

Yes.

I think we feel the guidance of capacity expansion, wafer is around 500 megawatts, cell is 1 gigawatt and module is 2 gigawatts.

And for the cell capacity expansion, the majority of capacity expansion for cell is going to be in overseas factories, and for the module capacity, around 30% is in overseas factories.

And for the overseas factory expansion, it's still on track, and it's in final [higher] production level, and we plan to complete the capacity expansion in the middle of this year.

Yes.

The capacity in Malaysia will ramp up in full capacity, I think, since second half.

And for the total 2016, we plan to ship around 1 gigawatts to US markets from overseas factories.

Sheng, this is Sebastian.

So that means in the second half of the year, a big portion of our shipments to US will be coming from our Malaysia factory.

That will help increase our margins.

So first half of the year, it's around 30% to 35%, and the second half of the year it's around 65%.

So can you clarify the first half overseas --?

Yes.

I'm saying in terms of the 1 gigawatt shipments, around 35% is going to first half of the year.

The main part is second half of the year.

So Sebastian is saying we expect more and more shipments to the US market from the overseas factories in second half year.

Okay.

I understand.

So among over 400 megawatt shipment to US in the first quarter, how much shipment is from the Malaysia plant?

It's around 150 megawatts.

Thank you.

And my second question is you mentioned that the reason why we don't have project connection in the first quarter is because of the longer connection period in East China.

So normally, how long is the project connection period?

It's depending the projects [pace by pace], and in the Eastern and South China, the key hurdle is land acquisition.

So it's taken us more time to acquire the land for some projects.

But most of the projects are in the final stage now and so we are confident and we can achieve our target for the second quarter.

Understand.

And another one is about your operating cash flow, why it's negative in the first quarter.

Operating cash flow is -- I think it's around negative $30 million.

The major reason is we have more shipments in China, and China's payment term is relatively slower than the payment terms in second half year on last year.

But it's back to standard payment terms.

And you can see that we have increased accounts receivable and we expect we will generate positive operating cash flows in the second quarter.

And this will cause our shipment to non-China region will improve, or do we expect China's payment term will be better?

No.

The shipments should be I think more balanced, and if you look at the Q4 and the Q1 shipments, we have very big exposures in China.

And also, we are seeing the payment terms in China is also relatively improving quarter over quarter.

I see.

And my last question is about the technology.

As Mr. Chen mentioned that we will have enough generation [within cell] technology.

Can you give more color on this?

Sure.

This is Sebastian.

In fact, we are working on (technical difficulty) wafers and cells which especially with higher efficiency and stability.

But we cannot disclose too much details about the features and other numbers of those technology, but we will I think review them with our -- especially integrate those technology into our module products and you will see when we reveal our new [phase] of model products.

Understand.

Because we -- actually we expand our capacity significantly already, so will the new technology require --?

I mean if new technology can be well integrated to our capacity?

Yes, of course.

Okay.

Thanks very much.

And congratulations on the 10-year anniversary.

(Operator Instructions).

Tyler Frank, Baird.

Can you discuss what you're seeing overall in the US marketplace for utility-scale project demand?

Do you believe that demand will increase throughout the year and how do you see 2017 shaping up?

This is Cao.

Good question.

Actually, for the market in most part it really depends on which number you are compare with.

Right?

If you compare with market demand and expect a number before ITC expansion, for sure the demand this year, US demand will -- (inaudible) US demand has decreased quite a little bit.

But if you compare with long-term, [let's see], between 2016 to 2019, even to 2020, so average annual demand or total demand, the five-year demand from US has increased significantly compared what is expected before ITC expansion.

So from our point of view, we have built a pretty mature partnership with our local US customers, and though we see some of the projects have been delayed to late 2016, even 2017.

But generally speaking, we feel happy that the market will be more sustainable in US and our -- we believe the demand locally are still very strong from US.

So we are confident to reach our target, our shipment target to US, and in long range we are more optimistic for the US utility-scale projects.

Brilliant.

Thank you.

And then can you comment a little bit about the feed-in tariffs in China?

Is this payment still being delayed, or is that on a location-specific basis at this point?

And do you expect any headwinds with the payment tariffs to be resolved in the near term?

Thank you.

No.

The feed-in tariff is a national issue and it's a key agenda for the government to resolve.

As I just said, we believe the approval process for the next ones and subsidy catalog is on track and we can get cash payments in the second half year.

Perfect.

Thank you very much.

(Operator Instructions).

There are no further questions at this time.

Mr. Sebastian Liu, please continue.

Thank you, operator.

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

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

Have a good day and good evening.

Thank you and goodbye, everybody.

Thank you.

That does conclude our conference call for today.

Thank you for participating.

You may now disconnect.

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

The interpreter was provided by the Company sponsoring this Event.