晶科能源 (JKS) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Q4 2017 JinkoSolar Holding Co.

Ltd.'s Earnings Conference Call.

(Operator Instructions)

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

Sir, please go ahead.

Thank you, operator.

Thank you, everyone, for joining us today for JinkoSolar's Fourth Quarter 2017 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 a supplemental presentation for today's earnings call, which can also be found on IR website.

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

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

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

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 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.

(foreign language)

Thank you, Sebastian.

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

(foreign language)

We shipped 2,481 megawatts of solar modules during the quarter, an increase of 4.5% sequentially and an increase of 4.31% year-over-year.

Total revenues during the quarter reached USD 976.4 million, a decrease of 1.0% sequentially and an increase of 24.0% year-over-year.

Gross margin was 11.6% compared with 12.0% last quarter, primarily due to the increase in the price of polysilicon and the appreciation of RMB against U.S. dollar.

For the full year 2017, we shipped 9,807 megawatts of solar modules, an increase of 47.3% from 2016, further solidifying our leading position in terms of global market share.

Total revenues for the full year 2017 were USD 4.07 billion, an increase of 23.7% from 2016.

Gross margin was 11.3% for the full year 2017 compared with 18.1% for the full year 2016.

(foreign language)

Earnings for the year came in below our expectations primarily because we had allocated more of our production than expected to our OEM partners, especially in the first half of 2017, due to the surge in market demand, which averaged down our margins.

Second, a large portion of our orders for 2017 were booked at the end of 2016 and early 2017 with fixed prices.

Meanwhile, the cost of raw materials increased throughout the year, especially the price of polysilicon, which increased our cost pressure.

And finally, during 2017, we continued the transition of our product mix from multi to mono, which limited high-margin products delivered.

(foreign language)

Looking into 2018, we believe our margins and profitabilities have room to improve as we will control the usage of OEM and further optimize our cost structure, including initiatives in technology improvements and supply chain management.

Raw material cost has already begun to ease, including polysilicon.

At the same time, leveraging our strong brand recognition and leading technology, we are confident in our ability to expand margins of our value-added products that are high quality, highly efficient and have the most advanced technology.

In the meantime, we will continue to expand and improve our global sales network to take advantage of new opportunities, especially in emerging markets and adapt to ever-changing market environments in order to further expand our global market share.

(foreign language)

Looking at our different markets globally.

China is still the largest market, accounting for approximately 50% of global demand.

Q1 is traditionally a slow season, but ASPs remained stable.

Total demand of Chinese market for the whole year may slip slightly, but we expect to see further developments of PV Poverty Alleviation projects and DG projects, especially strong growth in residential market.

Turning into the U.S. The announcement of Section 201 tariffs for solar cells and modules left a lot of details to iron out, but it won't disrupt our plan to invest in production facility in the U.S. We will begin the construction of an advanced solar module manufacturing facility in the Southeastern United States, which will begin shiping in the second half.

It will provide us with a first-mover advantage and more flexibility to support our local partners.

We will continue to invest into advanced manufacturing capacity overseas according to our global order book and market developments.

The emerging markets gradually became our biggest growth driver, with demand in Latin America and Australia maintained strong growth momentum.

And markets in the Middle East and Africa are expected to generate substantial growth.

We will continue to allocate more resources towards those high-growth markets in order to further solidify the long-term sustainable development of the company.

In general, with a more balanced market strategy, we already have good visibility into the first half of 2018, with over 70% of our order book already filled for the first half.

(foreign language)

On the technology front, we continue to optimize the cost of our mono wafer production, while we seek to obtain the highest quality in the industry.

We have made a substantial progress on crystalizing, cutting, argon recycling during the production process and expect to reach optimal standards by the end of second quarter.

In the first quarter, we broke our own world record for P-type mono PERC solar cell efficiency, reaching 23.45% and have made solid progress in developing N-type Hydride Oxide Thin Film or HOT technology, which reached industry-leading 21.9% average cell efficiency during mass production.

With demand increasing, we plan to expand the capacity of bifacial cell plus duo glass modules, such as our bifacial P-type PERC duo glass products and bifacial N-type HOT products.

Meanwhile, our tech team continue to expand our competitive advantage in half-cell technology.

Overall, our target is to maintain industry-leading technology standard, while to provide our clients with the highest-quality, most reliable and high-efficiency products.

(foreign language)

Turning to manufacturing capacity.

Our internal wafer, cell and module capacity reached 8 gigawatts, 5 gigawatts and 8 gigawatts, respectively, by end of fourth quarter of 2017.

We expect to reach 9.5 gigawatts, 6 gigawatts and 10 gigawatts, respectively, by the end of the year, of which approximately 5.5 gigawatts will be mono wafer.

Approximately 3.5 gigawatts will be PERC cells.

We remain cautious about expanding our manufacturing capacity, and will continue to maintain our flexibility to balance the CapEx and the business growth.

(foreign language)

Looking into 2018.

Despite shipments globally reaching approximately 100 gigawatts in 2017, we still expect global demand to continue growing in 2018, with most of the growth drivers coming from the emerging markets.

With the cost of solar continuing to decrease and support of clean energy globally increasing, solar energy is becoming very competitive and more mature with abundant of application scenarios.

We are very confident in the industry's long-term sustainability and prospects despite a competitive environment and some shadow of the trade barrier.

(foreign language)

Before turning the call over to Gener, I will quickly go through our guidance.

Based on the current estimates, total solar module shipments will be in the range of 1.8 to 2.0 gigawatts for the first quarter and 11.5 gigawatts to 12.0 gigawatts for the full year.

(foreign language)

Thank you, Sebastian.

With that, I'll turn it over to Gener.

Thank you, Mr. Chen.

I'm happy to report a strong finish to 2017, in which we shipped a total of 2,481 megawatts of solar modules during the fourth quarter and 9,807 megawatts for the entire year as we further consolidate our industry-leading position in terms of global market share.

This demonstrates the efficiency of our business operations and the sales capability and the trust that our customers all over the world have in our brand and products.

We are confident in our business prospects for 2018 and ability to further expand our global market share despite the challenges we expect to face.

First, looking at the geographic distribution of our module shipments in fourth quarter: new emerging markets accounted for approximately 40% of total shipments.

China and North America tied for the second place, followed by the Asian Pacific and European markets.

This change underlines how flexible and adaptable our global sales networks are, as well as our strategic foresight to invest in emerging markets early in order to benefit from their current phase of rapid growth.

China is still the largest and the most important market.

While Q1 is traditionally a slow season, but ASPs remained stable.

We expect the rush orders to continue coming in before the June 30 cutoff, but this wave may not be as strong as the same period last year.

And meanwhile, total demand of China this year could slip a little compared with last year, but there is no lack of excitement.

A new round of Top Runner projects and poverty alleviation projects all over the country have begun.

And spontaneous DG projects, especially residential ones, will continue to maintain strong growth this year.

We will continue to strengthen our Chinese sales and marketing strategy accordingly to benefit from the current and future growth trends and new opportunities.

Turning to U.S. On January 22, President Trump approved 201 solar import tariffs, which began at 30% for the crystallized silicon solar cells and modules.

This tariff will be reduced about 5% each year, ending at 15% by fourth year.

2.5 gigawatts of cells will be exempted every year.

As Mr. Chen has already stated, we decided to build an advanced solar manufacturing facility, which will provide us with a first-mover advantage and the flexibility to support our local partners.

We expect that the first half of this year to be relatively quiet in the U.S. as it undergoes a period of rebalancing.

And after that, demand will gradually recover to a normal level.

Our strategy is to leverage our competitive advantages in leading technology, outstanding product quality, professional local service and establishing long-term and stable relationship with customers to avoid uncertainty for both parties caused by short-term market fluctuations.

In the Asia Pacific region, demand and ASPs in Japan remained relatively stable.

We will continue to work on improving the distribution network along with local services and plan to further increase our market share there.

Growth in India market was impressive in 2017, but the new round of anti-dumping investigation has cast a shadow on the future growth prospects.

We hope it won't impact its 100-gigawatt target by 2022.

And we will continue to work closely with our local partners there to maintain our commitment to our clients.

Emerging markets gradually became our biggest growth driver, and we expect our growth momentum in these market to continue in 2018.

We will continue focusing our resources on major markets such as Australia, Mexico and Brazil, where we are increasingly benefiting from our investments there in recent years.

We will also continue to invest deeply in markets such as Jordan and Saudi Arabia, Ethiopia and Nigeria, considering their huge potential to support the long-term development of the company.

ASPs during the quarter were stable compared with last quarter, and we expect module prices to decrease a bit in the first quarter of 2018.

We already have great visibility on orders during the first half of the year.

In the last quarter of 2017, JinkoSolar's brand was strengthened through the participation in various high-profile summits and industry conferences, organization of various customer training and exposure in both trade and mainstream media.

For example, in December, NHK, Japan's national public television station, featured JinkoSolar in its special on Chinese renewable companies.

NHK's paid coverage of JinkoSolar has enabled us to reach a wider audience beyond just that of our industry.

NHK's choice to cover JinkoSolar reflects the strength of our brand.

During the same month, we were also invited to attend the meeting of the world's highest decision-making body on environmental matters, the United Nations Environmental Assembly (sic) [United Nations Environment Assembly], hosted in Nairobi.

At the assembly, we were able to share our views on importance of strong and supportive regulation in the development of renewables.

In Q4, we attended 8 trade shows, participated in 48 conferences.

We also hosted 20 customer events, 37 customer trainings and 46 co-marketing activities with key partners across the globe.

Our marketing efforts continue to enhance JinkoSolar's brand value and awareness in the industry.

Now, I would like to turn it over to Charlie.

Thank you, Gener.

I'd like to walk you through our Q4 results.

Total solar module shipments were 2.48 gigawatts, up 5% sequentially and up 43% year-over-year.

Total revenue was $976 million, down 1% sequentially and up 24% year-over-year.

The sequential decrease was due to a decrease in shipment of solar wafer and cells.

Gross margin was 11.6% compared to 12% in Q3 and 14.3% in Q4 last year.

Our blended cost increased slightly to $0.336 per watt in the fourth quarter due to the higher polysilicon price and RMB appreciation against U.S. dollars.

The operating expenses represented 10.1% of total revenue compared to 10.6% in Q3 and 12.7% in Q4 last year.

Net exchange loss is $5 million compared to a net exchange loss of $7 million in Q3 and net exchange gain of $3 million in Q4 last year.

EBITDA was $45 million compared to $36 million in Q3 and $44 million in Q4 last year.

Net income was $3.5 million.

This translates into diluted earnings per ADS of $0.12.

Non-GAAP net income was $6.4 million.

This translates into non-GAAP diluted earnings per ADS of $0.20.

Now, I'll briefly review our full year 2017 financial results.

We concluded our 2017 with total solar module shipments of 9.8 gigawatts, up 47% year-over-year.

Total revenue was $4.1 billion, up 24% year-over-year.

Gross margin was 11.3% compared to 18.1% in 2016.

The decrease was due to a decline in the average selling price of solar modules and the increased volume of OEM partners and higher polysilicon price in 2017.

Operating expense was 10.1% of total revenue compared to 11.8% in 2016.

EBITDA was $156 million compared to $331 million in 2016.

Net income was $22 million compared to $143 million in 2016.

This translates into diluted earnings per ADS of $0.68.

Non-GAAP net income was $32 million compared to $179 million in 2016.

This translates into non-GAAP diluted earnings per ADS of $0.96.

Now let's move to the balance sheet.

By the end of Q4, cash, cash equivalents and restricted cash were $424 million compared to $371 million by the end of Q3.

The accounts receivable due from third parties were $691 million compared to $875 million by the end of Q3.

Inventories were $657 million compared to $788 million at the end of Q3.

We improved our inventory turnover days to 66 days in Q4.

The total debt was $1.1 billion compared to $1.2 billion at the end of Q3.

The net debt was $718 million compared to $824 million by the end of Q3.

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

Operator?

(Operator Instructions) Your first question comes from Maheep Mandloi from Crédit Suisse.

Thanks for the clarity on the CapEx -- capacity expansion in the year, but could you just talk about if the plan includes the 1.5 gigawatt U.S. module factory?

Maheep, I think, this year, if you look at our capacity expansions and we will reach by the end of this year to 9.5 gigawatt wafer and 6 gigawatt cell and 10 gigawatt module capacity.

And for the wafer capacity, we are going to increase 1.5 gigawatts.

It's going through the improvement, operating efficiency, output during the ramp-up process.

So I just want to touch the CapEx as well as we are talking about this U.S. factories.

And the wafer is in China, and we don't expect to invest a lot on wafers through improvement of output during the ramp-up process.

And as discussed, we are -- our cost is being improved dramatically during the ramp-up process.

And for the cell, we plan to add 1 gigawatt PERC cell capacity out of China and in Southeast Asia.

For the module capacity, we are targeting 2 gigawatt increase.

It's going to be located in Southeast Asia, United States and China.

And the factory expansions for the -- and upgrade of the solar module capacity in the U.S., we have launched the plan, and the plan is under the final process by the relevant government authorities.

And we are expecting and we are planning to release the details in the next several weeks.

And just on the U.S. capacity, if I may.

We have definitely seen news around potential exemption for some of the international manufacturers from the tariffs.

How does that impact the manufacturing factory in Florida?

Could you tell us about that...

I think maybe you are talking about some companies, they are targeting to apply for exemptions through some specific technology, right?

And we are still -- we are also in the process.

But back to your question, there's still uncertainty on certain companies.

Unlike Jinko, we have the technology advantage, and we like our visibility in the process.

But back to the U.S. factory, solar module capacities, we don't anticipate any impact or change on our plans.

Got that.

And one last question from me on the U.S. factory.

How much of that planned capacity is already sold or you've already booked orders with U.S. developers?

And do you plan to receive any prepayments from the customers this year?

Sure.

Maheep, this is Gener.

So to answer your question, from the capacity allocation side, we do not allocate specific workshop or factories to single orders or to customers unless it's necessary or is a must.

In general, we sign a supply contract to make sure we will fulfill our obligation to supply our, let's say, top-tier product, and we should keep the flexibility for the supply resources.

So to make it simple, we don't lock our -- we lock our capacity, but we don't lock into the specific factory.

So what Gener wants to emphasize is, I think, last month, we released the news and we signed the largest solar module contract, 1.7 gigawatts with a counterparty in the United States.

And we are also in a process to sign another over 1 gigawatt sales contract.

But we have the flexibility to fulfill the contracts through -- both from the factories in the U.S., Southeast Asia so -- and...

But definitely, the customer's long-term contract, together with, let's say, the friendly payment terms, will be helpful to our capacity expansions.

Your next question comes from the line of Alex Liu from UBS.

I have 2 questions.

First is, can you give us some color on your cost-reduction potential this year?

In terms of wafer, cell, module, each product you have, how much percentage of cost-reduction potential this year?

And also, what's your view on the polysilicon price this year?

So -- and what's your resulting strategy for polysilicon?

And my second question is that we have seen that wafer price has dropped significantly year-to-date, driven by the LONGi and GCL's cut cost -- price cut.

So -- but we have also seen that module price dropped very limited year-to-date.

So does it mean that your first quarter and your first half margin should see some improvement?

Okay.

So back to -- I think 3 separate questions, which may -- some questions are interconnected.

And so for the first question of polysilicon.

Last year, the polysilicon increased a lot, $20 even, and it's because of the strong and anticipated demand from China, United States, et cetera.

And we don't believe that polysilicon at that high level is sustainable, and we are saying that price adjustments through the -- our supply chain, not only in the polysilicon but also the potential in diamond wire, in glasses.

And now the polysilicon is down, I think, 25%.

And we expect that the polysilicon price to be stable in the second quarter and in second half year with more capacity online.

And with more cost-comparative capacity online, the polysilicon will continue to be on a downward trend.

And the second question is the cost-reduction target.

We've done our cost -- in-house production cost by silicon and non-silicon cost.

And we touched on -- we have already touched on polysilicon cost.

For the non-silicon cost, by the end of last year, we have $0.23 per watt for the non-silicon cost.

And we are targeting 13% to 20% non-silicon cost reduction target.

And a couple of initiatives had been started.

I think one of the key area is the technology driven -- the technology will be the key drivers for the cost reduction, like the half-cell, bifacial, PERC.

And we will continue to invest on R&D and technology advancements to improve the conversion efficiencies.

At the same time, we -- while we're deploying our new capacity, for the existing capacity, we are doing a lot of efforts to improve our isometric levels and to reduce the total by taking cost reductions.

And the third key area is the lower material cost.

And by streamlining the supply chain, like we've said about the diamond wire, the poly -- the silver paste, the chemical, glass.

And what is the third question?

Yes, sure.

The wafer price drop versus the module price, right?

Yes, so for this wafer price, I think, mainly, the wafer manufacturers are based in China.

So when the China domestic wafer price drops, we have seen the relative movement from the Chinese domestic module market at -- almost at the same time.

Decorum of the market is quite transparent.

However, if we look into the international market, we will see, as you just say, the module price drop is less than wafer price has dropped, right?

So it's mainly because -- one is the RMB exchange rate change.

Q1 is traditionally a slow season for China, so mainly these international markets traded in terms of U.S. dollars.

So a weaker U.S. dollar, a stronger RMB will compensate a lot of this RMB price drop in wafers.

Secondly is mainly the module side or the cell side has suffered a lot during the Q4, even early Q1 before the Chinese New Year.

So when the wafer price dropped, it just somehow smoothed this painful process of the module and the cell guys.

And I will leave the margin question for Charlie.

Yes.

Thanks, Gener.

I think the leading branding and the sales capabilities -- I just want to emphasize, we have the capabilities to sign the solar module sales contracts and -- 6 and 12 months before the actual shipments, and we have a lot of sales contracts through the 2018.

And because of the lower material cost and continuing improvement on our shipping costs, we are expecting our gross margin in the first half year are going to improve quarter-by-quarter.

(Operator Instructions) Your next question comes from the line of Philip Shen.

Your next question comes from the line of Brian Lee from Goldman Sachs.

Maybe just the first one, real quickly, as a follow-up to the prior question or answer around gross margin cadence.

When you say that gross margins are expected to improve quarter-on-quarter moving through the first half, I just wanted to clarify one point.

With Q1 shipment guidance being sequentially lower off of the 4Q levels, is it fair to assume that gross margins will be flat to down in Q1 of '18 versus the 11.6% you just did in Q4?

No.

Back to the guidance on gross margin question, I think Q1 is typically a seasonally slow season and quarter, and China is slowing down after the rush installation by the end of last year.

And the U.S., because of the uncertainty of 201 case, before the announcement of the U.S. president on the trade activities, particularly in the second half year last year, and we are seeing kind of temporary slowdown in the U.S. So that's kind of combination and -- regarding the lower shipment in Q1.

And in terms of gross margin, because Q1, almost -- I think we have signed order sales contracts by end of last year, and the price is locked.

And the polysilicon is down 20% to 25%, and we continue to improve the production cost.

And we are expecting the gross margin to improve in Q1 compared to Q4 last year.

Okay.

Okay, fair enough.

And then the second question around just the capacity expansion and CapEx outlook.

If I look at 2017, you spent about $480 million of CapEx.

And then if I look at your capacity targets for 2018, it's basically the same as what you did in 2017, except for 1 gigawatt less on modules.

If I look at cell, wafer, module, is it fair to assume that you're going to be spending a similar amount, maybe slightly lower, given the 1 gigawatt less in module capacity expansion in '18 as you did in '17?

Just trying to think about what you're inferring in terms of CapEx given the capacity targets are fairly similar on a year-on-year basis?

The CapEx in 2018 is lower than 2017.

We are expecting and targeting around USD 350 million compared to, I think, over roughly $450 million last year.

And if you look at the capacity, it seems like the same, just like you said, 1 gigawatt smaller cell -- in cell capacity.

I just talked about the wafer capacity.

We add 1.5 gigawatt this year.

But actually, the CapEx has already spent by the end of last year because the capacity needs to go through some ramp-up period.

So if you look at Q1 and our wafer capacity already reached 9 gigawatts, and we continue to increase the output.

So we don't spend a lot of CapEx on wafers, so the key investment is 1 cell -- 1 gigawatt PERC cell capacity and 2 gigawatt module capacity as well as I'm talking about the equipment upgrades to increase a significant level.

So the CapEx is -- roughly, this year, is $350 million.

Okay.

No, that's helpful.

And then maybe last question for me and I'll pass it on.

With that CapEx level in mind, I know you guys just raised capital, but I'm just wondering how you're thinking about liquidity and the need to raise additional capital.

Because it seems like you'll still burn a decent amount of cash again this year, so if you can may be comment on your view on liquidity and cash flow moving through 2018 and then if you have a number in mind, what we should be budgeting for the rough level of cash burn this year.

Sure.

We don't have any plan to raise the equity in the future.

And last month, we raised about USD 110 million.

And as well as we have signed significant sales contract with U.S. counterparty, and we're expecting to receive advanced payments, which will be leveraged to -- for the capacity expansion.

So we have sufficient cash flow planned for the capacity expansion, $350 million.

And this year, our focus is on the profitability.

The operating cash flows, we expect -- our free cash flow are expected to be breakeven, and that is our target.

Brian, this is Sebastian.

We've got a significant amount of down pay from our -- the contract we signed in the U.S. And also, we have other orders to come, which also maybe follow the same pattern.

So this year, we assume, in fact, that the cash flow will be good.

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

Let's try again.

Hopefully, this works.

Can you hear me?

Yes.

Go ahead, please.

Great, okay.

Quick question on -- and apologies if some of these questions may have been asked since I was having some technical difficulties.

But in terms of your full year outlook, can you give the geographic mix that you expect?

And specifically, can you talk about the megawatt shift to the U.S. in '17 and then what the expectations might be for 2018, given some of the challenges in the U.S. market?

Sure.

This is Gener.

So for 2018, we are foreseeing the China market continue to become -- continues to be our #1 market and followed by emerging market as well.

And our emerging market has pretty big geographic coverage like Middle East, Africa and Latin America, even some Southeast Asia countries.

And then it should be followed by the European market, together with our Asia Pacific market like Australia, India.

And for your question on the U.S. shipment, I think our U.S. market contributes #3 in our 2017 shipment and is approximately around 30%, I think.

So we are continuing to see the importance of contribution from U.S. market because we deeply believe the U.S. market will continue to be a very key market across the whole industry all over the world.

So do you expect U.S. to be down year-over-year relative to your 2017 mix?

Or do you think it could be flat possibly?

For 2018, we think U.S. market first half will be slightly slow because the industry is rebalancing after this rushing moment by the year-end or before 201.

But we have seen a lot of, let's say, active inquiries and demand by second half in 2018.

So we believe, starting from second half 2018 even into 2021, even further, U.S. market will continues to be very strong.

Okay, great.

Moving on to ASPs.

And sorry if you already talked about this, but I think the ASP we estimated for Q4 was $0.39.

Can you confirm what the ASP was in the quarter and then what the outlook is for Q1 and Q2?

Yes.

We see it kind of -- Q4 compared with Q3, we see it kind of stable.

Maybe there are small changes because of the currency exchange rate.

And for 2018, I'd say, early '18, let's say, Q1 at least, we see a slightly decrease.

But in general, it's a stable trend as far as we can see it right now.

Okay.

And then moving on to the overall general Chinese market.

I think in your comments, Gener, you talked about China could slip possibly in 2018 versus last year.

So can you give us a sense for the size of the market that you see?

And then I know the DG market is becoming ever more important in China.

And last year, it was 19 gigawatts.

How big do you think the DG market could be in 2018?

We're getting word that the NEA is considering some potential targets or caps for the DG segment.

And I think the DG segment should -- is a key source of growth in 2018 in China.

So is there some risks to the growth of DG in China in 2018?

Okay.

So let me share my view regarding the China market.

For 2017, it's a historical year for China PV market.

It's a strong, booming year for -- and had over 50 gigawatt installation.

I think it ended up at 53 gigawatts.

For 2018, we believe our China market will continue to be strong.

But personally, I doubt if it can ever pass the 50 gigawatt again.

So as a rational estimation, I see -- I foresee the China demand could be stable and like sustain at the level of 45 gigawatt-ish, mainly contributing from Top Runner program, which is approximately 8 gigawatt.

And this traditional -- let's say, utility -- traditional utility, ground-mounted utility project will approximate, let's say, 10 or 12 gigawatt plus this -- the DG market in which will be, let's say, around 15 gigawatts.

And then followed by some, I'd say, poverty alleviation is around, let's say, 12 to 15 gigawatts again.

So adding -- some number up and down, but adding those numbers together, you should end up around 45 gigawatts.

That's my guess.

And Philip, this is Sebastian.

So here, I think you are pretty aware -- good question about the Chinese demand.

In fact, you can see we are very conservative about the expectation of this year because we don't want to give the market too high expectation, although the market definitely could be better than we sought.

Our strategy is definitely do the work first.

That means we will balance our geographic mix first.

Even China is not that strong as last year.

But as we -- I just want to say it again, we are just being conservative.

Okay, that's very helpful.

And then one quick housekeeping question.

This one might be for Charlie.

On the sales and marketing, Charlie, was there any reversal of expenses at all in the quarter, Q4?

I don't think so.

And actually, we increased some kind of -- I think roughly USD 2 million provision for the accounts receivable.

So it's kind of increase of some provision for the accounts receivable this quarter in Q4.

Great.

And one last question, sorry.

In terms of the OEM partners, what was the OEM shipment mix in Q4?

And then I know the expectation is that it should come down, but can you give us more -- a percentage for possibly Q1 or full year 2018?

In Q4, if you look at our shipment, I think 2.4 gigawatts, and our capacity for module is 8 gigawatts.

So roughly, I think 20% on percentage.

And looking to Q1, I think the OEM was very small, below 5%.

And this year, you can see the calculations of our company is 11.5 to 12 gigawatts, and we have 10 gigawatt module capacity, so it's roughly 15%

Your next question comes from Maheep Mandloi from Crédit Suisse.

Again, we saw $181 million revenues from related parties on the income statement.

Could just talk about what that is related to and how should we think about that in 2018?

Okay.

It's -- we guided this for the largest Middle East project, an Abu Dhabi project.

It's kind of 1.2 gigawatts.

And we hold 20% equity.

And so the shipment of the module to the projects we hold 20% is accounted for related party transactions.

The total shipment of 1.2 gigawatts will be shipped -- complete the shipment through the Q1, Q2 this year.

So it's kind of the international projects and we hold 20%.

And from an accounting perspective, it's treated as related party.

So the shipments to the project's companies is recorded as related-party transactions.

And for 2018, should it go up?

Or how should we model it?

You are talking about related party, right?

Yes.

No.

The total shipments will be completed in -- by the end of Q2 this year.

So this will be, I think, Q1, quite stable; Q2, slightly down; and Q3, 0.

Your next question comes from [Christian Mihae], a private investor.

One question regarding the expansion plan for the sector as a whole.

Every company is claiming huge expansion plans, module shipments and capacities for the next years.

This is not typical for a sector, which operates at extremely low margins.

And what's your view on this?

What's your view on the broader side of this sector?

Because investors are, of course, worrisome regarding this low margin and, at the same time, this huge sector capacity additions for the future.

What's your view on this?

I think from Jinko perspective, we are always taking the prudent capacity expansion approach.

I think you [read that with your questions.] And if you look at our 2018 capacity expansion, it's almost -- I think over 70% investment is for the future of the U.S. market.

We have secured sales contracts, so the capacity expansion is directed and also supported by the upfront payment from customers.

And back to your question, we don't think the low gross margin of 2017 is typical for the -- for Jinko as a leading solar module company.

And if you look at upstream supply, like the polysilicon, glasses, diamond wire, we are getting over 40% gross margin.

That is much [favorable] and sustainable.

So we are saying a lot the strength and the price adjustments to the sales -- supply chain as well as we have some branding and sales capabilities and we are able to look at favorable solar module sales contracts.

So -- and I just want to be -- and I want to say the industry is towards the high efficiency and the high technology.

And we believe, even if we look at the industry, and only the Tier 1 companies have the capabilities to invest on capacity.

I think most of the peers are prudent from investing on capacity perspective.

So hopefully, I answered your questions.

Yes.

So I have -- this is Sebastian.

I have 2 points.

First, if you have opportunity to reach our factory, especially our new added factory, you'll see lots of new lines are automatic lines.

So this is a new technology and specifically, how it works to the economics.

Secondly is that Jinko has very strict internal standards of IRR.

So we are very -- like Chinese, we are very prudent and very selective about our investments in capacity.

Yes, okay.

One other question on the market consolidation and its capital market structure as a whole.

Some years ago, there were 4 very large Chinese-rooted companies listed on the NASDAQ, in the U.S.A.

Jinko seems to be the last one standing, should Canadian Solar come through with this buyout offer?

Did you already discuss this issue, when Jinko will follow second?

Or this is not an issue for you?

This is Gener.

So are you asking the question regarding Jinko's, let's say, rapid growth strategy to catch up with industry?

No, it's just regarding the listing on the U.S. market and going private of us from the companies...

Okay.

Yes, you're right.

We are seeing a lot of our competitive peers like Canadian Solar, JA Solar, Trina, they have either completed or in the process of go-private process.

And at the same time, it's a hard question for a lot of listed companies.

China is trying to do the same here and bring the most reputable companies back to China and allow the opportunity for the Chinese investors to invest on the reputable companies.

And for Jinko, no, we don't have the plan to go private, and we think the module business is kind of very international business.

And as a platform, U.S. listed companies is very positive and helpful from the perspective like the branding, marketing and the transparency of financial statements and et cetera.

And we believe, with more and more Chinese investors and also the policy like the China trading policy agreements and at the same time, we will be very focused on delivering the value to the shareholders.

And our companies will be -- the valuation will be more and more reasonable in the future.

Thank you for your questions.

Operator?

There are no further questions at this time.

I would now like to hand the conference back to 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 call.

If you have any

(technical difficulty)

feel free to contact us.

Have a good day and a good evening.

Thank you.

Bye-bye.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for participating.

You may all disconnect.