晶科能源 (JKS) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Quarter 1 2018 JinkoSolar Holding Co., Ltd.

Earnings Conference Call.

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

Thank you, sir.

Please go ahead.

Thank you, operator.

Thank you, everyone for joining us today for JinkoSolar's First Quarter 2018 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's 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. Miao, who will talk about the sales and marketing, and Mr. Cao will go through the financials.

We 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.

And 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.

(foreign language)

Thank you, Sebastian.

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

(foreign language)

We shipped 2,015 megawatts of modules during the quarter, a decrease of 18.8% sequentially and a decrease of 2.6% year-over-year.

Total revenue during the quarter was USD 728.1 million, a decrease of 28.1% sequentially and a decrease of 20.9% year-over-year.

Gross margins, however, increased to 14.4% compared with 11.6% of last quarter as we benefit from the drop in polysilicon prices and further optimization of our manufacturing costs as a result of continued technology improvement and reduced OEM usage.

(foreign language)

Market sentiment was impacted by the new policies jointly issued by 3 Chinese ministries on May 31.

The new policies are aimed at increasing the pace of grid parity, accelerating the removal of outdated capacity and releasing the pressure of new energy fund deficits.

Despite the strong initial negative reaction to the new policies, we expect demand in China to still hit 35 gigawatt-plus in 2018, of which 13 to 14 gigawatts will begin in the second half of the year, including approximately 7 gigawatts from Top Runner Program, 4 gigawatts from PV poverty alleviation projects and 2 gigawatts from local governments supporting DG project in addition to other grid parity projects.

In addition, the residential market growth may be once again above our expectation.

(foreign language)

The silver lining behind the new policy is that it will actually benefit us for the long run as we expect to see a decline in cost across the industry chain, long enough to further cut cost for both silicon and non-silicon to offset the impact of module ASP decline in the second half of the year.

We already have great visibility to the whole year 2018, with over 80% of our order book already filled, of which most of them are overseas orders with fixed prices and a number of payments already made.

Our production capacity is fully utilized now and will remain so during the second half of the year.

Therefore, it's safe to say that the new policy will have a relatively limited impact on our operations.

But even that said, our gross margins and net profits will increase in the second half of the year as a result of a further decrease of polysilicon price and other technology improvements.

We also believe the impact of new policy for the industry will be short term.

And we are confident in our future business prospects and long-term growth of the industry.

(foreign language)

I will let Gener go over the market details later.

But I would like to highlight a few things here.

First, overseas orders (inaudible) account for about 80% of our overall shipments as we benefit from our global footprint.

We do not rely on a single market.

Second, solar has become increasingly competitive globally with demand driven by markets achieving grid parity, including resurgent demand in some European markets, such as Spain, Portugal and Italy as well as booming demand in new emerging markets, such as Latin America, Middle East and North Africa.

We also expect that with further cut in cost, demand in India will be rebound strong as well.

So we remain optimistic about Chinese demand.

Looking to 2019, aside from Top Runner Program, poverty alleviation project and DG project, we also expect to see large amounts of grid parity projects, combined with new business models, appear in the second half of 2019.

(foreign language)

On the technology front, we continue to devote resources toward application of a high-efficiency technology.

We are optimizing the cost structure of our product.

Our integrated costs keep improving, especially for mono wafers, including improvements in argon recovery, diamond wire usage and wafer thickness.

During the quarter, we broke our own world record for P-type monocrystalline cell efficiency, which hit 23.95%.

We also made substantial progress in the development of advanced hydrogenation and floating busbar technology, which we expect to apply (inaudible) other mass production lines by end of the year.

Our half-cells, combined with light reflect film technology, is also leading the industry in terms of capacity and quality.

With demand for the high-efficiency product increasing, we are fully prepared to provide our clients the highest-quality, most reliable product with the highest output in the market as we continue do well in industry-leading technology.

(foreign language)

Turning to manufacturing capacity.

Our internal wafer, cell and module capacity reached 9 gigawatts, 5 gigawatts and 9 gigawatts, respectively, at end of the first quarter 2018.

We expect to reach 9.7 gigawatts, 6 gigawatts and 10.5 gigawatts, respectively, by the end of the year, of which approximately 5.7 gigawatts will be mono wafer, approximately 3.5 gigawatts will be PERC cells.

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

(foreign language)

Looking at the second half of 2018 and 2019.

The change in policy in China will create a challenging environment by a creating market uncertainty and a lower domestic demand.

But as industry leader, our extensive global sales network and a geographically diverse manufacturing facility allow us to remain flexible and rapidly adapt to any policy changes.

We are fully prepared for the market consolidations, a new era of grid parity.

We will take full advantage of our brand, technology and global infrastructure to expand our market share and further consolidate our leading position in the industry.

(foreign language)

As I turn the call over to Gener, I will quickly go over our guidance.

Based on our current estimates, total module shipments will be in the range of 2.4 gigawatts at 2.5 gigawatts for the second quarter and 11.5 to 12 gigawatts for the full year.

(foreign language)

Thank you, Sebastian.

With that, I will turn it over to Gener.

Thank you, Mr. Chen.

We shipped 2,015 megawatts of solar modules this quarter, slightly above the high end of our Q1 guidance.

Looking into the second half year, while the Chinese market will be impacted by the new policies, we expect to see global demand remain healthy and strong.

We already have sufficient orders in hand with full year visibility exceeding 80%.

Our capacity utilization rate remains at 100%.

And new emerging markets kept growth momentum, all of which leaves us confident to generate solid financial and operational results for the entire year.

Looking at the geographic distribution of our shipments in the first quarter.

New emerging markets, including Middle East, Latin America and Africa, accounted for approximately 40% of total shipments.

The Asia Pacific region was the second, followed by China, North America and then Europe.

This demonstrates the result of our global reach, continued geographic diversification and (inaudible) strategy, which have also reduced our reliance on any single market.

Shipments in China will account for less than 20% of shipments this year with U.S. shipments expected to increase during the second half of the year as we begin delivery for the big contracts we have signed here.

As Mr. Chen just mentioned, despite the headwinds created by the new policy in China, we believe the Chinese market will still reach 35 gigawatts for 2018.

Our focus during the second half of the year will be on the Top Runner Program and the poverty alleviation program.

DG programs with solid business models or that are supported by the local government are also expected to generate new demand.

We remain cautiously optimistic about demand in China in 2019: first, given the current rate of the cost reduction, which we believe will generate more grid parity projects coming online next year; second, local government supporting DG and the residential markets still have lots of potential; and third, resurgence of China market, the biggest solar market in the world, is now underestimated.

Turning to U.S. market.

After gradually running down inventories in the channel during the first half, demand there has begun to increase again.

We expect the full year demand to reach 9 gigawatts this year and hit 11 gigawatts next year.

ASPs in the U.S. market remain relatively stable as U.S. capacity remains limited, while our manufacturing facility in Florida is expected to begin delivering product in the second half of the year.

The U.S. market continues to show strong vitality and a great potential despite the impact from tariffs.

The only uncertainty is the potential escalation of Shreveport.

Turning to the Asia Pacific region.

As a result of aggressive early-stage biddings, many projects in India have been delayed, which resulted in a substantial amount of the unreleased demand.

However, as the crowding impact in China intensifies after announcement of new policy, along with falling ASP, we expect the Indian market to be (inaudible) demand.

The Australian market is stronger than expected as big utility projects start demand and we have over 1 gigawatt contracts there secured.

Japanese subsidies continue to fall as the bidding system there gradually step in and more self-contained projects pop up, which are creating new opportunities.

The European market has significantly rebounded.

Aside of Germany and (inaudible), demand is being driven from Southern European market with high energy parts, such as (inaudible), where solar is (inaudible) and (inaudible) are now following the same pattern of the grid parity program.

We are very optimistic about our future market prospects there.

Emerging markets, such as Egypt, Jordan, the U.A.E, Saudi Arabia, Mexico, Argentina and Brazil, continue to grow the forecast and are gradually becoming the main driver of global demand growth.

We will continue to strengthen our leading position in the Latin American market and see more opportunities in the Middle East, where these (inaudible) exporting countries are (inaudible) determined to promote and invest in the application of solar technology.

ASPs during the quarter decreased just slightly when compared with last quarter.

ASPs may continue to decline in the second half of the year, given the impact from China's new policies.

But as Mr. Chen has explained, first, we -- (inaudible) of our overseas contracts have already declined; and second, our cost will continue to fall as the prices across the entire industry chain decrease, especially for the [certain] costs.

We are now in a good position to take advantage of this trend.

Following our streak from last quarter of high-level exposure with NHK specials, in January, JinkoSolar was the only PV market manufacturer to be featured on CNN's Marketplace: Middle East renewables special that's aired on CNN TV channel internationally.

Continued exposure from prominent media help us reach a wider audience outside of the solar industry, helping to generate the long-term demand.

In March, JinkoSolar's status as a market and technical leader in this industry continued to be recognized.

We received the Top Brand PV seal in Austria, Australia and Germany by EuPD Research, which awarded us the seal based on service of handlers or installers on their module brand preference.

From a technical leadership perspective, we were named by TÜV as the winner of the polycrystalline group module energy yield simulation at All Quality Matters Solar Congress.

This third-party recognition from a highly respected institution illustrates again the great technical performance of our PERC.

In Q1, we attended 8 trade shows and participated in 53 conferences.

We also hosted 35 customer trainings and 38 co-marketing events with key partners across the globe.

Our active global marketing events continue to allow us to reach and educate new customers about JinkoSolar's high-quality products.

Now I'd like to turn it over to Charlie.

Thank you, Gener.

I'd like to walk you through to our Q1 results.

Total solar module shipments were 2 gigawatts, down 19% sequentially and down 3% year-over-year.

Total revenue was $728 million, down 28% sequentially and down 21% year-over-year.

The sequential decrease was due to the decrease in shipment of solar modules.

Gross margin improved to 14.4% compared to 11.6% in Q4 and 11.2% in Q1 2017 as a result of decrease in raw material costs and the reduced use of OEM.

Our blended costs improved to $0.31 per watt compared to $0.336 per watt in Q4, benefiting from the decrease in raw material costs, especially the polysilicon price, and technology improvement.

The operating expenses represented 11.6% of total revenue compared to 10.1% in Q4 and 10.3% in Q1 2017.

The sequential increase of operating expenses is primarily due to the decrease of the module shipments.

EBITDA was $43 million compared to $45 million in Q4 and $30 million in Q1 2017.

Net income was $0.6 million.

This translates into basic and diluted earnings per ADS of $0.016.

Non-GAAP net income was $1.7 million.

This translates into non-GAAP diluted earnings per ADS of $0.048.

Now let's move to the balance sheet.

By the end of Q1, cash, cash equivalents and restricted cash were $457 million compared to $424 million by end of Q4.

The accounts receivable due from the third parties were $637 million compared to $691 million by end of Q4.

Inventories were $750 million compared to $657 million by end of Q4.

The total debt was $1.3 billion compared to $1.1 billion by end of Q4.

The net debt was $879 million compared to $718 million by the end of Q4.

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

Operator?

Operator, we are open to questions.

(Operator Instructions) Your first question comes from the line of Philip Shen from Roth Capital Partners.

The first one is on your guidance.

Based on your shipments for Q1 and your guidance, it looks like you expect to ship volumes in the second half to be meaningfully higher than the first half.

I think the mix will be something close to 40% in the first half and 60% in the second half.

Gener, I think you mentioned you're 80% booked.

And so how strong are these bookings?

In past cycles, we have seen down cycles, we have seen contracts get canceled with the new ASPs that are lower.

Could you see any cancellations?

Or -- and if not, why not?

I think you guys have a bunch of prepayments and so forth.

But maybe talk about how this time might be different, if it is, relative to cash down cycles and why you continue to expect your bookings to remain in place.

Yes, Philip, this is Gener.

Thanks for the question.

Actually from the sales side, we have seen the impact from the policy of Chinese government.

However, the total -- the sentiment -- the total sentiment of our customers, mainly they are working in the utility level, which they play really long term.

And that's why we have secured a sufficient and also solid contract with those players for the long run instead of the (inaudible) deals.

We do see some of the subcontracts being signed across this industry.

But we do not see a significant volume from our customer side.

We have very tiny amount of the contract that's been impacted by this new policy mainly from China.

Okay, good.

So you expect then most of your bookings, the 80%, to be effectively -- to remain effective?

Can you talk about the geographic mix of those bookings in the second half of the year especially?

So I think China is only maybe 20% of the overall mix.

Does it go even smaller in the back half, Q3, Q4?

Where is the overall geographic mix in Q3 and 4?

Currently, the number we have is -- what I can share with you that we saw is that we still see the emerging market take a big part of our shipment and followed by U.S. And also you know the Asia Pacific regions, across the Asia region, like Japan, like Australia, et cetera, all those countries, including India, will contribute a big part of our plan to offshore.

Those 3 parts will be the, let's say, the main contributor in the second half shipment turn.

Okay, great.

I think Chen zong mentioned that your net profit and margin will increase in the back half of the year.

With your stable bookings and supply chain pricing coming down so much, it seems like you might be able to expand your margin.

So you guys had decent margins in Q1 of 14.4%.

What kind of margins do you expect for Q2?

And more importantly, what kind of margins do you see for Q3?

Philip, you're right.

I think the policy put us at a very good position to streamline the supply chain.

And we are expecting a significant cost improvement starting from June this year.

So regarding the gross margin, because we have very solid booking as we discussed and we have already received a lot of prepayments, and we think that most of the booking will -- are executable.

So back to the gross margins, we think in the second quarter, it's quite stable quarter-by-quarter.

But for the second half of the year, we expect a moderate improvement for the gross margin.

And it's highly possible, gross margin will be over 15%.

Okay, great.

Well, that's great.

So in terms -- you guys mentioned in your prepared remarks, Charlie, that you're 100% utilized.

Is there a scenario, especially as we -- I mean, we're heading to Q3 now, where you are able to procure wafers and cells more cheaply than you can produce.

Is there a scenario where you guys go less than 100% utilized?

I know you've maintained your guidance here.

But given the rapid reduction of ASPs in the supply chain, is that possible to be able to procure more cheaply, buy the wafers and cells more cheaply than what you can produce?

Yes, this is a good question.

I think you're right that the wafer and cells, the market price have been dropped dramatically in recent months.

But if compared with Jinko, because we are the cost leader for the multi, at the same time for the mono, we have improved a lot in recent quarters.

So if we compare our cost with the market price, we are still -- we're competitive even for the wafer and the cells, both for the multi and mono.

But the good thing is because we see or face capacity constraints and we need to leverage OEM, continue in the second half year, so the OEMs, the cost has -- is going to be scraped a lot, which will help us for the gross margin and profitability.

And then meanwhile, Philip, I think we have to look into this rational spot market price instead of a short-term emotional market set price.

In the long term, we believe some of this super low emotional spot market price is not quite a benefit then.

Okay, so that's fair.

And the last question as it relates to your cost structure.

You talked about improving cost structure in the back half.

You were about $0.31 for both in-house as well as blended for Q1.

What do you expect that to be in Q3 or, let's say, Q4, for the quarter, not necessarily year-end.

But what is the average Q4 in-house as well as blended cost structure, given some of the pricing that you're seeing?

In terms of cost improvement, we are targeting, I think, a 20% improvement.

And then, roughly for the multi and mono PERC, the cost will improve to $0.24 to $0.25.

And for the blended cost, because we expect the lower price from -- for the cell and OEM module cost, I would expect $0.01 higher in terms of the blended costs.

Okay.

So just to make sure I understand.

Q4 cost structure, in-house, would be about $0.24, $0.25; and then the blended cost to be $0.01 higher.

And then when you look out to 2019, does that -- can you continue that 20%-type improvement?

If not, what kind of year-on-year improvement would you expect in Q4 2019?

Firstly, $0.24 to $0.25 is by end of the year, is not Q4 average number.

And second one, for the 2019, it's too early to evaluate the cost roadmap.

But we expect because of the new policies in China and across the industry to respond and to make China a lot -- to reach the grid parity, particularly for the second half year 2019.

So we still think a lot of room in the industry to improve the cost.

Your next question comes from Maheep Mandloi from Crédit Suisse.

This is Maheep from Crédit Suisse.

Just regarding the cost structure, could you talk as to what -- where you see that cost reduction coming from?

Because that's almost a $0.06 to $0.07 cost reduction from your current structure.

Probably $0.01 or $0.02 comes from the polysilicon side.

So can you just help us understand like what is driving that cost reduction for this year?

I think, Maheep -- and you know the product (inaudible) has been down dramatically, right?

The price (inaudible) $10 to $13 for multi and the mono, poly.

So its contribution, around $0.02.

And for the raw silicon cost, we think it's around $0.02 to $0.03.

Got that.

Is that because of shifting to mono or mono PERC?

Or is it just efficiency improvements across all technologies?

Excuse me, could you repeat the question?

Yes, the $0.02 to $0.03 reduction for non-silicon, is that driven by higher efficiency or new technologies?

Or is that for both multi as well as mono?

Well, it's, I think, a combination of the efforts from the industry and including technology production efficiency, the polysilicon cost improvement and as well as the new materials.

Okay.

And on the cost structure, you said $0.24 to $0.25.

So is mono significantly higher?

Or is it in line with multi cost structure OEM?

The mono PERC, the cost will be higher than the traditional multi.

That's just a mix to (inaudible).

So that's not accounting number.

It's just a mix of number we're having on mind.

It's not a detailed number.

Sure, got it, makes sense.

And just switching gears to the U.S. market.

And so last week, the IRS ruled over here that tax credits would now be available technically through 2023 as long as the project starts construction in the respective tax credit years.

So I'm sure it's probably too early for you.

But have you seen developers pushing out deliveries to a later year so that they can avoid import tariffs in the U.S. and still take advantage of the tax credits after 2021?

Yes, Maheep, we -- our team really (inaudible) and we talked to some of customers.

I think in general, the customers will execute the plans they have right now because they started and on their way -- on the road.

And they don't have plans to pull them back.

And for the long term, I believe such policy or such decision will generally be positive to the solar or industry as general because it will further extend the installation timing by another, let's say, even 2 years' time.

And also it will encourage more developers to start their development cycle investment in order to get more, let's say, projects online.

So in general, we believe it's kind of positive to the solar industry as a whole.

Meanwhile, we don't see a significant delay from our customer end.

Good.

And then just on your -- sorry, go ahead.

Sorry, Maheep.

I just want to supplement.

If you look at the cost structure, the cost we are talking about, it did not include the warranty cost, shipping cost, which depending on different regions, it's usually in the range of $0.01 to $0.03.

So it's just supplement.

Yes, that's fair enough, yes.

Sorry, on the U.S. contract, do you have a multiyear gigawatt, multi-gigawatt shipment contracts in the U.S. markets?

Could you just talk about the nature of those supply contracts, like if it's fixed volume or fixed prices or are there fixed duration?

And what flexibility do the developers do you have on these contracts?

Yes.

So Maheep, we are not in a position to disclose the details of it.

But from what we have planned and what we have seen is the plan from our customer, and it's very solid.

And their financial model and the project execution plan is very reliable.

That's what we can say.

Got it.

And in your prepared remarks, you spoke about the China market picking up in second half of '19 and in 2020.

And potentially with the IRS, you'll also have more demand in early 2020 as per your remarks.

So are you -- so when do you plan to expand capacity to address these markets?

Or when do you think that decision will come in?

And then the other side is just like how does this impact your [margin] consolidation?

Like when do you see potentially consolidation in the industry?

We believe the industry will consolidate.

But we think it's -- it could happen in 2019 and particularly for the capacity with other technology.

And for the companies, we (inaudible) trending and the global sales capabilities.

Got that.

And could you just touch on your capacity -- yes?

Could you just touch on your capacity expansion plans to address the China and the U.S. demand?

You mean this year or next year?

No -- yes, either way, either this year or later years?

Yes.

For next year, it's too early.

And we need to come in and evaluate the market situation.

This year, we are trying to stick to our plan.

We can say our -- (inaudible) our plan of the capacity by the end of the year.

We just announced that.

So we are quite now -- quite stick to that plan.

Okay.

And then just last question from me, like how much capacity addition are you seeing from competitors or peers on the poly wafer and cell in 2018 and 2019?

Sorry, can you repeat?

I missed you for the first part.

Sorry.

Just trying to understand how much capacity expansion are you seeing in other companies in the industry this year and next year in the polysilicon wafer and cell supply chain?

I don't -- Maheep, this is Gener.

I don't think that there will be too many new capacity expansion plans.

I think according to what our peers have announced that their expansion plan, it might be possible some of the expansion plan will be postponed or even put on hold for a while, given the current market circumstances.

For the detailed number, we do not have -- at least I don't have a number on my hands right now.

But I think the market, the capacity expansion plan will be slowed down quite significantly.

But probably, we think polysilicon, the CapEx expansion will be -- compared to other parts of the inventory, polysilicon expansion will be bigger.

Because it's still in the process of domestic polysilicon to replace the overseas polysilicon.

(Operator Instructions) Your next question comes from Brian Lee from Goldman Sachs.

Maybe first one, just going back to an earlier question.

The 2018 volume guidance, you haven't changed it here.

It implies 50% to 60% year-on-year growth in the back half off of a pretty flattish first half trajectory.

And as recently as Q1, you were talking about China being your biggest market.

Obviously, there's been a policy shift there.

You've taken your view down in China by, it looks like, 10-plus gigawatts versus what you were thinking 3 months ago.

So question is just where is the confidence coming from that you can grow that much in the back half of the year and you don't have to change this full year guidance view?

And it seems like something is offsetting the weaker China that as of 3 months ago, you weren't thinking was going to be that down on a year-on-year basis.

So just trying to reconcile how the guidance isn't changing when your biggest market as of 3 months ago per your comments on the call has changed quite dramatically.

Yes.

So Brian, this is Gener.

So firstly, if you look into our Q1 geographic mix, you will see the percentage from China is much lower than the other key markets.

So that's why we are seeing the -- even if there's a headwind from the China new policies, we feel we are confident about the guidance.

And then secondly, regarding the China demand itself, our plan to be focused on the demand from China, especially from this Top Runner Program, together with the poverty alleviation programs, are still there.

And those 2 main demand drivers are still not impacted much.

The canceled or the decreased demand from this DG market, together with some (inaudible) DG market and some -- the standard or the no more, let's say, [ground mountain] projects, where we have not been planned for the year of 2018 too much, even at the beginning.

So that's where our confidence comes from.

Okay, fair enough.

And maybe just staying on China for a moment, you mentioned the 35-plus gigawatt view for '18.

I know there's a policy factors that could come into play that aren't transparent yet for 2019, so it's a bit early.

But you talked optimistically about '19 in China.

What's your general view on what demand could look like if you think about the different buckets, Top Runner, PV, poverty alleviation?

And then, I wanted to drill down into grid parity projects a bit.

How big do you think that bucket of demand could look in 2019 from these unsubsidized volumes in China?

I think personally, I'm a big fan of China market for '19, even '20, because really the -- this new unsubsidized market will be a huge one.

If we look into the numbers, I think the China '19 number, the floor number everyone knows will be 21 gigawatts.

But I think it will be go -- it will be highly possible to go up to 30-plus even 35-plus gigawatt again by 2019.

And by '20, I think the number will be even greater than '19 -- sorry, '20 will be even greater than '19.

So mainly, if you look into this unsubsidized market, you will see a huge market potential because the benchmark price now is, let's say, RMB 0.35 per kilowatt hour.

However, even when we look into this year's Top Runner Program in Qinghai Province, the lowest base price is already like RMB 0.31.

It's already below benchmark, right?

So I think that happened before the new policy, right?

After the new policy, we have such a huge chunk of this decrease of the market price.

I think that will further accelerate the grid parity market in China.

And the government will be very happy to see it.

No, that's helpful.

And just maybe on...

So just one -- Brian, this is Sebastian.

And there's one part of the demand we haven't discussed yet.

This is the residential because as all -- we know that residential market is within the quota by the new policy.

But in fact, we already hear lots of rumors about the policy, there may be some new policies about the residential ones.

So we know that last year, it's almost 2 gigawatts of residential projects, so still great potential for this segment of the demand.

Okay.

No, that's helpful.

Just on grid parity, one last question on that.

What do you -- the RMB 0.35 per kilowatt hour, that's helpful from a benchmark perspective.

What are you generally assuming is the cross-seller point for installation costs to get to those grid parity levels on large-scale solar in China?

And then what are the embedded returns you think that will entice developers to build on an unsubsidized basis, whether unlevered or levered?

Any color there would be helpful.

Yes, that will be a complicated question, Brian, because the benchmark price are different for different products.

The RMB 0.35, I meant -- I just mentioned, is from Qinghai Province.

Actually, if you look into some eastern coast province, the benchmark is even over RMB 0.40.

So that varies a lot.

Second, regarding the returns, so if you say price, I think that varies a lot as well because it depends on the land cost, the grid connection cost, et cetera.

But in general, we believe the current or the last round of the Top Runner Program has successfully built up a business model to prove that the grid parity market is there and it won't be that difficult to access.

Okay.

A couple of questions on pricing for me and I'll pass it on.

Just maybe housekeeping, what was the ASP average for Q1?

And then, we're sitting here in late June, so what's the assumption for Q2 on average ASP for the quarter?

And then second half pricing?

Brian, I think we do not disclose ASPs anymore.

But what we can see is that the Q1 ASPs are slightly lower than Q4, very tiny changes, right, they're single digits, even low single-digit percentage change.

And then Q2 compared with Q1 will be another slight decrease again.

And for the second half ASPs, definitely it will decrease because of market price for us.

But you see our cost is decreasing as well.

So the market looks better than first half.

Okay.

And maybe just one follow-up there.

You have 80% booked, it sounds like, with the prepayments and clarity on pricing.

The 20% that's uncontracted today, I'm sure you're working on the quoting activity for that.

Where -- how much lower are the quotes coming in on that on contract capacity after having digested the current state of the state in terms of supply-demand and what real-time pricing is doing?

Just curious how strong is the locked-in pricing relative to what you're seeing in the real contracting...

I got your question, let's say -- yes, I got your question, let's say this.

So after this China new policy announcement, we have seen the market price has been dropped approximately 15%.

That's what we have seen from -- that's mainly from China.

And -- is that number helpful for you?

Yes, that's helpful.

We are not quoting [frequently] now in China because now we think the market definitely -- the prices (inaudible) it's not rational.

So we will wait and see where we have a lot of orders on hand.

So we will keep our flexibility to see what happen in the second half of the year.

I'm [sure the market could stop,] so that's our strategy.

We are not in hurry.

Yes, you're not in a rush to lock in pricing.

I guess, on the flip side, what we've seen in past downturns is that customers can be somewhat reluctant to step in when they think pricing can keep going lower than the whole catching a falling knife phenomenon.

Are you seeing customers waiting on placing new orders because they think they might be able to get better pricing the longer they wait out?

It really depends on their pipeline or their project status, right?

Some of them might have the flexibility to say to wait for another couple weeks or even months.

But some of them, they may face as a result of -- they may face the pressure of this build timing, construction schedule, et cetera.

So they may have -- they might have to make some decision now or [immediately].

That's why we still see some of deals are happening in this market.

Your next question comes from Alex Liu from UBS.

So I have two questions.

First one is actually about your exchange loss.

So what's your strategy now to offset potential movements in the currency?

And any chance there in the second half to recover some of the exchange loss?

And second question is about your view about the global demand.

So what's your estimate about the global demand this year, especially for the emerging markets, like India, Middle East?

Sure.

And for the first question, foreign currency exchange.

In the first quarter, particularly in January, the RMB appreciated by 3% to 4% and we hedge around [15%.] But if you look at our exposure, 80% is overseas sales revenues.

And we still get hit in the first quarter.

But RMB has been depreciating a lot in the recent months.

So we are expecting we will recognize a lot of gains from foreign currency transactions.

And we'll continue to monitor foreign currency transactions.

And it's good when the RMB depreciates, it's good for both gross margin as well as the foreign currency gains.

And at the same time, we are hedged some portions based on our assessment for the currency movement.

The second -- for the second question, we assume in general this year, global demand will increase by double digits, probably reach to 16 gigawatts the whole year for the overseas market.

Sorry, your shipment or the global demand?

I mean, what's your (inaudible)

Global demand.

Yes, okay.

Okay, got it.

Yes.

Sorry, the logic is to say that global demand, even the China sales, can decrease, let's say, by 15 gigawatts.

However, the new lower price will further accelerate or pull in some demand from other emerging markets, who were waiting for a low price reaching their target previously.

So that's kind of an offset, let's say.

Yes, what's your -- you [asked me] about the India demand.

And of course, based on your other growth from there.

Not only India, India is one of them.

But a lot of markets will do the same because they have their own budget waiting for the module price or the system cost there reaching their target price.

As there are no more questions in queue, I would now like to hand the call back to your speaker today.

Sebastian, please go ahead.

On behalf of the entire JinkoSolar management team, I will thank you for your participation and interest on this call.

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.

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

Thank you all for your participation.

You may all now disconnect.