晶科能源 (JKS) 2018 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Quarter 3 of 2018 JinkoSolar Holdings Co.

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 third 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 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 Jinko's business operations and company highlights, followed by Mr. Miao, who will talk about the sales and marketing, and then Mr. Cao 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 Security 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 filing with the Security 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, good evening to everyone, and thank you for joining us today.

(foreign language)

Module shipments hit a record high of 2,953 megawatts during the quarter, an increase of 5.7% sequentially and an increase of 24.4% year-over-year.

Total revenues were USD 974.8 million, an increase of 10.5% sequentially and an increase of 4.3% year-over-year.

Gross margin increased to 14.9%.

Excluding the CVD reversal benefit, gross margin was 12.8% compared with 12% of last quarter.

(foreign language)

While Chinese demand softened following the May 31 policies, yet our business continued to grow, thanks to our diverse global customer base and strong brand recognition.

Overseas module shipment account for almost 80% of our total shipment during the quarter.

Our products are now in short of supply with shipments expected to increase another 27% to 30% in Q4.

This contrasts with most of our peers, who are seeing their business slow down during the second half of the year or are cutting their full year guidance.

(foreign language)

Despite the negative impact from the May 31 policies, China installed 34.5 gigawatts by end of September, which is already higher than some analysts' forecast for the entire year.

Recent positive change from policy side are providing support for a possible rebound in Chinese demand for next year, especially the solar industry symposium held by the NEA at the beginning of November, which discussed a possible huge increase in the current 5-year plan target and the statement that the cut-off of solar subsidy will not be once for all and to support a smooth transition from a policy-driven industry to a grid parity driven one.

More detailed policies are also expected to be announced in the near future.

As the industry leader, we will continue to focus on the top runner projects and the poverty alleviation projects, and we'll take advantage of the increasing opportunity for the grid parity projects.

We are firmly confident that Chinese demand will return next year.

(foreign language)

According to the U.S., the IRS recently issued safe harbor rules for the new solar projects.

You will have heard we again building solar energy project by December 31, 2019, and put them in service before 2024, where they're eligible for 30% investment tax credit, which is expected to further drive U.S. demand for next year.

We will leverage our oversea manufacturing capacity, including our U.S. production facility, as well as our strong brand recognition and advantages of our products and services to further expand our presence in the U.S.

The safeguard duty in the Indian market had a short-term impact.

But the government's ambitious solar plan is still moving forward, which will heavily rely on the supply of Chinese solar products.

We will adjust our strategy accordingly and increase our market share there.

Southeast Asia and Oceania markets are growing fast, especially in Vietnam and Australia where JinkoSolar products are sweeping the markets.

We're well prepared to generate sustainable long-term growth as the market continue to grow.

Driven by grid parity, European and Latin American markets are also showing new opportunities.

I would like Gener go over this in more details later.

(foreign language)

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

We are constantly optimizing the cost structure of our products.

On the wafer side, we continue to make progress in improving wafer efficiency and reducing both oxygen content and light-induced degradation.

At the same time, we lead in industry in developing silicon wafers, improving efficiency, diamond wire cutting and reducing water consumption.

On the sales side, we made breakthroughs with a new generation of N Type HOT cell and optimized the structure of our P type PERC cell to further improve its efficiency.

On the module side, our Cheetah Series are selling rapidly and in shorter supply.

Our 72-piece mono PERC Cheetah hit above 400 watts in total output during mass production.

We're also rolling out high-efficiency products of fine-finger, double glass and shingling technology to meet clients' wiring demand.

We'll have to say that constant technological development has not only enabled us to provide our clients with competitive, high-efficiency products but also allow us to sustainably cut costs.

We are confident in our ability to further optimize our cost structure going forward and are fully prepared to enter the era of grid parity in near future.

(foreign language)

Turning to the manufacturing capacity.

Our internal wafer, cell and module capacity reached 9.2 gigawatts, 6.5 gigawatts and 2 gigawatts, respectively, at end of third quarter.

We expect to reach 9.7 gigawatts, 7 gigawatts and 7.8 gigawatts, respectively, at end of the year, of which approximately 5.7 gigawatts will be mono wafers and approximately 4.2 gigawatts will be PERC cells.

(foreign language)

Overall, we're feeling confident about Chinese and global demand next year, and solar energy becomes more and more competitive.

This trend is irreversible.

We're now ideally positioned to benefit from the growth in solar energy, and I'm confident in our ability to further expand our market share, distinguish ourselves from the competition and consolidate our leading position in the industry.

(foreign language)

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

Based on the current estimates, total module shipments will be in the range of 7 -- 3.7 to 4 gigawatts for the fourth quarter and will remain 11.5 to 11.8 gigawatts for the full year.

(foreign language)

Thank you, Sebastian.

With that, I will turn it to Gener.

Thank you, Mr. Chen.

In the third quarter, Jinko's products are selling well and have penetrated over 80 countries worldwide.

Strong quarterly performance helped our module shipments to reach a record high volume of 2,953 megawatts.

We expect that this momentum to continue to grow in the fourth quarter.

2019 is looking promising as well as a big portion of our order book has already been filled.

In terms of the shipment distribution by geography, during the third quarter, most shipments went to emerging markets, followed by Asia Pacific, China, North America and Europe.

We continue to see a steady expansion of our global footprint that will further reduce the risk of over-reliance on a single market.

We are able to successfully achieve this due to our continued efforts on offering localized services along with a full range of product options tailored to clients' needs.

As Mr. Chen said, we remain optimistic about global demand growth next year, and we are confident in our ability to generate sustainable growth and strengthen our leadership position in the industry.

Sentiment in China's solar market improved following the National Energy Administration meeting in early November 2018.

The market now expects that the original 13th 5-year solar targets to be adjusted upwards and is waiting for the government to announce new policies supporting new installation targets and subsidies.

Jinko plans to take advantage of this opportunity by focusing on the next round of top runner projects, poverty alleviation projects as well as newly announced grid parity projects.

China is fast approaching grid parity in many provinces.

We will expand our market presence and promote the latest products and technologies to the world's #1 market.

The U.S. market continues to show good growth and high potential.

Market ASPs remained stable during Q3.

Internal Revenue Services safe harbor rule guidance that took effect in June give developers an additional 4 years to complete their projects in order to receive investment tax credit.

The new law determines tax credit based on construction and commission date.

Developers can enjoy up to 30% investment tax credit if they start construction before 2020 and the commission before 2024.

This policy is expected to further stimulate demand in U.S. next year and beyond.

Jinko's 2019 U.S. order book is looking very healthy with big orders already secured.

Switching to Asia Pacific region.

We forecast a good demand in the Japanese market with 2019 installation target in the 6 to 7-gigawatt range as PV market gradually transits from a feed-in tariff to an auction model.

JinkoSolar's products have been well received in several major markets in Southeast Asia and Oceania, especially in Vietnam where the market is expected to install over 2 gigawatts next year.

We anticipated and planned for the growth in Vietnam and are confident that we are ideally positioned to benefit from the long-term growth opportunity there.

In the region, markets such as Malaysia and Thailand are also growing -- showing good market potential next year.

While the India safeguard duty announced in September creates some turbulence for the market, the government remains committed to its ambitious solar plans.

According to the market intelligence, India is aiming for adding 10 to 11.5 gigawatt and 14.7 to 16.2 gigawatt installation targets for 2018 and 2019, respectively and raised their 2022 cumulative installation target from 175 gigawatts to 227 gigawatts.

The depreciation of the local currency is creating some short-term pressure for developers, but we are optimistic about the long-term future of the Indian market, and we'll closely monitor the situation there while adjust our strategy accordingly.

European markets are doing well despite the short-term fluctuation of module prices after the expiration of minimum input price.

We believe this development will actually accelerate the trend towards grid parity, resulting in an increase to demand, especially in the U.K., Italy, Spain and Greece.

In fact, many European countries are very close to grid parity or have already achieved it.

Grid parity will bring about more demand across European countries.

Emerging markets are gradually becoming the main drivers of global demand and accounted for the biggest portion of JinkoSolar's total shipment in Q3.

This growth was driven by manufacturers, including large-scale applications of new technologies and products in Latin America, rapid growth in Mexico and expansion of Brazil's [GG] market.

JinkoSolar retained its market leadership in a number of Latin American, the Middle East and African markets.

We will leverage our cutting-edge products and extensive sales distribution network to promote our products in these regions.

ASPs in Q3 decreased slightly compared to the previous quarter.

But as Mr. Chen just mentioned, our continuous efforts to develop highly efficient products is helping us to cut costs and stay ahead of the market.

As solar efficiency increases and the cost decreases, the competitiveness of solar energy versus other energy sources will improve and help increase the pace towards grid parity.

JinkoSolar continues to demonstrate how product quality, technology and reliability are leading the market.

As a strong testimony of our efforts, Bloomberg New Energy Finance again in this quarter named JinkoSolar as the most bankable PV manufacturer for the second consecutive year.

Also for the first time, we received the best brand of the year award by the World Brand Forum.

The growing list of accolades awarded to JinkoSolar reflects the recognition of our brand, our products and our strong position in the market.

We continued to build and develop new marketing and technical capabilities during the quarter.

After launching our new flagship Cheetah Series in Q2, JinkoSolar attended exhibitions and 35 conferences worldwide as part of our promotional efforts in Q3.

We also hosted 15 major customer events and 115 co-marketing events with key partners across the globe.

This global marketing event allowed us to reach new and existing customers and educate them on our high-quality products with cutting-edge technology.

With that, I will turn it over to Charlie.

Thank you, Gener.

I'd like to walk you through our Q3 results.

Total solar module shipments were 2.95 gigawatts, up 6% sequentially and up 24% year-over-year.

Total revenue was $975 million, up 11% sequentially.

The sequential increase was due to the strong solar module shipments.

Gross profit was $145 million compared to $110 million in Q2, thanks to the increase in shipment of solar modules and a CVD reversal.

The gross profit in Q3 includes the benefit of CVD's reversal of $20 million based on the final results in the administrative review published by the U.S. Department of Commerce.

Gross margin was 14.9% or 12.8% excluding the CVD reversal benefit compared to 12% in Q2.

We achieved a higher gross margin through a combination of our diversified, strong global sales and continued cost reduction.

The operating expenses represented 12.1% of total revenue compared to 10.4% in Q2.

The increase is due to the increase of shipping costs as a percentage of revenue with lower ASP and more module shipments out of China.

We also invested more efforts on sales and marketing efforts to solidify our leading brand.

Net exchange gain was $14 million compared to $3 million in Q2 due to the continued RMB depreciation against the U.S. dollar.

EBITDA was $74 million compared to $59 million in Q2.

Net income significantly increased to $27.5 million compared to $15 million in Q2.

Non-GAAP net income was $30 million.

This translates into non-GAAP diluted earnings per ADS of $0.76.

Now moving to the balance sheet.

The company had $442 million in cash, cash equivalents and restricted cash compared to $387 million at the end of Q2.

The accounts receivables were $955 million, down from $1.1 billion at the end of Q2.

Inventories were $810 million, down from $890 million at end of Q2.

The total debt was $1.4 billion compared to $1.4 billion at end of Q2.

Overall, we closed Q3 with strong results.

Our leading market position, outstanding product and strong execution continued to strengthen our competitiveness.

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

Operator?

Operator, we are ready...

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

So to start with, can you talk about the earnings impact from the CVD reversal in the quarter?

And how should we think about CVD reversal in Q4 and 2019?

So Maheep, this is Charlie.

And for the CVD reversal, in general it's no specific onetime situations.

It's related to the 2015 regarding our countervailing duty we paid.

And based on the final results announced by the U.S. Department of Commerce in July this year and we trued-up the impact, it's -- the impact to the Q3 is around USD 20 million.

But if you look at the impact to net income, you need to think about the tax impact, which is around 25% in U.S. So for -- in general, for Q3, the impact is -- to the gross profit, the impact is $20 million.

And to the net income, impact is around, I think, $15 million.

And looking to Q4, it's a very special situation.

The U.S. Department of Commerce has cut down the rate.

They added down -- countervailing rates again in October.

So the impact is around $9 million and -- in Q4, and we are going to record the impact in Q4 this year.

But looking to 2019, we don't expect any -- the same kind of onetime countervailing duty reversal next year.

Got it.

And there's $9 million gross profit impact, right, in Q4?

Yes, in Q4 and -- yes, yes, you're right.

And just looking at the OpEx in the quarter, it increased.

And I think in the prepared remarks, you talked about the higher shipment expense.

Could you just talk about like what drove that higher shipment expense?

And how should we think about that in Q4 and 2019?

Yes.

The operating expenses is kind of a combination of 2 factors.

One is the shipping cost, which is higher in Q4 because we have 80% shipments out of China.

And particularly, we have some shipments in long-distance area like the Latin America.

In United States and Middle East, the shipping cost is relatively higher.

And second one is we invested a lot of -- one -- big amount on the marketing and the sales side, and -- which we don't expect it's standard numbers.

So looking to next quarter, we expected the operating expenses as a percentage of revenue is in the range of 10% to 11% compared to 12% in this quarter.

Got it.

It's interesting.

And regarding your marketing and sales, could you talk about the new geographies you have invested in or where you see more demand coming in next year?

Yes, I think Gener -- in the prepared remarks from Gener is talking about we are optimistic on the 2019 demand from global as well as China.

China is expecting new China policies coming out by end of the year.

And the second one is we are seeing a lot of demands from -- because of the grid parities, it's becoming more competitive from the -- which is going to create a lot of demand from other countries.

Got it.

And then -- and just one last question from me and then I'll jump back into the queue.

So the upper end of the guidance was reduced by 200 megawatts.

Could you talk about what drove that guidance reduction for 2018?

Is it just weaker demand -- weaker-than-expected demand in Q4 or more shipments to the downstream business?

Or -- and also on that, can you talk about any cancellations or -- in your booked module shipments?

It's -- I think it's purely the issue of the competitive and the demand is pretty strong.

And we are seeing strong demand even in China, and we are not able to have sufficient capacity to meet the demand from customers.

And so back to your question, it's because we have limited capacity and we have turned down some customer orders.

So that is the reason why you adjust slightly for the fourth quarter shipments.

I'd say I think -- this is Gener, Maheep.

I think that the guidance is still within the lower end of our previous guidance, which is 11.5 to 12 gigawatts.

So we are at the lower end.

The bottleneck, as Charlie just mentioned, is because the limited capacity we have and the fact that we have to push away a lot of customers' inquiries and orders right now.

So we don't see any cancellation.

And vice versa, we have to push away some of the customers' strong demand.

Your next question comes from Philip from Roth Capital Partners.

On your last conference for Q2, you highlighted that margins should be more than 15% in the back half of the year.

Without the $20 million CVD reversal benefit, you guys delivered 12.8%.

So what happened there?

Was it a case of ASPs kind of coming in lower than expected?

Or did costs go higher than expected?

So what happened in Q3?

Yes.

Two questions.

We did expect 13% gross margin in the third quarter, excluding the CVD reversals.

But when we reflect our results in the Q3, I think it's a result of 3 factors.

The first factor is we shipped around 20% shipments in China in Q3.

And after the main China new policies, China demand is pretty low, and the price is softening down dramatically than what we expected.

And the second one is we have been working very hard on the cost-reduction side.

And we have achieved around 10% cost improvement in Q3.

But some of the cost improvement impact are not going -- were not reflected in the Q3 results because it's recorded on the inventory side, which is carried forward to the fourth quarter.

The third one is we forecast our gross margin based on the exchange rate, which is RMB 6.9 against U.S. dollars.

And if you look at our financial statements, we recorded around USD 15 million in exchange gain and which are reflected in the gross margin in the fourth quarter.

So it's 3 factor driven and lower ASP in China and some cost-reduction efforts reflected in the inventory not in the cost of goods sold, is otherwise currency.

It's recorded in -- not in the gross profits, it's recorded below the operating income line but will be reflected in Q4.

Okay, that's a lot of good color.

So looking ahead to Q4, do you see potential for 15% gross margin still?

Or because of -- so I guess the question is, what is the outlook for margins in Q4?

And then one on ASPs.

We, I think, forecasted $0.35.

And now I think we're calculating $0.33.

So can you share what the Q3 ASP is for Q3?

And also, what you expect for Q4?

So let me pick up the ASP question first.

So our Q3 ASP is, let's say, decreased slightly compared with Q2.

And we don't disclose the detailed numbers, but what we can see is single-digit decrease compared with Q2 ASP.

Yes, especially considering -- this is Sebastian, especially considering the impact of the new policy in China in fact we -- as we compare our ASP with our peers, this pace of decreasing we think is very very -- is already very good.

And for the gross margin, I just want to take a conservative approach because the demand is pretty strong and is the material cost for the production, material cost not expected to go down as quickly as we anticipated.

So for the gross margin, we expect, excluding a CVD reversal, on quarter-over-quarter basis, it's quite stable.

Okay.

So stable with Q3.

Great.

And we're seeing one of your peers stay on the top with good margins being able to generate 15% -- well, 20-plus percent gross margins.

Can you -- they're kind of talking about how they're highlighting and focusing on higher margins and lower volume.

Chen Zong, from your situation, you might be choosing some more volume over the margin, so help us understand how you're thinking about that volume versus margin equation and why you're choosing the volume instead of the margin?

Firstly, I don't want to comment on our peers' performance, but I know you're talking about our competitors and they did deliver, I think, strong results and -- but I think it's not sustainable.

But for the balance between the volume and gross profit, I think our priority is, we want to deliver shareholder values and we don't want to chase onetime high profit and that we want to have the balance.

And definitely, we're not going to get to market share by sacrificing our profitabilities.

So of course, there's a lot of work we're going to do, but we want to have the balance the volume against our profitabilities.

Yes.

So Phil, this is Gener.

Sorry to say, but I cannot agree with your statement saying that we have to sacrifice the volume against the margin.

Actually, we are pretty confident we have the capability to deliver good margins with great shipment numbers.

That's what we are working hard on.

Okay.

Great.

And then I'll shift over to China's outlook.

I think you guys mentioned that you're confident in demand for next year, Chinese demand.

This year, you mentioned, and we've seen demand thus far of about 35 gigawatts.

So with about 10 gigawatts in Q4, maybe we get 45 gigawatts this year for China.

What do you expect with the potential NEA changes, how big could the Chinese demand be for 2019?

And could we see 55 gigawatts?

What kind of volume do you expect for next year as a market overall?

Yes.

So this is Gener.

I think, firstly, we are having such confidence about China market demand.

That's the message we have gotten from the government, meaning from the governor meetings as well.

So everyone in this industry, I think, share the same will.

Regarding the detailed numbers, I think you're right, the first 3 quarters, China recorded around 35 gigawatts.

There could be another approximately 10 gigawatts by Q4.

That's adding up around 40 gigawatts-ish, 45 gigawatt-ish market side.

That's already experienced a shakeout time by low installation number in Q3 because of the new policy.

By the -- after this new November policy meetings happened I think everyone in this industry looks at China market as a promising market.

So the low number I heard or I hear is about 55 gigawatt.

That's back to the 2017 level.

Even somebody is saying up to 60 gigawatt level.

But again, because the policy has not been finalized yet, we think, it still takes some time to get into the detail of those policies, then it's quite challenging to forecast a detailed number.

But the whole industry are forecasting the strong demand in China not only for 2019, but also for the next even 3 years' time.

Great.

That's helpful, Gener.

When could we get that information from the NEA?

I'm hearing a number of things.

It could be by the end of the year, but it can also be by Chinese New Year.

Do you have any sense for when the details from the NEA could come out?

Well, let's say, sometime between year-end 2018 and Chinese New Year 2019 because the Head of NEA China just changed, so I think the new head needs to take some time to pick it up.

But I don't think it will change the direction, so it will come.

Yes.

This is Sebastian.

In NEA, at this time, first like as Gener said, there is sufficient time for NEA leadership.

Secondly is that I think at this time from what we've heard, they were issued policies state-by-state because there are different sections of solar project with a different type of solar projects in China.

So at this time, they will announce for each section probably state-by-state.

For example, they may announce Top Runner project transfers and maybe see some reaction of the market.

And they were not new subsidized projects there for next year and probably win rooftop projects, so this won't be just onetime announcement.

So they will do it state-by-state.

Your next question comes from William from UBS.

My first question was just, I was wondering if you could give us an update on the ramp of the Florida module assembly facility and is that running in line with your expectations at this point?

It's on schedule and we have started a pilot operation for the Florida factories, and we expect to ramp up the factory to full capacity in early next year.

Got it.

And then my next question was just on how do you think about your concentration of key markets going forward?

You guys used to be heavily weighted towards shipments to China.

Now that's in the third quarter more heavily weighted towards emerging markets.

So in 2019, are you expecting to shift back to a higher concentration of China shipments?

Or do you expect to remain more diversified?

Yes, I think -- this is Gener.

I think it's a great question.

From the strategy we provide, JinkoSolar has always been doing its best to, let's say, to spread the risk into different markets.

As I talked previously, we tried to avoid rely on a single market risk.

And that's why the weight of the, for example, China shipment weight in Jinko keeps decreasing from last year to this year.

And if we're looking to the chart I have, China only ranks, across all the regions I have, China only ranked #3.

So emerging markets, which is a totally new market, it becomes the largest portion of the shipment in Q3.

Actually, that's the direction we're working on.

In Q3, we have covered almost 80 countries, over 80 countries shipment in Q4.

In Q4, we will continue to ship another, I think, 18 -- 80, even 90 countries shipment.

That's the way we are trying to diversify the risk.

And that's the continuous job we were doing -- we will continue to deliver to our shareholders in 2019 as well.

So to just give you a sense, our largest market we have is -- the largest single country we have is below 20% shipment in Q3.

Your next question comes from John from Luminus.

Just a couple of questions, if I could, real quick.

First off, what's the expectation for CapEx for the fourth quarter and then for 2019 as you guys continue your growth plan?

John, this is Charlie.

For the CapEx, we just disclosed in the presentation, in our PPG, and it's divided by the module business and the international projects we're constructing.

And for the module business and for Q4, it's around, I think, USD 58 million to USD 60 million.

And for 2019, we are still budgeting the CapEx next year.

It's going to take very conservative and prudent approach.

And we don't expect significant investment in 2019.

Our focus is to work with our strategic suppliers to deliver high-quality product to our customers.

And we're expecting to announce the CapEx next year in the next earning call.

Okay.

Great.

And then can you guys give us a sense maybe what poly prices flowing through the 3 quarter results and kind of what you think poly prices flowing through fourth quarter would look like?

The poly price, we're talking a lot after the new China policies.

And in Q3, I think it's around $9 to $10 per kilo for multi and mono.

And for Q4, we expect the poly price to be stable because of the volume from the new capacities were unlimited and the new capacities in a ramping up stage.

And next year, Q1, we expect the new capacity ramping up for volume.

And it maybe the poly price will be down a little bit in Q1 next year.

Your next question comes from Brad from Williams Trading.

When you talk (inaudible)

Pardon the interruption, Brad.

Your line is coming in and out.

Hey, Brad?

(inaudible)

Operator?

Operator?

Yes?

The reception is not very good.

We cannot hear what Brad says.

I agree.

Brad, are you able to hear us?

Your line is coming in and out.

We're unable to hear or understand what your question is for our speakers today.

Can you try and repeat your question?

My apologies everyone.

Brad seems to have disconnected his call.

(Operator Instructions) Your next question comes from Gordon from Bloomberg.

Can you guys maybe talk a little bit about the Japanese market?

There was some news out of Japan last week around the potential for cuts to incentives for projects that have not proceeded ahead with construction.

Can you talk about what your plans are in the Japanese market, if you currently have any exposure there?

And what's your view is on how that could potentially adversely or positively affect demand in Japan?

And then I have a follow-up.

Yes.

Thank you for your question.

This is Gener.

I think that's a very interesting question.

If you overlook the global PV market, you will see all the major markets are moving to the direction of the grid parity.

Especially, I think the Japanese market is one of the very few market who are still implementing the feed-in tariff policy.

But we have seen that they are trying to transit from the feed-in tariff-driven policy into this auction or PPA auction based market segment.

And with the new government intention of this construction limits and the time limits, I think that will steadily help the market to transit.

However, the Japanese market has some traditions that the PPAs always takes a long time to implement.

And even by now, you will see a lot of old-time PPAs on this market.

So our personal view is the Japanese market transition will take a while.

However, it will come for this PPA-based auction or the feed-in tariff fee market for Japan.

Okay, that's helpful.

And then just taking a step back, looking at what China has done thus far this year, year-to-date, we're just under 36 gigawatts of installation.

I think I would argue even the bulls out there had China for the full year at 36 gigawatts.

So China is going to surprise, I would argue, significantly to the upside on installation.

Yet despite that fact, ASPs in China are down roughly 33% year-to-date.

Globally ASPs are down just under 30% year-to-date.

So it seems like the price pressure was still robust despite the fact that China is going to surprise to the upside.

So can you guys give us your expectation on kind of where prices are headed?

Are we going to see this steady bleed in prices continue?

Or do you guys see a stabling out point at some point out there for prices of modules?

Yes, sure.

I think the China market is -- the main reason why China market is so sensitive about the pricing is really because, first, it's very close to all the major manufacturing.

Shipping time, the transportation time is much shorter compared with, for example, U.S. or Europe or all the other major markets, so that's why it's highly sensitive.

Anything happening from upstream to downstream, the information is transferred very rapidly.

That's why the market price change so fast and rapid.

And back to your question regarding the future market pricing, we see market pricing start to differentiate because the project segments are different.

For example, if you go to this high-end project like the Top Runner projects, those high-end products are really short of supply.

The ASP, the margins, all the financial numbers in that segment looks much better compared with other market.

And then if you look into the other segments such as the poverty alleviation projects, they really care about this, let's say, the kilowatt hour generated and also the delivery timing together with the pricing, so they are quite sensitive about the whole economics.

And the last big segment will be the grid parity projects or the just latest, say, latest announcement, policy-driven market.

And in those markets -- the investors are really getting rid of this old-time philosophy of price-driven, they're really looking to the benefit of the good product, high-end product together with the economics, so that will get better.

In my view, in long term, China market will become much more rational because of the grid parity in the, let's say, right now in some provinces and very soon in most of the -- every area in China.

Okay.

And then just a couple of points of clarification.

Sorry.

Couple of points of clarification.

You guys said the cost was down sequentially in the quarter.

The ASP was down sequentially in the quarter.

If you guys could give any more clarity around, specificity around those?

And then also, you said you have this onetime benefit in the quarter from CVD reversal.

Just correct me if I'm wrong, that was a benefit from a reversal in 2015?

I think, Gordon, as I just said, from a cost perspective, we increased our cost by around 10% in Q3 quarter-over-quarter, so you can calculate the movement for the ASP side.

And for the CVD reversal, it was around USD 20 million impact in Q3.

Okay.

And that CVD reversal was from 2015?

Yes.

It's 2015, and it's related to the Countervailing Duty repaid for the module shipped in 2015 from China to the U.S. market.

And then just lastly, on the ASP, did you guys give any clarity on the percent decline of the ASP or the absolute amount decline?

No, we don't disclose those accurate numbers.

We don't...

We can say that ASP is decreasing.

ASP definitely is smaller than our cost cutting.

Actually, one just last one, if I could.

Just on OpEx.

The OpEx was up sequentially in the quarter.

As we look to 2019, I know this may not be an easy question to answer, but should we assume a similar weight of OpEx in 2019 as you guys focus more on international markets?

Or do you think you're going to shift back to your traditional Chinese market share?

I think for the market distribution side, we will continue to focus on this balanced market shipments.

We will not rely on a single market risk even because the market goes up and down all-time long.

So we will try to get the best distribution portion in 2019.

Your next question comes from Scott from Citigroup.

I have a few questions about on the order book and also on the margin outlook.

So I would like to understand more about especially the order book in the first half of '19.

I know that second half of '19 is going to be quite good, but how is the visibility now in the first quarter...

Scott, could you speak up?

We cannot hear you clearly.

Can you be louder?

Hello.

Yes, I just want to ask about the order book in first quarter, how is the visibility now?

Yes.

From the market demand side, we continue to be very optimistic, as we said previously in the statement.

And we see the market demand is stronger even than 2018.

Our order book are pretty well positioned.

And I think we should -- we will discuss more in our next earnings.

But right now, we are feeling pretty good position for '19 order book.

And we feel very confident about growing market demand next year.

Yes, Scott, this is Sebastian, not only in Q1, but like Gener said, in fact, we have good visibility for the whole year of 2019.

That's very good for us.

Okay.

Understood, so you're not too worried about the demand in first quarter in this case?

Not at all.

Okay, sure.

And also about the split between mono and multi, can I understand the breakdown between these 2 technologies in third quarter?

And also, how is your expectation in future quarters?

For the poly portions and the mono portions actually they're pretty close in the third quarter, let's say, around 45 to 55 range.

Okay.

So 45 multi and 55 mono?

Well, 55 poly, 45 mono.

Okay, okay, okay.

Sure.

So do you expect the mono share will continue to increase?

Yes.

So from the marketing side, we're focusing on more, let's say, higher-end products.

That's the direction we're moving now.

We will see the portion of mono will continue to increase by 2019.

Okay.

How much maybe on the bifacial module side, how much percentage do you expect maybe in 2019?

2019, right?

Well, right now, it's hard to say it correctly.

Yes, it's hard to say because right now, the only massive application for bifacial we're working on is the China Top Runner program.

We have seen a strong market, let's say, interest from customer end.

But right now, not many, not many has determined or make up their mind to decide to buy this product.

But we see that as a future product, but it still needs a long time to justify itself in the market.

Yes, and what Gener said, bifacial for us is not difficult, we're fully prepared for the increased market share for bifacial.

We just wait for the market to be educated and more mature.

Okay.

And my last question is about the gross margin outlook for fourth quarter.

Because I see that the spot price is now dropping by another 20%.

So you just mentioned that you guys have done like 10% decline in cost reduction, but just wondering if -- do you have other plans in Q4 in order to match the price decline?

Scott, first question for you is, what do you mean by another 20% compared to?

Yes, because I just calculated your third quarter ASP should be around low 30s.

But in the spot price now, I think it's around maybe $0.25, $0.26.

So just want to know if that is the ASP in Q4, then how would the cost return be like?

Yes.

From the market pricing side, I rarely see the numbers you mentioned.

Maybe in some special cases, in some special markets, there -- it appears in some tier, like I said, Tier 3 even Tier 4 players.

But right now, because of the short of supply right now, I think the market price even goes up somehow by Q4, end of Q4 because of short supply and a strong demand from China last-minute rush.

So that's why I see the market price is not dropping that much, maybe someone is expecting that, but that never happened.

And also, Scott, probably you are only a (inaudible) like Gener said, low-end product and probably multiproduct, but you have to remember Jinko sells a lot of high-efficiency product, mono PERC and other high-efficiency products, so it's not just a simple calculation from the one region and for one particular product side.

So, yes, definitely, my point, definitely, we don't see 20% down from Q3, that's definitely not.

There are currently no more questions in queue.

I'd like to hand the call over back to Sebastian for his closing remarks.

Please go ahead, Sebastian.

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

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

Have a good day and good evening.

Thank you and goodbye.

Thank you, Sebastian.

Ladies and gentlemen that does conclude our conference for today.

Thank you all for your participation.

You may all now disconnect.