晶科能源 (JKS) 2018 Q4 法說會逐字稿

Thank you for standing by, and welcome to JinkoSolar Quarter 4 and Full Year 2018 Earnings Conference Call.

(Operator Instructions)

I would now like to hand the conference over to your host today Ms. Rene Du.

Thank you, please go ahead.

Thank you, operator.

Thank you, everyone, for joining us today for JinkoSolar's Fourth 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 the IR website.

On the call today from JinkoSolar are Mr. Chen Kangping, Chief Executive Officer; Mr. Cao Haiyun, Chief Financial Officer; Mr. Gener Miao, Chief Marketing Officer; and Ms. Rene Du, IR Manager.

Mr. Chen will discuss JinkoSolar's business operations and company highlights, followed by Mr. Miao, who will talk about the sales and marketing, and then 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 obligations to update any forward-looking statements, except as required under the applicable law.

It's 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, Rene.

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

(foreign language)

Module shipments hit a record high of 3,618 megawatts during the quarter, an increase of 22.5% sequentially and an increase of 45.8% year-over-year.

Total revenues were $1.12 billion, an increase of 15.3% sequentially and an increase of 21.5% year-over-year.

Gross margin was 14.7%.

Excluding the CVD reversal benefit, gross margin was 13.8% compared with 12.8% last quarter.

For full year 2018, we shipped 11.4 gigawatts of solar modules, an increase of 16% from 2017, which further consolidates our leading position in global market share.

Total revenues for the full year 2018 were $3.64 billion, a decrease of 5.4% from 2017 because of the lower ASPs.

Gross margin was 14% for full year 2018 compared with 11.3% of 2017.

(foreign language)

Looking back at 2018, although the Chinese market was affected by the policies released on May 31, we were able to continue to grow our business with our strong diversifying global distribution and further consolidated our leading position in terms of market share.

Looking out to the coming year, we expect our module shipment to grow by approximately 30% in 2019.

(foreign language)

On the policy side, the NEA has laid out their plans for a bidding system and is expected to begin granting subsidy approvals again for utility scale projects.

Develop -- these projects will have to bid for government aid, and aid will be based on, among other things, available funds.

In addition, there will be a separate subsidy scale for residential solar systems and property alleviation project.

And more important, subsidies will be prepaid by state grid, which means no more payment delays for new projects.

The new policies set a clear direction for the country's solar plans and will help to greatly improve sentiment for the solar sector as the country try to smoothly transition towards grid parity and encourage a more market-driven environment rather than policy driven.

Based on these expectations, domestic installations are expected to exceed last year's.

DG projects and the projects complete at grid parity will continue to make up a large share of overall installations.

Besides, the NEA is also trying to address the subsidies for existing solar plans.

(foreign language)

Moving over to the U.S. The market there is very active due to the introduction of the solar Investment Tax Credit, or ITC, where solar development has began to launch on orders.

U.S. demands were strong in the second half of the year, and this momentum will continue as more companies attempt to benefit from the 30% ITC, which requires construction to start before 2020 and commissioning to take place before 2024.

For us, we started pilot production at our U.S. manufacturing facility in November 2018.

Since then, we have been steadily ramping up and expect to be fully operational in Q2 of this year.

Given the existing opportunities in the U.S. market, the solar intent to expand our presence there by leveraging all our overseas manufacturing capacity, including our U.S. facility as well as our strong brand recognition, high-quality products and a best-in-class customer service.

(foreign language)

We continue to see strong growth momentum there in Asia Pacific region.

[Business giving credit] quality has taken shape for 2019 to 2021 and continues to encourage market development.

Malaysia, Thailand and Philippines and other Southeast Asian markets continued to maintain robust demand in 2018.

For our business, we will take advantage of our early entry in these markets and consolidate our leading position.

(foreign language)

In Europe after the cancellation of the minimum import price policy, demands from solar power purchase agreement and grid parity products -- projects in the European market is surging, especially in some of the big markets such as Spain, the Netherlands and Germany.

Overall, the EU market is expected to hit 15 gigawatts this year.

Emerging markets are also booming.

Jordan, Kuwait, South Africa and Oman are growing fast.

And we have seen a continuous string of announcements of gigawatt level tenders.

I'll let Gener go over this in more detail later.

(foreign language)

On the technology front, we continue to allocate resources towards the application of high-efficiency technology, while concentrate optimizing the cost structure of our products.

On the wafer side, we continue to make progress implementing large-scale crystallization furnaces to increase productivity.

And we are also working very hard on technologies to reduce both oxygen content and light-induced degradation.

At the same time, we led the industry in terms of efficiency improvements of our diamond wire cutting, continuously reducing our wire consumption.

On the cell side, our large area N-type monocrystalline silicon solar cell reached record high efficiency of 24.2% in January.

We are now focusing on further improving cells efficiency on based on N-type and PERC cells.

Our high-efficiency capacity we're ramping up as we plan to fully switch our existing capacity to high-efficiency capacity.

On the mono side, we just launched our new bifacial Swan module in Japan and it is already attracting a lot of interest.

The module is the latest addition to our premium Cheetah range of products and give us cutting edge transparent capacity with DuPont clear Tedlar technology.

Lightweight material solves a lot of problems on installation site and bring a lower initial cost of energy to our customers.

Constant technology development such as this not only enable 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 an era of grid parity in the near future.

(foreign language)

Intellectual property is important in today's competitive business environment.

Currently, we have been granted over 570 patents globally.

Many of which led the industry.

We will continue to increase investment in scientific research and grow our intellectual property portfolio to maintain our global leading position in terms of technology.

We fully respect intellectual property rights and encourage healthy competition, but we will take legal action to defend ourselves from accusations of wrongdoing.

We refute the allegations made by Hanwha and believe that the complaints are without technical or legal merit.

We are now working closely with our legal counsel and the technical advisers to vigorously defend against their claims.

And we are confident in the position we are developing.

We don't expect any disruption to our normal operation arising from the Hanwha team.

(foreign language)

Turning to the manufacturing capacity.

Our internal wafer cells and module capacity reached 9.7 gigawatts and 10.8 gigawatts, respectively, by the end of fourth quarter.

We plan to aggressively increase our capacity to produce high-efficiency products by increasing both model wafer capacity and PERC capacity and converting our existing non-PERC capacity to PERC capacity to increase output.

We expect new capacity to ramp up in the mid of 2019.

Once completed, the competitiveness of our products will be enhanced and our cost advantages will expand.

We expect to reach 15 gigawatts -- 10 gigawatts and 15 gigawatts, respectively, by the end of the year.

Of this, approximately 11 gigawatts will be mono wafers and approximately 9.2 gigawatts will be PERC cells.

Overall, we believe we are well positioned given the expected significant demand for high-efficiency products and the current structure of our production capacity.

(foreign language)

Looking out to 2019.

We are confident about Chinese and global demand next year as solar energy becomes more and more competitive.

We are excited about the opportunities that lie ahead, and we are confident in our ability to further expand our market share, stand out from competition and lead the industry forward.

(foreign language)

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

Based on the current estimate, we expect our total solar module shipments to be in the range of 2.8 to 3 gigawatts for the first quarter and 14 to 15 gigawatts for the full year.

(foreign language)

Thank you, Rene.

With that, I will turn it over to Gener.

Thank you, Mr. Chen.

I'm happy to report a strong finish to 2018.

Jinko shipped a total volume of 3,618 megawatts in quarter 4 and 11.4 gigawatts for the entire year.

We once again ranked first globally in solar module shipments for the third year running with approximately 13% market share according to analyst report.

The Chinese May 31 policy change did not impact our growth momentum.

Our sales channels now cover over 100 countries.

In terms of geographic distribution, China has the largest demand and accounted for approximately 38% of the total shipment.

The Asia Pacific region was the second biggest, followed by emerging markets, North America and Europe.

In 2018, we further consolidate our #1 position in terms of the shipment by increasing the lead with second place by over 30%.

In 2019, we expect the international demand to account for over 80% of our total annual shipments.

Geographic mix among Asia Pacific, Europe and North America is becoming more balanced.

Meanwhile, shipments to emerging markets are growing and are increasingly becoming more important.

Overall, we are very optimistic about continuing global market growth this year.

We are confident in our ability to maintain our leading position in this industry and to generate sustainable growth over long term.

In terms of market OpEx, I will first start with China where recent imbalance in demand-supply has supported an increase in ASPs, especially for premium products.

In February, market sentiments improved after the National Energy Administration announced the business-friendly policy draft together with industry consultation.

According to various industry forecasts, new Chinese installations in 2019 is expected to be in the range of 40 to 45 gigawatts, which is similar to last year.

As the industry awaits the finalization of this year's new solar policies, the industry expects the DG projects and the grid parity projects will pick up an ever greater share of annual installations in China.

It is the government's aim to help the industry transition from subsidy-driven demand to market-driven demand and smoothly achieve grid parity in the near term.

We are confident that we will be able to take advantage of these expanding opportunities of our grid parity projects while continuing to provide our clients with high-efficiency products with lower LCOE.

Our strategy is to promote industry leading products and the technologies while expanding our presence and market share.

The U.S. market is strategically important to us, and this year is shaping up to be very active.

Solar developers are rapidly putting together projects in order to benefit from the highest possible Investment Tax Credits.

This had created a shortage of high-efficiency products and has supported ASPs.

We anticipate that this policy will stimulate further demand over the next few years.

We will leverage our extensive brand recognition, premium-quality products and services as well as our dedicated local U.S. capacity to further consolidate our presence in this country.

Switching over to Asia Pacific region, we are forecasting good demand in Japanese market.

We expect the 2019 total installations to be in the range of 6 to 8 gigawatts.

Demand is likely to increase in short term, as developers rush to secure the old FIT before it expires.

Solar policies in business are gradually taking shape, which will further boost the sustainability of this market.

Demand across the country is growing from both local and international players.

We see potentials in other neighboring countries, such as Thailand, Malaysia, Indonesia and the Philippines.

Our strategy has always been to establish early mover advantage in local markets.

We believe we are well positioned to strengthen our leading position across the region.

The Indian market is very actively growing.

However, their ambitious national target for the solar products cannot be matched by the limited production capacity we have.

As a result, the market continues to rely heavily on Chinese and overseas suppliers even after the introduction of import duties.

We are optimistic about the long-term prospect of the Indian market.

We will focus on our premium clients and promote our high-efficiency products there.

We are very optimistic about European markets in 2019.

The cost of solar developments has decreased substantially, and many countries have already achieved grid parity.

Both utilities and the distributed segments are surging in key markets, such as Germany, Italy, Netherlands and Spain, which are showing great promises.

Thanks to 20% renewable energy commitments by EU countries by 2020, many countries are rushing to reach this target before the deadline.

Countries that have fallen behind are actively ramping up their efforts to bridge this gap based on the target.

Emerging markets, such as Latin America and the Middle East, are growing in importance and accounting for a bigger portion of our shipments.

In 2018, we further consolidate our position in Latin America by shipping to 20 countries there.

Many Latin American markets are implementing auction mechanisms that will further stimulate demand.

In the Middle East, we believe traditional markets such as Egypt, Jordan and the UAE as well as emerging markets, such as Kuwait and Oman will continue to show great promise.

We expect a 7 to 10 gigawatt of installations in EMEA region in 2019 and believe demand will continue to grow through 2020.

We are very optimistic about the prospects in this region and we will allocate more resources to develop the market there.

Moving to product pricing.

Our fourth quarter ASP decreased, as expected, when compared to the previous quarter.

But as Mr. Chen just mentioned with technology improvements and the ramping up our high-efficiency product capacity, we are confident that we will be able to generate sustainable profit and growth.

As solar module efficiency increases and costs continue to decrease, solar energy will continue to become more competitive when compared to traditional energy sources, which will help increase the pace towards grid parity.

On the marketing side, we have set out to position ourselves as a key opinion leader in the market.

One of the ways we can increase demand is by educating the market and expanding the reach of our marketing activities.

As part of this effort, we were invited to speak at many world-class conferences, events and forums, such as the IFC 2018 Climate Business Forum, which was an event where global business leaders were invited to collaborate on how to tackle climate change.

We were also invited to participate in the 2018 B20 Summit in Argentina where representatives from top companies and business associations from all G20 countries discussed the influence of grid parity on the global energy market.

In terms of the product marketing, we increased our efforts towards the promotion of our premium Cheetah brand and other industry leading products.

Over the course of this year, we attended 45 major exhibitions, 207 conferences and host a further 107 key customer events around the world.

These global marketing events strengthen clients' trust in our Cheetah Series of product and help to further expand the recognition of our premium product in this market.

With that, I will turn it over to Charlie.

Thank you, Gener.

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

Total solar module shipments were 3.6 gigawatts, up 23% sequentially and up 46% year-over-year.

Total revenue was $1.1 billion, up 15% sequentially.

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

Gross profit was USD 165 million compared to USD 145 million in Q3.

Excluding a CVD reversal benefit, gross profit was USD 155 million compared to USD 125 million in Q3.

The sequential increase was due to the increase of shipments on solar modules and the reduction of production costs.

Gross margin was 14.7% or 13.8% excluding the CVD reversal benefit compared to 14.9% or 12.8% excluding the CVD reversal benefit in Q3.

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

The operating expenses was USD 130 million, representing 11.6% of total revenue compared to USD 118 million, which was 12.1% total revenue in Q3.

Net exchange loss was USD 5 million compared to a net exchange gain of USD 14 million in Q3 due to the RMB appreciation against U.S. dollars.

EBITDA was USD 54 million compared to USD 74 million in Q3.

Net income was USD 16.7 million compared to USD 27.5 million in Q3.

Non-GAAP net income was USD 17 million.

This translates into non-GAAP diluted earnings per ADS of $0.40.

I'll briefly review our full year 2018 financial results.

We concluded our 2018 with total solar module shipments of 11.4 gigawatts, up 16% year-over-year.

Total revenue was USD 3.6 billion in 2018, down 5% year-over-year, due to the decline of average selling price.

Gross margin was 14% or 13.2% excluding the CVD reversal benefit compared to 11.3% in 2017.

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

Operating expenses was 11.5% of total revenue compared to 10.1% in 2017.

EBITDA was USD 220 million compared to USD 160 million in 2017.

Net income was USD 59 million compared to USD 22 million in 2017.

Non-GAAP net income was USD 63 million compared to USD 32 million in 2017.

This translates into non-GAAP basic and diluted earnings per ADS of $1.64.

Moving to the balance sheet.

The company has USD 506 million in cash, cash equivalents and restricted cash compared to USD 442 million by the end of Q3.

The accounts receivable were USD 889 million, down from USD 955 million by the end of Q3.

Inventories were USD 835 million compared to USD 810 million by the end of Q3, and total debt was 100 -- USD 1.41 billion compares to USD 1.38 billion at end of Q3.

The net debt was USD 960 million compared to USD 936 million at end of Q3.

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

Operator?

(Operator Instructions) Your first question is from Philip from Roth Capital Partners.

So I'd like to try to talk about your capacity expansion to start.

Can you help us understand what the CapEx required will be to enable your capacity expansion for 2019?

Sure.

In terms of capacity expansion, I think the fundamental rationale for the company to expand out capacity is the market shifting to the high increasing products.

And we have the stronger products in the market like we have the 400 watts, 72 pieces Cheetah.

And we just launched the Swan bifacial product and with strong attractiveness from our customers.

And in terms of the estimation of the full year shipments, we guided 14 to 15 gigawatts shipments, around 65% is mono PERC.

So all the investment is on the high increasing product and which is -- if you look at our capacity, we plan to do 5 gigawatts mono wafer capacity.

And we -- for the PERC cell perspective, we are doing the converting from non-PERC to PERC and to increase the total PERC capacity to around 9.2 gigawatts.

And the purpose is to build our competitiveness of the capacity as well as our cost competitiveness and for the future.

And regarding your question, so total CapEx, we estimate it's in the range of USD 400 million to USD 450 million.

Okay, great, Charlie.

Can you break down the unit CapEx by chance how much -- what's the unit CapEx per watt, per wafer, cell module and then also for the PERC capacity?

Sure, sure.

And for the new capacity, I'll just give you some -- the range.

And -- but for some capacity like the cell, we convert existing capacities non-PERC to PERC, so the CapEx should be lower.

And for the new capacity like the mono wafers, where estimates per watt basis is USD 0.03 to USD 0.04 per watt basis.

For the new PERC capacity per watt basis, it's $0.06 to $0.07.

And for the module capacity, it's around $0.02.

Great.

So given the $450 million that may be required, Charlie, do you have plans to raise equity?

How do you expect to finance the expansion?

It's a kind of coming from the couple of different resources.

And we expect that we are able to (inaudible) to generate positive and sizable operating cash flows.

And certainly, we are working with some industry firms, which are interested in the solar energy from the long-term perspective.

Certainly -- and we have roughly 500 megawatts international projects which are in construction.

And we estimate in the second quarter or third quarter we're going to fill around 250 megawatts international projects.

And we can recycle the equity, reinvest it on the international projects.

Okay.

And is that enough (inaudible)?

No, and -- just the settlement.

I think, yes, just the settlement.

And I think the clients -- we don't like to increase our leverage dramatically.

And we are going to working with some industry firms from the equity perspective and the -- on the subsidiary level and they can put their money, and they're kind of long-term investors.

Okay.

Great.

To what degree do you think you would want to work with local governments to help you also finance some of this expansion?

Do you think there's a partnership that you can secure with some local provinces?

And then in turn, perhaps shift that CapEx to a partner and then have less requirement in -- on your own balance sheet.

But then, as a result, do you expect that to increase your operating expenses from a lease perspective, can you walk us through how that might work?

I think solar is pretty attractive, and the China economy is not so good.

And from many investors' perspective and a lot of investors are looking for the industry with long-term sustainable growth.

And I think you understand China, even China, they are -- China policy is positive and providing anticipated transition period, how can China's market to shift into the market without subsidy.

So why I like to say that?

Because a lot of market-driven financial institutions, they're interested in investing on the solar from the long-term perspective.

So that is our direction to working with.

Okay, Charlie.

Shifting over to ASPs.

I think, Gener, you talked about ASPs maybe coming down a little bit in Q1 versus Q4.

Roughly, we calculate about a $0.31 per watt ASP for Q4.

Are we -- is that correct, to start?

And then also, Gener, as you think about the Q2, 3 and 4 ASPs that you might see, can you talk about the cadence of those ASPs?

Yes, thank you, Phil.

I think for ASP side, our Q4 numbers are -- we are around 30, very close to 30, or high countries close to 30s, and that's for Q4.

For Q1 and for 2019 ASPs, we are observing a very strong demand, at least for our premium product, what I call Cheetah Series, that's a small series.

So by converting our colleague's capacity into more PERC capacity, manufacturing this premium industry of product, I believe the market price of those premium product will help us to like stabilize the ASPs and keep this whole year ASP stable, given with some seasonality of certain quarters where I see even goes up from cost.

Okay.

Great.

Do you expect -- I think Canadian Solar was talking about potential -- I mean , I've heard from some our checks that there is potential in Q3 and Q4 for ASPs to go higher.

Do you see any potential for that as China resolves its policy outlook and some of the demand -- latent demand has -- gets released, I guess in Q3 and 4?

For the seasonalities, I think, this policy -- mainly for the policy-driven market, it will impact the supply and demand curve in some certain period of time.

That's why it happens even in the, I say, last Q3, Q4, maybe it might happen again for the 2019 Q4, Q3 as well.

Regarding China, I think because of the delay of the announcement of the new policy, maybe it will further pop up this demand by the second half from China market due to the rush of -- the period of time and large volume.

The good thing is that I think there will become grace period, also metric of corrections.

That's why I think the total demand will become much smoother than last year.

Great.

One last question and I'll pass it on.

As for the U.S. market, how do you -- there is a shortage of high-efficiency product in the U.S. market.

And my sense is manufacturers don't want to necessarily expand capacity in Southeast Asia, to be tariff economic to the U.S. But what are your plans for cell capacity in Southeast Asia?

Do you expect to expand, at all, to serve the U.S. markets?

Or do you think you want to convert some of the U.S. market back to multi?

So what are your thoughts, overall, for capacity for the U.S. market?

Yes, so, Phil, I think for U.S. market, we are currently 100% supplying our Cheetah Series high-end premium product to U.S. market.

So we don't have any plans to ship our poly products because of the expensive labor cost and the trucker cost in U.S. And that's our plan.

So I think we will stick to our plan and fully utilize everything we have in Southeast Asia, including in U.S., in Florida site to finish -- as I say, to satisfy our obligation of supply.

We have procured, I think, almost everything we have for the next quite a couple of months for U.S. market.

So we don't have too much capacity left.

Your next question is from Maheep from Crédit Suisse.

Just heading back to the capacity question now, how much capacity do you expect the industry to add in 2019 for either the wafer and cell capacity?

And could you just talk about like the total demand expectations you have for 2019?

So, Maheep, you are talking about industry, right?

The capacity expansion, right?

Yes.

Yes, I think so from the PERC perspective, most of the, I think investors are expecting around 88 to 98 gigawatts PERC cell capacity by the end of the year.

And -- but for the mono wafer in terms of competitiveness, and I think we are 1 of the 3, and mono wafer producers and are planning to do the capacity expansion.

And no, it's depending on the -- how is the -- how solid is the capacity expansion plan?

And if you add some company, unlock a very big capacity expand, it's not -- I don't think it's scalable so I think, it's on the mono wafer capacities perspective, it's quite in line with PERC capacity and around 88 gigawatts.

Got that.

And how much is the growth from 2018 to 2019 in that?

2018 to 2019?

For -- Maheep, your -- what Charlie just mentioned is our expectation of the total industry capacity.

It's not the newly added capacity, right, just one clarification on that.

So compared with the growth ratio, personalized [VPDs] for the mono wafers capacity is significantly, let's say, they have a significant growth.

It's approximately close to double, let's say 60% -- over 60% -- close to 60% -- 70% growth, right.

For the PERC cell capacity it's, I think definitely more than double.

Got that.

And just on your own capacity expansion, like when do you expect those new capacities to come in service, is it like in early first half of 2019?

Or towards the later half?

Most of capacity is particular on the mono wafer and the PERC capacity, we plan to ramp-up around in the middle of the year.

And the ramp up whole capacity, I think by the end of Q3.

Yes, it's a different stage, Maheep.

This is Gener.

So for example, like the difficult part, like the -- in the wafer part is the ramping -- ramp-up process might take longer, but for the PERC capacity upgrade and adding some new capacity on, I think that will be faster.

So the module part will be much faster.

So that varies.

So the range will be starting from Q2 to end of Q3.

So step-by-step, everything will be ready.

Got it.

And just on the -- thanks for the color on the ASPs earlier.

But how do you look -- think of gross margins in 2019?

Should we expect the same run rate we saw in Q3 and Q4 of 2018?

Or slightly higher?

So from gross margin perspective, in Q4 last year, 2018, and excluding the CVD impact, our gross margin was 13.8%.

And we expect the gross margin in Q1 is stable, excluding the CVD impact.

And just back, Gener said, the market price very strong, particularly for the high-efficient mono PERC.

And from our perspective, if you look our capacity for the high increasing mono PERC, it's very limited.

And by the end of last year, we have only 5.7 gigawatts mono wafer and 4.2 gigawatts and -- PERC capacity.

So our in-house capacity gross margin actually in Q1, we expect to increase, because continued cost reduction and very decent price.

And however, because of the, particularly the third part is the PERC sale price, it's pretty high.

And we need to buy around 30% and -- to 40% sale from third party.

So we get some -- a negative impact from the gross margin perspective in Q1.

So all in all and we expect the Q1 gross margin is -- as favorable, but however, with more capacity, particularly for the PERC cell coming out and the prices in downward trends.

And most importantly, we are increasing our capacity on the mono wafer and the PERC cell.

And we expect our in-house capacity with this, our total shipments, the percentage, particularly for the mono PERC will increase step-by-step.

So we estimate our gross margin for the second half year will improve step-by-step.

Got it.

That's helpful color.

And I -- just a last question from me, and then I'll jump in the queue.

Like how do you look at operating expenses for the year, especially given you're increasing your shipments by more than 30% in 2019?

Yes, you're right.

And we estimated 30% shipments and the growth as well as the -- we estimate throughout the whole year the ASP were quite stable, and particularly on the high increasing products.

And we have the very strong competitiveness of product.

And from the revenue size and we estimate -- because the shipment is 30% increase.

And the revenue size, we estimate, I think around a 15% increase.

So from an operating expenses perspective, we estimate in a range of 10% to 10.5%.

Your next question is from Brian from Goldman Sachs.

I might have missed this, but did you mention what your cash flow from operations was in 2018?

What that number was?

The cash flow for 2018, we are still finalizing the numbers.

But if you look at our -- the disclosed cash flows for previous quarters, particularly we signed a lot of contracts in the international markets and -- for the next 2 or 3 years.

So we got a lot of advance payments.

Well, maybe put another way, I think you spent $545 million in CapEx for 2018, that's on Slide 7 of the presentation.

How did cash flow from operations compare to that, just fractionally I guess?

So you're asking about 2018, right, CapEx?

Yes.

I'm just trying to get a sense for what free cash flow was in 2018.

Okay.

I think from the free cash flow, given we invest around -- over USD 400 million, I think that the free cash flow will be some mix of numbers in the range of, I think around USD 100 million to USD 150 million.

Okay.

All right.

That's helpful.

And you mentioned USD 400 million right now, but on Slide 7, unless I'm interpreting this correctly, if you add up the quarterly figures on the CapEx, it totals USD 545 million for 2018.

So can you reconcile, is it -- is that the right CapEx number to be assuming here?

And then related to that...

Sorry to interrupt.

I think I'm talking about -- from the manufacturing perspective.

And if you look our number, we have international projects, just as I said, we are going to sell the international projects and around 250 megawatts in the mid of the year.

All right.

Then maybe the question is of the USD 545 million in aggregate CapEx that you show in Slide 7, how much of that is manufacturing CapEx versus how much of that is projects related?

The CapEx for the IPD, international projects, it's around USD 90 million.

USD 90 million.

Okay.

And the reason I ask is, I take the $90 million out of the $545 million total, you spent around $450 million in manufacturing CapEx for 2018.

You're guiding $400 million to $450 million of CapEx, I'm assuming manufacturing CapEx in 2019 based on the question that was asked earlier in the call around your capacity expansion.

But the capacity expansion target is much higher for 2019 over '18 versus what you saw in 2018 versus 2017.

So I'm just -- if you could help reconcile how you (inaudible) not much higher than that.

Yes.

I think I understood the questions.

And in my previous, I think remarks, I think it's not the new, all the things aren't from the new capacity expansion, like the cell and capacity.

It's mostly coming from the converter investing capacity non-PERC to PERC, at the same time we increase the output and debottleneck.

And for the module perspective, I think we are going to increase around 4 gigawatts, around 2 gigawatts.

It's from the debottleneck.

It's not the new capacity expansion.

Okay.

Maybe on that same topic then, what about wafer and cell?

Because wafer and cell are clearly the more capital intensive parts of the CapEx budget.

How much of that is debottlenecking to get to the 15 and 10 gigawatts versus greenfield expansion?

And you're talking about wafer, right?

Wafer, and I think you mentioned -- yes, well, earlier you said the wafer and the cell were higher cents per watt CapEx in the module, which makes sense.

Yes, you're right, you're right.

I'm talking about the new capacity CapEx.

And it was existing old capacity converting or upgrade or debottleneck, the CapEx per watt basis will be very lower.

Okay.

Fair enough.

I'll take that offline.

Maybe just another question on the capacity expansion and then I'll move onto another topic.

Given you're burning some cash here in '18 or you burned some cash in '18 and it seems like you'd be on a similar trajectory in 2019, given the gross margin and OpEx color that you provided and also a similar level of CapEx.

What -- how should we be thinking, as investors, on the ROI or ROIC, just the level of returns that you target when you go into your annual planning sessions to figure out how much CapEx, capital investment to be putting back into the business?

Just is there a hurdle rate you look at?

Or how -- could you guys give us a sense of how you think about the targeted returns as you put capital to work on the CapEx side?

Yes.

And, Brian, I think we build a high-efficient capacity.

And just like we said, we think it's market trends.

Market existing high increasing products.

And the -- we invest a lot in the R&D and on the products.

And it's -- for the high-efficient module capacities, the gross margin is quite impressive, like I think from the industry leaders and there's mono PERC module in-house gross margin are able to reach 25%, even higher.

And we feel the capacity is not for this year, and we think it's a trend.

And we increase our competitiveness on the capacity perspective.

And again, for the financing needs and to increase the capacity and our goal is to working with some industry equity firms and to fund their capacity expansion.

Okay.

I mean I know a lot depends on what out-year pricing and your costs end up doing, but when we sort of back into the math, it seems like on some of this capital investment, your earning less than a 5% ROI, would you agree with that?

Or how would you sort of put us at ease that the returns on this investment are better than what seems to be penciling out on paper?

So I think, Brian -- this is Gener.

I think our target is at least to be at the same level of the industry leaders for the high-end product margins.

so we will -- from the margin wise, we are expecting like to high mid-20s range, same as our other peers, right.

I think you can take that as a reference.

Okay.

Fair enough.

Maybe last question and I'll pass it on.

I know I've had a few here.

The -- I think it's come to light recently that you have some associated debt or liability with the Jinko Power organization that you parted ways with, a couple of years ago.

I think based on your financial statements, the agreement or liability or backstop, however you characterize it, ends in October of 2019.

Our understanding is Jinko Power is in the market or has been the market trying to raise debt, but in the event that they aren't able to do that, just maybe can you level set us as to what your exposure is there?

And then, given we don't have transparency into what Jinko Power is doing with its balance sheet, what confidence level there is that, that won't be a liability that ultimately stays with you guys at the end of this year.

I think -- we think a lot of misleading information in some people's report.

And in their -- back to histories, in Q4 2016, we spinned (sic) [spun] off Jinko Power.

And before the spinoff, Jinko as a part of the company, we provided guarantees for the projects for Jinko Power.

And in China, it's already standard and a common practice for parent companies to provide the guarantees for the projects launched in China.

And the cost -- all the projects we provided guarantees back to -- before 2016, or you need a subsidy catalog and they are generating sufficient cash flows and pays down the principals.

The total guaranteed amounts has dramatically decreased to around USD 588 million.

And after the spinoff in 2016 Q4, Jinko and Jinko Power are in different companies.

We didn't provide any additional guarantees to Jinko Power.

On top of that, for the preexisting guarantee arrangements, we are charging the guarantee fees based on the market practice.

And yes, [fishing] and I think there's some information in public is Jinko Power in Q4 last year, we have reached another RMB 1 billion equity funds.

And in December last year, Jinko Power submitted the IPO applications and are expected to continue to go through the IPO process.

And I don't understand why you guys keep saying it's not transparent.

I think every information has been transparent in public.

Because all the information in our [3 years] I don't know if just somebody doesn't spend any time in reading our (inaudible) or what.

It's all transparent, okay.

Yes.

I read what you said in your financial statements.

So there's transparency to that degree.

The fact that Jinko Power is not a publicly listed entity is what I'm referring to in terms of lack of transparency as to what's happening at your partner.

Because what's happening there with a partner level with respect to their debt servicing and raising the funds is what potentially worries some issue with respect to you guys.

So I'll leave it there and I'll take it offline.

Your next question is from Carl from CICC.

My first question is, I'm looking at your capacity expansion plan, we have a lot of mono wafer capacity expansion.

And I got a one question, that we are looking at the market and we are seeing some kind of positive mono that is using the traditional party and they can produce mono wafer.

So how we look at this technology?

Are they going to mature this year?

And we are seeing some kind of fight in that, those kind of process mono wafer produced like RMB 0.4 per piece, this can compared to the normal mono wafer.

And so I have another -- a follow-up question on the cost reduction.

Yes, so the first question about how we look at this technology about the cost of mono?

Thank you.

So this is Gener.

I think in terms of the technology roadmap, there are a lot of argument in the market.

We -- as I say, Jinko has its own roadmap and its own technology, together with its own IPs.

So after our internal analysis, we believe that current roadmap, including the wafers, cells and modules is the most, let's say, promising and competitive ways we should do.

So that's why we choose this way.

And regarding the -- on our other peers' technologies, I think it's hard to comment on it's good or bad or high or low.

But we respect that everyone has a different position in terms of the facilities they have, in terms of the R&D development they have, even their asset qualities that differ.

So everyone comes from different position, makes different decisions.

But at the end of day, the market will only look into the solar modules in terms of LCOE.

I think that's the China policy, the efficient makers trying to push forward together with the other solar market as well.

So as long as the LCOE number makes sense, that will become the competitive, that's how we make our decision as well.

Okay.

Yes, my next question comes from the cost reduction.

So we are seeing some of our peers has (inaudible) the first quarter and this is some budget cost reduction and RMB depreciation helped their margins.

But we are seeing quite stable margins from -- for us.

So could you help me to understand what the -- so and you -- I think in the report we are mentioning we have exchange loss because of the RMB appreciation in the fourth quarter.

So I got a little confusing about this term, so could you please tell me, I mean what if we are facing in the first quarter?

Are we facing the RMB appreciation in the first quarter?

And so we'll make a foreign exchange loss on that?

And so how we look at the cost in the first quarter?

I think for the cost reduction, it is still our key focus throughout 2019.

And we are debottleneck our capacity increase and output, reduce cost per watt basis.

And we are talking about the capacity expansion, particularly on the mono wafer PERC sale.

And we're continuing to expect the economy of scale.

And we are putting technology increase and the increase the inflation fee enhancements.

And back to you -- what you are saying, the gross margin, and I think the key impact for us is -- and we have limited cell capacity, we need to buy 40% from third-party.

And due to the capacity constraints, particularly for the mono PERC cell, the prices have increased a lot [in additions] and 1 quarter to 2 quarters.

And so our gross margin, there's some impact from that perspective.

From the medium term, the PERC capacity coming out, the price -- the market price for solar cell is in a downward trend.

And on top of that, we are adding our in-house cost comparative capacity.

And we are expecting to see the positive impact in the second half year.

Okay.

Yes, okay, I understand.

Yes, my last question is about the visibility.

So everybody is talking about a very strong demand from the overseas market.

So what's our order visibility in 2019?

Are we -- have few other orders to second quarters through third quarter?

And how about the order, are they with the price (inaudible) or they are where the price [open]?

So this is Gener.

So I think the visibility, let's say, numbers varies according to the -- what capacity we are talking to, right.

So according to our status on hands, we are happy to say that we are over 60% booked for the whole year of 2019.

And we are -- I think the number will change in the next few months as well.

But the strong demand is already happening and even without debt, remember that, that number comes out without the China margin start, right?

So that's why we are pretty confident this will be a great year for the whole industry, I think.

Yes.

I think the visibility is the strongest in recent years.

And just like Gener said, it's almost 100% from international market and China policy, the installation [or capacity] in the second half year of 2019.

So it didn't account for any China orders in the visibility.

And the -- I think the key driver is grid parity is coming and the technology innovation is impressive.

But PERC have say many times and by official and they're driving down the solar installation cost and LCOE.

And we believe because in our cost, the global or the key solar markets, the penetration is very low compared to the potential growth.

Yes, yes, sure.

Yes, I've got a follow-up question on this.

So I -- we already see the 60% of this whole year is based on our guidance of 14 to 15 gigawatt shipments.

In that -- can I understand on that?

Yes, yes, that's approximate, yes.

Yes.

Okay.

And so for those orders, are the pricing of our modules is fixed or is it back flow?

Fixed.

We only talk about -- only when averaged in fixed, we count them as firmed orders.

If the price is not fixed, we don't count them.

If we count those, let's say, not fixed orders, the visibility number will be much higher than what we're saying.

Sure, sure.

So and just as we previously mentioned, we got a prepayment from that, right?

We got the security on it.

So what kind of advantage of prepayment we can get?

Well, we don't disclose that, sorry, but we have enough comfort on those -- execution of those contracts for sure.

Due to time constraints, we will be taking in our last question from Alex, who is going -- who is from UBS.

My first one is regarding to your wafer capacity expansion plans.

You mentioned you have expanded your wafer capacity by 6 gigawatts this year.

So but considering the other wafer makers like (inaudible), they're also expanding very quickly or aggressively.

So do you think you can get enough wafer equipment from, like, (inaudible) in time?

I mean are you confident enough to get all your new wafer capacity online maybe in the year?

I think we're not going to disclose our suppliers, but I think we -- when we -- talking about 5 gigawatts mono wafer capacity, we have almost secured the suppliers.

And on top of that, when we are selecting the [rating] in rest of China, which is very cost competitive.

And we build a capacity and it's brand-new 5 gigawatts mono wafers.

And we believe our -- from those quality and the cost perspective and capacity will be very competitive.

Okay.

And then my second question is regarding to the module ASP.

Are you mentioned that you're expecting a lot stable ASP outlook for this year, but considering that we are -- still have some more distance compared with grid parity, you still need to push down the ASP a bit to help the industry with grid parity?

Or you're -- maybe that will happen next year?

Yes, Alex, this is Gener.

I think you just raised a great question.

In the long term, we do believe only by making solar energy become more competitive compared with other traditional energy resources, solar industry will have a bright future.

That everyone working in this industry believes, I think.

And in short term, the -- this analysis of different market segment, even the policy changes, the deadline changes will naturally change the short-term supply and demand.

That's why I say in the long term, let's say, in the whole year 2019, I see the market price become more stable.

However, if you look into the, I think into the single quarter or single months and that will much be more -- much more impacted by the detail of the policies.

That's why I think the most of the industry players believe in the Q3, Q4, when China market pick up with a strong number, I think, there's a price won't be -- won't drop too much, I think.

Yes, understand I'm talking about China, the projects we have subsidy.

And if you look at the global, I think most of the countries have reached grid parity and even more competitiveness.

And China, I think you understand there is some sizable, RMB 3 billion subsidies.

And the -- most of -- if you compare to the top 1 or top levels, let's say our average RMB 0.05 and it's going to support very big numbers on installation.

So it's -- again, it's a transition period and the 2 years, right, starting from now.

And yes, I think that pretty much answers your question, right.

Thank you, gentleman.

That does conclude our conference for today.

Thank you all for your participation.

You may all now disconnect.