晶科能源 (JKS) 2022 Q3 法說會逐字稿

Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Co., Ltd. Third Quarter 2022 Earnings Conference Call.

(Operator Instructions).

As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call to Ms. Stella Wang, JinkoSolar's Investor Relations. Please proceed, Stella.

Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's Third Quarter 2022 Earnings Conference Call. The company's results were released earlier today and are available on the company's IR website at www.jinkosolar.com as well as 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. Xiande, Chairman of the Board of Directors and Chief Executive Officer of JinkoSolar Holding Co., Ltd; Mr. Gener Miao, Chief Marketing Officer of JinkoSolar Co., Ltd; Mr. Pan Li, Chief Financial Officer of JinkoSolar Holding Co., Ltd; and Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Co., Ltd.

Mr. Li will discuss JinkoSolar's business operations and company highlights; followed by Mr. Miao, who will talk about the cells and marketing; and then Mr. Pan Li, 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 this and other risks is included in JinkoSolar's public filings with the Securities and Exchange Commission.

JinkoSolar does not assume any obligation to update any forward-looking statements except as required under the applicable law. It's now my pleasure to introduce Mr. Xiande Li, Chairman and CEO of JinkoSolar Holding. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li.

We are pleased to announce better-than-expected results for the quarter despite a number of headwinds, such as the continued rises in raw material prices, power rationing measures at our manufacturing facilities and our earthquake in Sichuan province, where one of our manufacturing facility is based. Total solar shipments in the third quarter were roughly 10.9 gigawatts doubling year-over-year.

Total revenues were $2.7 billion, an increase of 17.8% year-over-year. We kept improving our supply chain management to enhance cost control with release of newly invested N-Type-cell capacity. We further optimized our integrated cost structure achievements of more competitive end-type products increased significantly compared with the second quarter.

Profitability in the third quarter largely improved sequentially. Gross margin was 15.7% compared with 14.7% in the second quarter. Net income was USD$77.3 million, an increase of 183.1% year-over-year. Excluding the impact of the convertible senior notes and the share-based compensation expenses, adjusted net income was $60.1 million, improving 16.1% sequentially.

Since the start of the fourth quarter, polysilicon capacity has been gradually released. Demand is strong in the China market encouraged by non-hydro renewables consumption targets, both provincially guaranteed utility scale projects and utility-scale projects in a liberalized power market are making rapid progress. Adding the demand from DG market, we expect that the total installation in China will be over 40 gigawatts in the fourth quarter.

While supply has increased recently, strong demand is keeping polysilicon presses steady at a high level and currently, the module prices remain stable. With substantial polysilicon capacity to be released in 2023, we expect the prices of raw material for and to stimulate pent-up demand. We will fully see the growth opportunities in the market, executing our globalization strategy and enhancing resources input in key markets.

Also, we will control inventory turnover at a reasonable level with our efficient lighting management. Leveraging our extensive global industrial chain building and our reliable products, we are confident to achieve increases in both shipments and market share next year.

We made further progress in efficiency improvement and cost reduction for N-Type products. Thanks to the continuous efforts of our R&D team, expanding on our accumulated knowledge and our mass production experience. Mass produced the efficiency for TOPCon Cell as we reach the full capacity of 16 gigawatts reached 25%, and we are narrowing the gap integrated cost for N-Type compared to P-type products.

Recently, the maximum solar conversion efficiency for our 182 monocrystalline silicon TOPCon cell reached 26.1% breaking the record of 25.7%, we set in April this year. Combined with process optimization with SDE technology, mass production efficiency is expected to further improve next year.

Benefiting from capacity release and a higher client acceptance, shipments for N-Type modules were roughly 3 gigawatts in the third quarter, an increase of nearly 160% sequentially. We have always been committed to sharing the benefit from the gas in power generation with our clients. As our N-Type product continue to be well received in the market. We are confident to lead the industry with increasing penetration and cost-effective performance.

The second phase of 8 gigawatt TOPCon cell capacity in Hefei, which commenced the production in the third quarter is ramping up smoothly. The second phase of the 11 gigawatt TOPCon cell capacity in Jianshan, which product -- which started construction in the third quarter is expected to start production before the end of this year. Initiation and the ramping up of new capacities will help further optimize our integrated capacity structure and drive a blended cost lower.

Based on our operating strategy and market demand, we adjusted the pace of a capacity expansion for wafers, cells and modules. By the end of this year, we expected our annual production capacity for mono wafer solar cells and solar modules to reach 65, 55 and 70 gigawatts respectively.

Before turning it over to Gener, I would like to go over our guidance for the fourth quarter this year. We expect module shipments to be in the range of 13 to 15 gigawatts for the fourth quarter of 2022. We are bullish about demand growth in the global market and dedicated to keep in providing optimal solutions to our clients with technical innovations and reliable products. We expect that the full year module shipments to be in the range of 41.5% to 43.5 gigawatts.

Thank you, Ms. Li.

Despite short-term headwinds, such as power rationing measures and earthquake incident, total shipments in the third quarter were 10.9 gigawatts, of which approximately 95% were module shipments, doubling year-over-year on the back of a strong global demand. In specific market, China, Europe and the emerging markets contributed a remarkable increment growth. Solar module shipments to the Chinese market during the third quarter increased 5x year-over-year while emerging markets grew approximately 180% year-over-year and Europe over 60%.

With a rush of installations in China in the fourth quarter, the Chinese market is expected to contribute an absolute majority, and we expect our penetration in the Chinese market to further increase. DG demand was strong in the U.S., however, the lower logistics turnover inflation and the labor shortage during holidays remain short-term challenges. We accelerated inventory turnover through proactive coordination with logistics supply as well as flexible measures and the trade terms in order to support energy transformation in European market.

In terms of the product, we enhanced the promotion and the cells of our high-efficiency N-Type Tiger Neo modules, leveraging our global marketing network layout and the localized marketing team. In the third quarter, shipment for Tiger Neo modules approached approximately 3 gigawatts, an increase of 160% sequentially. Acceptance from various client types and markets for the Tiger Neo further increase. The premium was in line with our expectations. We have been establishing a business model to share the benefits from [indiscernible] power generation by Tiger Neo modules with our clients and are committed to providing them with solutions that continuously bring down LCOE.

With gradual release of N-Type capacity and increasing acceptance for Tiger Neo shipments and the penetration for Tiger Neo continued to grow in the fourth quarter. And the shipment proportion for Tiger Neo is expected to be above 60% of our total shipment in 2023. For business layout, DG demand remained strong in some markets, including Europe, emerging markets and China. And DG business accounted for nearly 60% in the third quarter, about 10% higher than the last quarter.

We expect the market demand to continue to increase in 2023, up over 30% year-over-year. Mainstream markets, including China, Europe, U.S., is expected to contribute the growth under the backdrop of high prosperity in end markets. We will stick to our strategy for global market layout, focusing on Chinese market while enhancing attention to and explorations in emerging markets. We will strive to achieve around 50% growth in shipment next year compared to 2022 and keep solid position for global competitiveness. With that, I will turn the call over to Pan.

Thank you, Gener. We are pleased to report another quarter of improved financial results. Total shipments doubled and total revenues increased to 128 percentage year-over-year as a result of strong demand globally. Thanks to our first optimized integrated capacity structure and shipment mix. Key metrics including gross margin, operating margin and net margin or improved sequentially. Short-term headwinds such as power rationing measures and an earthquake as well as new capacity ramp maps all had some impact on profitability in the third quarter.

We believe that as these negative factors gradually receded, we will see a gradual increase in profit contribution from additional release of N-Type capacity and an increase in shipment proportion of N-Type products. Let me go into more details.

Total revenue was about $2.7 billion, up sequentially and a significant increase year-over-year. Gross margin was 15.7 percentage compared with 14.7 percentage in the second quarter this year and 15.1 percentage in third quarter last year. Total operating expenses were $423 million, slightly down sequentially and up year-over-year.

The year-over-year increase was made attribute to an increase in shipping costs for solar modules. Total operating expenses accounted for 15.4 percentage of total revenues in the third quarter, down from 16.2 percentage in the second quarter this year and up from 13.8 percentage in the third quarter last year. Excluding the impact from a change in the fair value of the notes and the share-based compensation expense, adjusted net income attribute to JinkoSolar Holdings ordinary shareholders was $60 million, improving sequentially.

During the quarter, we continued to optimize our foreign exchange hedging. We realized a net foreign exchange gain, which including change in fair value of foreign exchange derivatives of approximately $73 million in the third quarter compared with a net gain of $34 million in the second quarter of 2022.

Moving on to the balance sheet, at the end of the third quarter, the company had cash and cash equivalents of $2.1 billion, slightly down at the end of the second quarter this year and up from $1.1 billion at the end of the third quarter last year.

Gross turnover days were 69 days in both third quarter and second quarter of 2022. Inventory turnover days were 117 days in the third quarter compared with 104 days in the second quarter this year. Total debt was about $4.2 billion at the end of the third quarter, up from $3.8 billion. Net debt was about $2 billion compared with $1.7 billion at the end of the second quarter this year. This concludes our prepared remarks. We are now happy to take your questions. Operator, please proceed.

(Operator Instructions)

The first question comes from Brian Lee from Goldman Sachs.

This is Grace on for Brian. I guess, first one on your capacity. Just given the passage of the inflation reduction as a number of your peers announced U.S. capacity expansion. So I just wonder what's your strategy there in the U.S., if any? And how are you going to fund that? And what's the implication to your free cash flow.

So you are talking about the IRA, right, the impact on our strategies or capacity in the United States?

Yes, the third question.

Yes. So I think from a company perspective, based on the initial assessment of the IRA Act, we believe this is very positive and the incentive is really, I think, significant and to make the, I think, the production, local production in the United States relatively competitive. We are aware and the details of IRA is going to be released in Q1 next year. So we are very closely following up the details. And as you know, we have a very small module capacities in U.S. 400 megawatts and we are optimistic. And after the release of the details IRA and it's possible we expect our module capacity in the United States. But at this stage, we are still in the evaluation stage.

Okay. Fair enough. And then maybe switching gears to your gross margin. Interesting to see you think 15 7% this quarter. You mentioned helped by the module -- the TOPCon module shipment. So I just wonder how much of your margin is helped by the N-Type shipment module versus the currency because I assume a lot of your operations is in China? And also, can you talk about your margin in ASP expectations for the next several quarters?

Yes. We improved the margins slightly I think in this quarter, quarter-over-quarter, and we delivered the 3 gigawatts N-Type TOPCon modules, which accounts for around 30% of our total shipments in the third quarter. And the gross margin for the N-Type is relatively higher than the P-Type. I think it's around 2% from the gross margin perspective.

And on top of that, as the prepared remarks by David Li and in the third quarter, we faced the power outage in Sichuan province, which has some negative impact. So we -- overall, we think that in time, we are very -- I think we're leading the industries from the product, from the inflation fees and as well as the cost perspective. And our penetration type will continue to improve quarter-by-quarter, which will help us to drive the, I think, the profitability increase, including the gross margin.

Okay. And can I squeeze in one more housekeeping question is you increased your module and wafer capacity. So what's your CapEx plan for 2022 and what was your D&A in 3Q?

Thank you for the question. The CapEx of the mid-year, we still keep that on the USD$ 3 billion.

Okay. Things around the D&A currency too.

So your question is generally the absolute number or percentage of what is the specific.

Thank you for your question. About the G&A expenses, it takes about around 4 to 5 percentage of the total revenue.

The next question comes from Philip Shen from ROTH Capital Partners.

As a follow-up to some of these questions, I was wondering if you could talk about CapEx expectations for 2023. By the end of 2023, how much wafer cell and module capacity do you think you'll have?

By the end of this year, we have 65, 55, 70 gigawatts. So I think we have sufficient capacities and to -- we are in a very good position and to deliver our results in next year. And we will continue to evaluate the market traditions of next year. And we are -- I think the markets were optimistic for next year.

So our investment will continue to focus on N-Type. I think, sale and module capacities next year and to build sufficient capacity for both next 2 years, our shipment guidance. So it's -- we are going to release, I think, the guidance capacity expansion next year in the next quarter. And -- but the key focus will continue on the N-Type the TOPCon, the cell and module capacities.

What's after TOPCon I'm imagining you guys are already thinking about it with 60% N-Type next year. Do you think you're going to move on to heterojunction or have you decided on the technology road map beyond TOPCon?

We are leading the TOPCon Technology and capacity of the product, let's say, the increasing fees. And we believe there is a significant room to continue to deliver further high-quality products based on the N-Type top cloud technology. And our R&D team has released in the laboratory testing and the efficiency will reach to 26.1%. And our target for the mass production efficiencies by the end of next year will be reached to over, I think, 25.7%. And we have technology roadmap and we strongly believe the N-Type TOPCon will dominate the next markets in the next 2 or 3 years.

So the top line is our focus. But from an R&D perspective, we closely monitor the HTC Technology, but we strongly believe the TOPCon is a trend.

Great. Okay. In terms of the U.S. market, the U.S. LPA enforcement and the CBP process that you're going through. I was wondering if you could talk about and give an update as to where things stand. My understanding is the process has come to a close, and you're waiting on a decision. And so how much longer do you think we need to wait? And also, let's say you get released soon. Does that mean you can freely ship into the U.S.? Or do you think you have to secure something like an advanced letter of ruling to be able to rely shift into the U.S.

Yes. We did a lot of work under the UF LPA and the standard is very white board and the challenge for the traceability systems, and we prepare documents and have several loans, discussing communication with the VP. We think our documentations are ready and waiting for the final feedback from CD. And we are optimistic for the results, but the detailed timing, it's still uncertain, but I think it's not so far.

And for your second question is after the release of the, let's say, detent the modules and we try to improve our internal efficiencies and trying to continue to communicate with CPP to make sure, let's say, the bottleneck and will be departed. And now it's a lot of internal, external factors, including the capacities from CBP have the impact on the efficiencies. So we don't know what will be, let's say, the increasing in the future. But I think after the learning curve in the last 2 or 3 months, we think it's going to be getting more and more smooth.

Okay. Xiande, can you talk about how many gigawatts of supply has been impacted for you since the first attention at the end of June between then and now end of October and then, let's say, it continues through the end of the year, what kind of number can you share? How many gigawatts? I know that the detained modules are smaller. I'm talking about the total impact to customers. Are we talking about 2 gigawatts or maybe even more.

You're right, the tan margin is very small. And -- but because of delays deposits, right, it's going to have loading impact to shipments to our U.S. customers. And we estimate this year, all year and our shipments in the U.S. will be around 5%.

And this is the original I think the planning from the beginning of this year, it's 10%. So it's roughly, I think, a significant impact.

Okay. 5% of the 44 or 40-plus gigawatts, roughly 2 gigawatts. So correct me if I'm wrong, of course. And then one last question for me. In terms of the growth for next year, I think, Gener, you talked about a 50% growth that matches with your year-end module capacity roughly. Can you talk about the geographic mix you expect? How much -- for example, are you expecting for the U.S. in '23? And then what do you think is the rest of -- how much try and will China be Europe, emerging markets?

So Gener, would you like to take the question?

Okay. [indiscernible]. And let me answer your questions. Incrementally, we're seeing next year, and China will dominant take maybe 40% or 50% from the increase in metal volume. And the second one is the U.S. and the European markets. The U.S., we don't believe it's demand concerns. It's purely the supply issues, including the potential impact from U.S. LPA. And we believe the U.S. if everything is smooth and maybe 40 module demand over 30 gigawatts the installation.

And yes, -- so that is -- and this year, because of the polysilicon is very high, the module price is high, which delayed a lot of utility scale projects, installations and next year with the bottleneck the polysilicon gun and the production volume will a significant increase and which will have a very good timing for the utility-scale developers to find modules and connect to the grid.

So just to put numbers on it. So let's say China is 40% to 50%. Do you think U.S. is 15% to 20% and similar with Europe?

Yes. And from the testament perspective, we think -- I think you are talking about increase of [indiscernible], right? We believe the total market size will --

Sorry to interrupt just, let's say, it's 65 gigawatts next year of shipments. What -- you said 40% to 50% of the 65% would be China. I'm just trying to figure out what percentage of that 65% might be Europe and U.S.

Okay. You mean the increase of [indiscernible]

Not necessarily incremental. It's not the increment. Yes. Just -- of the 65 gigawatts, how much would be U.S., maybe 15% or 5%. I mean, assuming you're able to flow the modules freely. Okay. Okay. Let's say, the total size, this year, maybe 250, right? Installation in the solar and next year may be 320 or maybe some other think is 350.

We believe China will take around, I think, 35%, 40% market share and the U.S. will take around, I think, 10%. European will be around I think, 20%.

Great. Appreciate the color. Charlie. I'll pass it on.

(Operator Instructions)

The next question comes from Alan Lau from Jeffries.

Congratulations for the extremely good results. So I would like to know what is the outlook of the gross margin in the next quarter. As the company has maintained 10 gigawatt of N-Type shipment. So in Q4, can I expect there will be around 6 to 7 gigawatt of popcorn shipment.

Yes. I think, we have capacity, I think by the end of this year, 35 gigawatts. So you're right, if you do the calculations quarter-by-quarter, our shipments, I think Q4 will be around 5 to 6 gigawatts and Q1 next year will be a little bit higher next year in Q1. And the gross margin, it's -- because of the N-Type we'll take more percentage in Q4.

On top of that the China will take more market share, more shipments in Q4 and as well as the RMB depreciation. We believe there is a potential to the gross margin will continue to expand.

And then another question is the company has realized around 3 gigawatts of TOPCon sales in 3Q. So -- and also, the company has mentioned it has reached the expected premium. So is it around RMB 0.10 of premium for the 3 gigawatt has been sold in Q3?

The price premium around RMB 0.07, RMB 0.08. And given after the consideration the cost difference and the profitability per watt basis type is relatively higher than P-Type by RMB 0.04.

Understood. That's quite a lot, actually. Okay. In terms of net profit, right, $0.04 higher... Sorry, could you repeat your questions? So, $0.04 in terms of net profit, right, for the top control. On that MB for per a... Okay. And so I have noted that the company has realized the expected premium around TOPCon shipment in 2023 from 50% to 60%. So what makes you raised the guidance and should we expect a higher net profit for next year because of this increase.

Yes, we will continue to invest in to module capacity next year. So based on our initial evaluations, we see we are able to deliver around 60% N-Type TOPCon module next year. And with relatively more the TOPCon modules with more mixed to TOPCon modules we think. The profitability will relatively with small percentage and more higher profitability is from for the total results.

And I think my last question is regarding to the partnership with the equipment provider Autowell. So are they -- are these -- did, let me put it this way. So has JinkoSolar benefit with them by having more competitively priced equipment?

Talking about the module equipment producer

Yes, but they are producing the -- yes, Autowell, and they're selling crystal growing equipment to Jinko and what I heard is the price is cheaper, right?

So, I don't know. We also invested some minority interest for the business. And it's -- I think we [indiscernible] the TOPCon module with thinking the volume is not very big and it's major for the R&D purpose, and we want to have more development on the technology and align with our supplies to make the equipment more advanced and particularly for the entire wafer production.

Understood. And once again, congratulations to the company and I'll leave it now.

Thank you. The next question comes from Rajiv Chaudhri from Saran Capital.

I have 2 questions. One is on shipping costs. And we know that shipping costs have come down very substantially in the last 3, 4 months. And actually, they are close to the levels they were at before COVID started. And I'm wondering whether you have -- when we will start to see that in your numbers, how soon will those be reflected? And when that gets reflected, can we expect that shipping costs can go from 6% of revenues to maybe 3% of revenues. So that's my first question.

Yes, you're right. The global economy is weak, right? And the shipment costs in recent I think 2 months is the index has dropped a lot quarter-by-quarter, year-over-year. And it's going to be very positive for starting from the next year. But for this year, starting in Q4, I think the impact is not so the part in impact is not so significant because we have long-term arrangements with logistics companies and the long-term contract prices already below the market price.

And with the market price dropped a lot and the expectation of next year is continued to be back to our word Loma standards compared to a couple of years, years ago. And we will renegotiate the long-term arrangements for next year. And that is going to be have the impact for next year. Okay. And Charlie, the second question is about polysilicon cost.

Can you give us your best guess or your best sense right now, judgment right now on when you expect polysilicon costs to start to come down and what rate they will come down in 2023, for example, what do you think polysilicon cost might be by the end of 2023? And then related to that, what is your plan for sharing the benefit of this cost reduction with your customers? -- you had mentioned last -- in the last call that on the type, you are sharing the benefit of the N-Type 50-50 with your customers. Are you planning to share the benefit of polysilicon cost reduction also 50-50 with your customers.

This is very complicated questions. And -- but we will strike. strongly believe the trend is there. And a lot of the polysilicon complexity has been ramping up in the last 2 or 3 months. And the product silicon increase month-over-month dramatically. And next year, there are sufficient poly capacity and the volume to support the total demand next year. And now the silicon price is flat, and we see some potential the silicon price will be a downward trend, starting from December, right? We're not sure, but I think the attorney is there.

It's very difficult to estimate what is the exact timing right and for the turnaround of the poly -- and from our perspective, we try to now we'll try to have more signed orders for the next year, in particular with our strategic customers. And some of our customers may have intentions and to have the price adjustment method. And we're thinking that remain situations, and we will -- based on case by case, we will negotiate with different customers.

So can you give us an overall sense then that your price of polysilicon comes down by, let's whatever x number of cents. On an overall basis, how much of that you would pass on to the customers and how much you would keep to improve your own gross margin?

It's not a very simple case. And some customers, we have fixed price. Some customers we have variable price and with some [indiscernible] indexed to the market price or some -- it's different case by case.

[Operator Instruction]

We have a new question from [indiscernible]

Hello management. I would like to know on what percentage you expect your fourth quarter shipment will be shipped in China? Because I can see that in the third quarter, it's around 40-something spend maybe close to 50%. So what do you expect in the fourth quarter?

China will take a very large market in the fourth quarter. By the end of the year, a lot of utility scale developers, they have strong pressures the and intentions to strive and connect the grades. And we have -- we will estimate in Q4, we will have in the China markets around, I think, 50% to 55%.

Okay. So do you think that the domestic increase in product control could be a challenge? Or you've already well prepared for those kind of domestic SOE developers for their project demand.

There are some challenges because of co-right situations. And it's -- I think the challenge is the logistic perspective, but we are seeing some improvement in some regions, region. So we think there are sufficient time by the end of this year to deliver the modules as scheduled.

Okay. So the next question is about the TOPCon N TOPCorn product. So in the third quarter, when do you ship those products? Where is the major market for this product is like in Europe, U.S. or mainly in Chinese market.

The majority parts in Europe, and we also have shipments in China, in Latin America under Asia Pacific, this group.

So basically, maybe most parts sales in China and then basically everywhere, you have some like a product demo for the global users?

No, it's not product demos, and we have promoting the products starting from last year. And the -- it's a significant shipment and to different markets and the European market is very big. And following that, there are 7 different countries and regions including China, North America and Australia, et cetera.

Okay. My final question is regarding about the upstream supply other than policy costs. So do you think that the Quad material could be a bottleneck going forward in 2023 for your internal wafer production.

So what kind of materials you are talking about?

Quad in since.

Okay. Thank you. And it's -- this has been talking about a long time and we think it's a little bit tight for this particular materials, but it still can support over -- we believe, 500 megawatts. And because on top of that, there are capacity expansions. I think there over next year, maybe 90,000 tons. And from a technology perspective, we think the it's feasible to use both percentage of domestic produced materials and other than the imported materials. And it's more like the impact is, let's say, the inflation cost perspective other than the volume perspective.

Okay. There are no further questions. There is no more question.

Okay. Thank you, everyone. So we will -- we now end the call. Thank you. Goodnight.

This concludes today's call. Thank you all for your participation. You may now disconnect