晶科能源 (JKS) 2023 Q1 法說會逐字稿

Thank you for standing by, and welcome to the Q1 2023 JinkoSolar Holding Co., Ltd. earnings conference call. (Operator Instructions)

I now would like to turn the conference over to Stella Wang.

Thank you, operator. Thank you everyone for joining us today for JinkoSolar's first quarter 2023 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 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. Li, 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 the company highlights followed by Mr. Miao, who will talk about the sales 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. Li Xiande, Chairman and CEO of JinkoSolar Holdings. Mr. Li will speak in Mandarin and I will translate his comments into English. Please go ahead, Mr. Li.

(foreign language)

We are pleased to deliver year-over-year improvements in module shipments total revenues and gross margins. With polysilicon prices being volatile in the first quarter, we adjusted our supply chain strategy to effectively control our costs. Meanwhile, the ratio of N-type product shipments approached nearly 50% of our total module shipments, thanks to their high efficiency and our strong global marketing network, which partially contributed to the improvement in our profitability.

Gross margin was 17.3% compared with 15.1% in the first quarter last year. Our profitability in the first quarter remained under pressure from the demurrage costs in the U.S. market. We have proactively taken measures to address this. And we have seen both the efficiency of customers' clearance and the size of our module shipments to the U.S. market gradually improve recently.

As we continue to make effective progress, we expect our shipments to the U.S. market to gradually increase in the coming quarters. Recently, our majority-owned principal operating subsidiary, Jiangxi Jinko, successfully issued convertible bonds in the principal amount of RMB 10 billion to strongly support the expansion of our high efficient N-type capacity.

Growth in PV demand in the first quarter remained strong despite some seasonal factors. The Chinese market benefit from falling prices of PV projects and delays in PV projects from 2022. The new installations of PV reached 33.7 gigawatts, this is an increase of 154.8% year-over-year. As a result, the cumulative installations of PV has surpassed the debt of hydro power for the first time, making PV the second largest power source in China.

In addition, exports of solar cells and modules from China to overseas markets remained strong in the first quarter. Total overseas shipments of modules and cells reached USD 13.1 billion in the first quarter, an increase of 15.3% year-over-year. Since the second quarter had pricing gains between different segments along the supply chain relatively stabilized with the price of polysilicon started to decrease moderately. And current module prices have been attractive for the economics of PV projects.

With more production volumes gradually released during the year, we believe polysilicon price declines will stimulate large market demand. The top manufacturers are expected to increase their market shares, thanks to stronger supply chain management, market footprint and the competitiveness of their R&D and products. We are optimistic about global market demand and opportunities brought by new technology in 2023. We will continue to invest in R&D and advanced N-type capacity to enhance our N-type entire leadership in terms of net production capabilities, product performance and cost, while exploring the PV class areas to proactively respond to competition.

The second phase of 11 gigawatt TOPCon cell capacity in Jianshan has reached the full production and the average mass-produced efficiency of 182 N-type TOPCon cells reached 25.3%. We have also further improved our N-type ecological chain, constantly enhancing our all-around competitive advantages of N-type wafer, cell and module with improving supply chain management for key and auxiliary materials, iteration of core technologies and process improvement. As our technology, product performance and costs are all improving continuously. We expect to maintain our leading position in the industry.

Recently, we were ranked in the highest AAA category in the Q1 edition of PVTech's ModuleTech Bankability Report, a recognition by the industry of our advantages from outstanding manufacturing, finance and technology. By the end of the first quarter, our cumulative N-type module shipments exceeded 16 gigawatts, providing support for hundreds of projects globally in the last -- in the past year.

In January this year, we launched the Second-Generation Tiger Neo panel family. The module efficiency of the upgraded Tiger Neo family of 445Wp for 54-cell, 615Wp for 72-cell and 635Wp for 78-cell were up to 22.27%, 23.23% and 22.72% respectively. Meanwhile, we increased investments in energy storage business, furthering its development and continuously provided our clients with high efficient, reliable and safe solutions at competitive costs to lead the clean energy transformation.

In conclusion, future competition will be based on comprehensive strength. We are confident in our ability to further increase our competitiveness and profitability in the global market with our continuously improved global industrial chain and cutting-edge N-type technology and products.

Before turning over to Gener, I would like to go over our guidance for the second quarter and full year of 2023. By the end of this year, we expect mass-produced N-type cell efficiency to reach 25.8% and high-efficient N-type cell capacity to account for over 70% of our total solar cell capacity. We are confident we will achieve our module shipment target set at the beginning of the year with N-type modules accounting for about 60% of total module shipments. We expect the module shipments to be in the range of 16 to 18 gigawatts for the second quarter of 2023.

Thank you. Total shipments in the first quarter reached about 14.5 gigawatts, of which about 90% are module shipment, setting a new high. From a regional perspective, China and Europe accounted for over 60% of the total shipments. Shipments in China market increased more than two-fold on a year-over-year basis, while that to Europe market has grown over 50% year-over-year. In addition, emerging markets like Latin America and the Middle East, North Africa also made a remarkable contribution.

Recently, the industry value chain price has gradually returned to a normal level and the domestic utility scale PV projects have started their [speed limitation]. The current module price is acceptable to clients which can support them to achieve their pre-determined installation target at a stable order pace. We expect that the decrease of industrial supply chain price will drive the growth of utility-scale PV demand, especially in China market.

The European PV market has racked the potential. And the decrease in industrial chain prices is expected to further drive demand for distributed and utility-scale power stations. The U.S. market has robust demand and some utility-scale power station demand may be delayed until 2023 due to price factors and the supply constraints with expected 40 gigawatts DC of PV installed capacity in 2020 -- in U.S. by 2023.

Over the past year, we have continuously improved our risk management capabilities, continuously improved our supply chain visibility system and maintained close communication and coordination with customers, suppliers and other parties to jointly promote the efficiency of the customer clearance in the U.S. Based on the experience of supply chain construction and the marketing network layout, we are committed to meeting our customer delivery with outstanding products and services.

Regarding the products, Tiger Neo achieved a shipment volume of near 60 gigawatts in the first quarter, maintaining a competitive premium. China, Europe and emerging markets have become the main contributor to shipments. At the same time, we observed that Tiger Neo is accelerating its penetration in markets like Asia. Recently, we were awarded the type of [Australia] -- #1 Module Brand for 2022 by [Taiwan].

Tiger Neo not only has multiple advantages such as high conversion efficiency, high power output and the bifacial factors, but also leads the industry in terms of degradation rates, temperature coefficient and weak light performance, meeting customers' demand for household scenarios. With the release of N-type capacity and the continuous improvement of Tiger Neo's product performance, Tiger Neo's penetration rate and premium are expected to continue to lead the market.

In terms of business, distribution market accounted for more than 40% in the first quarter. Considering the sustained demand for utility-scale power stations this year, we expect the proportion of distribution to be around 40% for the whole year. In 2023, our order book visibility exceeds 60% with the majority being overseas orders. As upstream raw material cost decrease, we expect the module market price to experience a slight decline. Our signing price will fluctuate within a reasonable range in line with market trends. We will continue to focus on customer-centric approaches to provide high quality products and services to our customers. At the same time, we will adjust our marketing strategy to flexible according to market conditions.

With that, I will turn the call over to Pan.

Thank you, Gener. We are pleased to report a year-over-year increase of about 73% in our shipments in the first quarter with strong demand from global markets. In response to the polysilicon price decline, we adjusted our procurement strategy and achieved significant year-on-year growth in key financial metrics, including revenue, gross profit and operating margin.

Let me go into more details now. Total revenue was RMB 3.4 billion, an increase of 58% year-on-year. Gross margin was 17.3% compared with 14% in the fourth quarter and 15.1% in the first quarter of last year. The sequential and year-over-year increase were mainly due to the decrease in the cost of polysilicon and the increase in shipments of N-type modules which have a premium compared with P-type modules.

Total operating expenses were RMB 412 million, down 21% sequentially and up 29% year-over-year. The sequential decrease was mainly due to a decrease in shipping costs for solar modules and a decrease in impairment loss on property, plant and equipment. And the year-over-year increase was mainly attributed to an increase in loss of disposal on PPE and increase in demurrage charges.

Total operating expenses accounted for about 12% of total revenues compared with even in the fourth quarter and 15% in the first quarter last year, improving year-over-year. Operating margin was over 5% compared with 2% in the fourth quarter. Excluding the impact of the change in fair value of notes, a change in fair value of long-term investments and our share-based compensation expenses, adjusted net income attributed to JinkoSolar Holding Company Limited ordinary shareholders was over RMB 121 million, up over 2x sequentially and up 1.5x year-over-year.

Moving to the balance sheet. At the end of the first quarter, our cash and cash equivalents were about RMB 1.5 billion, down from RMB 1.6 billion at the end of the fourth quarter and compared with RMB 2.7 billion at the end of the first quarter of last year. Total debt was about RMB 4.4 billion at the end of the first quarter compared to RMB 4 billion at the end of the fourth quarter last year. Net debt was about RMB 2.9 billion compared to RMB 2.3 billion at the end of the fourth quarter of last year and our total debt profile has improved.

This concludes our prepared remarks. We are now happy to take your questions.

(Operator Instructions) And the first question comes from Brian Lee with Goldman Sachs & Company.

I guess, the first question I have is just around the ASP environment. I know you guys have seen some good margin expansion here quarter-on-quarter, it sounds like most of that was driven by the decline in polysilicon cost. So what's the status of that? How much more sort of leverage do you have to lower polysilicon costs relative to what you're shipping out and your inventory base today? And then can you kind of give us a sense of what you expect module ASP trends to look like into 2Q and maybe the back half of the year? We are hearing there's sort of double-digit declines in certain markets for solar panels. So wondering where your pricing strategy kind of is trending for the next few quarters?

Brian, this is Gener. Firstly, about the price side. So the market price is somehow stable in Q1 and the Q2, mainly in the first half. So I don't see there's too much, let's say, different opinion across the industry about the first half module price. But for the second half module price, we have seen some different opinions about -- based on different expectation of the polysilicon price. However, in our opinion, the polysilicon price might steadily going down step-by-step. We are not expecting a significant free fall over the second half, but we are more expecting a stable stepping down quarter-over-quarter. So based on that expectation, I think that's how we expect the module price will go for the rest of the year. And I hope that answers your question.

And then maybe just -- I know you made some comments around the U.S. end market. Can you give us your latest thoughts around shipping into the country? How you're navigating the UFLPA? And then also any thoughts around manufacturing or expanding your manufacturing base domestically in the U.S.?

So for the U.S. market side, I think we are closely working with our suppliers given some suppliers to make sure we can provide the documents or feasibility documents needed for the UFLPA. We have successfully done that quite -- based on quite a lot of shipments in the last quarters. And we are expecting with more and more experience, we can ship or we can get more approved based on what we are doing right now, at least that's the expectations. And based on that, we are planning to resume our shipments in U.S. market gradually. And we hope we can get back to a relatively stable or, let's say -- or make the situation under control in the next quarters, let's say, 2 to 3 quarters.

And last question for me. I don't know if I might have missed it, maybe you didn't provide it, but can you get the what the CapEx was in the quarter? What the free cash flow was in the quarter? And then any thoughts on kind of the financing needs and strategy for the rest of the year to cover the CapEx here?

Brian, this is Charlie. We have the subsidiary, the JinkoSolar. We have completed the RMB 10 billion convertible bonds in Chinese capital markets recently. Second one is the CapEx is in a range of RMB 1.5 billion to RMB 2 billion. And the focus is to solidify our leading position in N-type, the supply chain, including the wafer, cell and the module capacities. And we're expecting the performance -- if you look at the Q1 performance, it's pretty good. We continue to expand -- expect the expansion of the gross margin and our profitability. And the operating cash flows last year, it's kind of the -- I think it's around RMB 0.4 billion and continue to improve. So the financing is already there and it's sufficiently enough to meet our needs for the CapEx.

(Operator Instructions) And the next question comes from Philip Shen with ROTH MKM.

First one, as a follow-up to Brian on the UFLPA question, how many gigawatts have been released thus far in the U.S.? And how many gigawatts do you have detained in total?

First, I think we have significantly starting from Q4 last year in our modules and under UFLPA has started to go through the cost and to our customers. And we have I think achieved a significant amount of the module shipments. And for the detained, I don't think we have a very, very small and tiny. And the most important thing is, looking forward, we think the mechanism has already been there and we have visibility, a very strong feasibility capabilities. And we expect quarter-by-quarter our shipment with U.S. will improve gradually. And hopefully, we think it's possible in the third quarter, our shipments with U.S. will be back to normal situations.

So of the more than 60% of the order book visibility, can you talk about how much of that do you expect to go to the U.S.?

Phil, this year, the total volume we are planning to send to U.S. will be around 5% across the whole year's shipment plan, because like Charlie is saying, we will gradually resume our shipment trends and revenue recognition, but the course of the time consuming of the logistics, the UFLPA, et cetera. So the revenue side, it won't be too much. That's why we say around 5%, maybe 5% to 10% -- between 5% to 10%.

So 5% to 10% of the annual guidance is roughly 65 gigawatts. And then our work suggests that the non-China module -- non-China poly modules that you have that can access the U.S. market is roughly 5 gigawatts annually. Does that sound right? And then is it the case that you can smoothly import modules that contain non-China poly now, so there's no issue there at all?

Currently, we are planning with multiple resources of polysilicon, at least we are trying to do, because if we rely on a single resource of polysilicon, it might significantly constrained the capability of the supply to U.S. market. Personally, I still believe that might be a challenge for the U.S. customers as well. So that's what we are trying to do.

And then shifting back to margins for a bit or to margins for a bit. Can you give us a sense for what -- how do you expect margins to trend in Q2 and Q3, especially given the ASP comments that you had earlier? Do you expect the margin expansion in Q2 and then in Q3 perhaps your margins compress a little bit with similar as to back half pricing?

I think the market-wise, we have the confidence to gradually improve, at least that's what we believe, because thanks to the new technologies, N-type, TOPCon-based value, which is highly appreciated by the end market and it did create additional value to the customers. So based on the value -- additional value sharing business models, we definitely have the confidence to gradually improve our gross margins.

One last question. As it relates to U.S. expansion, I think Brian asked the question. I just want to check in to see if you can give a little more color on the timing of that? My guess is you have to wait for the domestic content rules to be out? And then what do you see for U.S. module pricing trends? Do you think maybe by year, between this year, 2024 and 2025?

(Operator Instructions)

I think we missed the last question. I have to briefly talk about it then we can pick up the next one. So regarding the U.S. expansion, we have the confidence, we have the plan to do it. But for sure, we are still waiting for some more clarification on the policy side and/or approval on the policy side. We are closely following that. Hopefully, we can get some clearance good to go in the next coming weeks or months, we will see.

(Operator Instructions) And the next question comes from Alan Lau with Jefferies.

Congratulations for the really great results and the margin expansion. So my first question is, I would like to know how much did the port charges related to the detainment in the U.S. border has went down and if this is going to be zero going forward? And would that -- how much would that contribute to the margin expansion?

In the first quarter, we have roughly RMB 300 million to RMB 400 million, the demurrage and the additional storage costs for the U.S. shipment situations. And it's roughly -- I think it's 2%, 1.5% to 2% gross margin impact. And we're expecting in Q2 it will dramatically decrease to maybe 25% of the Q1 level. So it's going to contribute I think at least 1% gross margin expansion.

So another question is, I would like to know how much is the poly prices for the polysilicon purchase from WACC? So is it the same? Is it going down at the same pace as the polysilicon price in China or it's going down a bit slower?

So it's really confidential, but it's a separate market. The poly out of China -- the main purpose is for the U.S. markets. And it's -- no expansion of capacity for the poly outside of China. So it's kind of already, let's say, very [short-haul] supply situations and the prices is very sticky and there's different situation in China for poly, supply is sufficient and we expect maybe some relatively oversupply situation in the fourth quarter this year. So it's a kind of different pricing depending on different situations.

So is it possible that if the U.S. customs accepted some of the Tongwei polysilicon, then your shipment to the U.S. will get even higher margin because you get effectively cheaper polysilicon, right?

I think it will really depend on the market principles, right? So it's supply versus demand. Like is saying, the polysilicon of non-China polysilicon is short of supply. And the end market is very strong. So definitely it creates a favorable market for the upper stream players. If we have additional polysilicon approved, definitely, it will make the situation easier. But how far it will go, it depends on -- finally, it's still the supply versus demand. So we will see.

I think my last question is in relation to the Southeast Asia capacity expansion plan. So what is the latest plan in terms of the Southeast Asia capacity expansion?

Currently, we have 7 gigawatts integrated capacity, but we have plan to expand the capacity in [wellness]. And it's possibly reach to maybe 11% -- 11 gigawatt to 12 gigawatt integrated capacity by the end of this year.

(Operator Instructions) That does conclude our conference for today. Thank you for participating. You may now disconnect your lines.