晶科能源 (JKS) 2021 Q1 法說會逐字稿

Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holdings Co. Limited First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. 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. Ripple Zhang, JinkoSolar's Investor Relations Manager. Please proceed, Ripple.

Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's First Quarter 2021 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 our 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 Company Limited; Mr. Gener Miao, Chief Marketing Officer of JinkoSolar Company Limited; Mr. Pan Li, Chief Financial Officer of JinkoSolar Holding Company Limited; and Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Company Limited.

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 Holding. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li.

(foreign language)

[Interpreted] In the first quarter of 2021, our shipments, including wafer, cell and module were 5.4 gigawatts. Total revenues were USD 1.21 billion, and gross margin was 17.1%. Prices of polysilicon and solar glass continued to increase quarter-over-quarter due to the shortages.

On the other hand, macroeconomic conditions continue to impact commodity prices, which further increased sequentially for several production materials such as solar junction boxes and EVA. In the first quarter, we adopted a relatively flexible business strategy and continue to reinforce the management and control of our supply chain while accelerating manufacturing process improvements in order to ease pressure on cost.

(foreign language)

[Interpreted] The volatility in the supply chain caused by the imbalance between polysilicon supply and a strong downstream demand continued in the second quarter and the overhaul of some polysilicon manufacturing plants intensified the shortage even more. The price of polysilicon reached RMB 220 per kilogram recently, more than double compared with the end of last year. Although the price of solar glass declined significantly in the second quarter, it was far from being able to offset the increase in production costs caused by the rising price of polysilicon.

In addition, due to the double impact of the pandemic and the Suez Canal incident, transportation capacity worldwide decreased sequentially compared with the first quarter. The shortage of containers on some important routes remains problematic. The combination of many factors have caused module prices to increase and the demand from downstream customers was affected in the short term.

(foreign language)

[Interpreted] Faced with so many challenges, we continued to maintain close communication with all our customers to work out feasible solutions. The majority of our customers have a deep understanding of microeconomic and supply chain volatility and have more or less, flexibility to accept higher module prices and lower IRRs.

However, the continuous increase in module prices will inevitably affect the demand. We noticed that the lower demand has kept the price from rising further, and the lowering and the stabilization of the material prices should drive up downstream demand.

On a positive note, polysilicon output is sufficient to support 160 gigawatts of installation this year and at least 210 gigawatts of installations in 2022. Therefore, we believe that there is no basis for the continued rise of polysilicon prices. Based on the current high spot price, the upstream and downstream fluctuation is expected to stabilize in the second half of this year.

Considering that the company's shipments may increase significantly in the next few years, in order to enhance the stability of polysilicon material supply, the company has strategically invested in the Mongolia Xinte Energy recently. At the same time, we signed a strategic cooperation agreement with China COSCO Shipping Corporation, which will help us provide customers with long-term high-quality transportation solutions. We are currently 1 of the 60 key accounts of China COSCO Shipping worldwide.

(foreign language)

[Interpreted] At the end of the first quarter, we made a judgment call based on the prevailing market conditions and lowered the production volumes of modules, while mono wafers and sales remains at full production levels. In terms of business strategy we continue to lever with the advantages of our integrated capacity to adjust external sales of mono wafer and modules and reserve a certain volume to support spot market orders so as to reduce the impact of price volatility on our profit margin.

(foreign language)

[Interpreted] The challenges faced by the PV industry have accelerated technological advancements such as wafer selling to save polysilicon consumption, technology improvement to further increase module output and the ramp-up of production automation to reduce cost and increase efficiency. Companies with advanced technologies can enjoy first-mover advantages and achieved relatively stable economic benefit despite rising material costs.

Our wafer selling capabilities have reached industry-leading standards and our smart factories are optimizing process and improving automation every day. This initiative will continuously contribute to our economic benefits and consolidate the advantages of our in-house manufacturing capabilities.

(foreign language)

[Interpreted] Mainstream crystalline silicon cell technology has been gradually transitioning from P type to N type sales, and the industry is expected to usher in a new phase of technological upgrades, cutting-edge R&D in technologies, our highly cooperative and innovative systems from wafer cell module to system and the ability to quickly commercialize R&D results in mass production have propelled JinkoSolar to the top, and we continue to lead technology breakthroughs in the industry.

We started to produce the 800-megawatt N-type TOPCon cell 2 years ago, and it has become the industry benchmark in terms of lab efficiency, mass production efficiency and cost control. Meanwhile, we have just completed the construction of our highly-efficiency laminated perovskite cell technology platform, which is expected to reach an industry-leading conversion efficiency of over 30% within the year.

In the short to medium term, we will invest more resources into technology development that will improve product competitiveness. We will also continue to expand our solar plus business, promote technical and process improvement to lower LCOE for all our global customers.

(foreign language)

[Interpreted] In terms of capacity expansion, taking into account this year's supply chain and market conditions, we adjusted the expansion of wafers, cells and modules accordingly. Our in-house production capacity of mono wafers, cells and modules are expected to reach gigawatt 30 gigawatts, 24 gigawatts and 33 gigawatts, respectively, by the end of 2021. CapEx will be reduced accordingly and in line with supply chain situation this year.

(foreign language)

[Interpreted] Before turning over to Gener, I would like to go over our guidance for the second quarter of 2021. We expect total shipments to be in the range of 5.1 to 5.3 gigawatts, including module shipments to be in the range of 4 to 4.2 gigawatts for the second quarter of 2021.

Total revenue for the second quarter is expected to be in the range of USD 1.2 billion to USD 1.25 billion. Gross margin for the second quarter is expected to be in the range of 12% to 15%. The full year 2021 shipment guidance including wafers, sales and modules is unchanged and expected to be in the range of 25 gigawatts to 30 gigawatts.

Thank you, Mr. Li. In the first quarter of 2021, total shipments of modules reached 4.6 gigawatts, a new record for the first quarter. In addition, roughly 800 megawatts of cells and wafers were shipped to China market. From a regional perspective on module shipments, shipments to Europe and emerging markets both had significant growth sequentially and year-over-year, while shipments to the U.S. market remained relatively stable.

In the second quarter, as challenges in the supply chain intensified, we proactively adjusted our strategy for the order book and responded to supply chain volatility by fine-tuning the proportion of wafer, cell and module shipments to maintain profitability. Faced with challenges in the material costs and transportation, our sales team kept close communication with clients to find mutually acceptable solutions. Based on their feedback, we know that many Chinese utility investors, including state-owned enterprises, have moderately lowered their expectations for yield.

Overseas, demand for certain installations have seen stronger tolerance for higher module prices due to advantages in electricity prices or lower cost of the system construction. Meanwhile, some clients have accepted delays in module deliveries.

Expectations for yield varies across different countries, project types and scale. But overall, our market demand remains optimistic. Some imbalance in supply chain is expected to continue for some time. So we are keeping our order book and execution at a flexible and sustainable level.

Our product structure continues to be optimized according to the demand. With a flexible business model and relatively higher prices, the demand for distributed generation continues to grow in regions like Europe, Australia, Japan, U.S., where we can leverage our global brand awareness and reputation.

Clients have been favorable towards our premium quality products such as N-type and Tiger Pro products which were specifically designed for residential, industrial and commercial distributed generation facilities. In terms of annual shipments for 2021, geographical demand has been roughly divided into North America, Asia Pacific, both for 20% to 25%, while China, Europe and emerging markets were 15% to 20%, respectively.

This year, market demand has experienced multiple challenges such as continued delay caused by the resurgence of COVID-19 in Southeast Asia, rising cost of PV power station projects due to price hike in polysilicon, and the [back on] commodities and extended delivery delays caused by logistics disruptions. We believe these challenges will be gradually resolved in time. Meanwhile, we are constantly improving our mechanism of dealing with risks. We are optimistic about the growth in global market demand over the next few years and remain fully confident about our ability to capture a larger global market share year-over-year by providing sophisticated products and services for our global clients.

With that, I will turn it over to Pan.

Thank you, Gener. Despite increased cost of production materials and logistics, our major financial metrics such as gross margin, operating margin and net margin, all improved sequentially. This is due to the sequential increase in our ASP quarter-over-quarter and our continuous efforts to optimize our cost structure. Let me go into more details about this quarter now.

The total revenue was $1.21 billion, up 9% year-over-year if we exclude the impact from the disposal of overseas power plants in the first quarter last year. Gross margin was 17.1% compared with 16% in the fourth quarter last year and 19.5% in the first quarter last year.

Total operating expenses in the first quarter was $184.6 billion, a decrease of 15.8% as compared with fourth quarter last year. This sequential decrease was mainly attributed to a decrease in disposal and impairment loss on property, plant and equipment.

Excluding impairment loss, total operating expenses accounted for 13.7% of total revenues in the first quarter this year compared with 14% in the fourth quarter last year. We're working with further control operating expenses with increasing revenues in the second half of the year. Total operating expenses as a percentage of the total revenues are expected to decrease further.

Operating margin was 1.9% in the first quarter this year compared with 0.8% in the fourth quarter last year. EBITDA was $123 million compared with $100 million in the fourth quarter last year. Net income was $33.7 million and non-GAAP net income was $7.5 million, both increased sequentially compared with last quarter. Diluted earnings per ADS was $0.15.

The impact from foreign exchange rates remain. We recorded net exchange loss of $4.1 million in the first quarter this year. We will continue to hedge against the foreign exchange risks to mitigate the impact on operating results.

In terms of transportation, as consumption demand in major economies in the world regain strength, the pandemic caused further delays and inefficiencies in port operations. As a result, we expect that the overall freight rate will not decline until the first quarter next year.

In the face of the tough situation, we adopted CFR model for quoting and continue to foster deeper strategic partnerships with logistics companies. At the same time, as module power and proportion of large-sized module shipments continue to increase, container transportation is expected to improve efficiency and result in a drop in freight cost per watt.

Moving to the balance sheet. At the end of the first quarter, our balance of cash and cash equivalents were 1 -- were about $1 billion compared with about $1.24 billion at the end of last year -- the fourth quarter last year. Accounts receivable turnover days were 59 days compared with 50 days in the fourth quarter last year. Inventory turnover days was 126 days compared to 97 days in the fourth quarter last year.

Total debt was $2.67 billion at the end of the first quarter compared to $2.8 billion at the end of the fourth quarter last year, gradually improving quarter-over-quarter. Out of the total debt, $17 million was related to the international solar projects. Net debt was $1.59 billion compared with $1.56 billion at the end of the fourth quarter last year. In light of supply chain volatility and market conditions, we are reducing capital expenditures and expect total CapEx to be around $800 million for the year.

This concludes our prepared remarks. We're now happy to take your questions. Operator, please proceed.

(Operator Instructions) First, we have Philip Shen.

Given the recent WRO in the U.S. on Hoshine, I was wondering if you can comment on how much Hoshine content do you guys have in your modules.

Phil, this is Gener. Thanks for the question. Actually, that's pretty latest development from the WRO side. We are still under internal investigation and reviews about the whole process and the reaction based on the WRO. So we will keep everyone updated once we get anything. Thank you.

I have a few more. As it relates to your guidance, I think the implied shipments for Q3 and 4 are roughly 17-ish gigawatts. What's the mix do you think between Q3 and Q4? Is it evenly split or do you think it's heavily or more weighted to Q4? And then also if you can comment on the outlook for 2022, what kind of -- I know you gave a global market growth. Do you expect your shipments to grow in line with that market growth?

So yes, that's a great question. Actually, the second half is always a peak season for solar, especially Q4 for the China market. We are expecting a strong Q4 demand in China market as well. Regarding the portion-wise, I would like to remind that the total shipment number contains both modules and wafers, even small volumes of the cells. So regarding the detailed breakdowns between that, we will keep ourselves flexible enough to adjust that to the market changes in Q4. But for me, I'm pretty confident that with a strong demand in Q4, we will deliver, let's say, solid performance for the whole year's shipment and profitabilities.

Regarding 2022, the market itself is believed to continue to grow. And we, Jinko itself, we plan to grow organically as well. So we will keep everyone posted. It's still very early to provide any detailed number yet.

Okay. I noticed the technology details around the perovskite cell reaching over 30% efficiency. That's -- if you get that this year, that's great. That's incredible. Can you talk about when you think the perovskite cell could be commercially available? How stable is it now?

And then I think on the last quarter, you talked about the N-type capacity for 2021 being 800 megawatts. Do you still -- with the capacity expansion reduction, do you continue to see 800 megawatts for 2021? And then how much do you see in 2022 for N-type?

For N-type, I think we -- currently, we stick to the 900 megawatts we have, and those product is super popular in the distribution market. We can have -- we can enjoy a higher brand premium together with higher acceptance of the N-type products.

For the future, we are closely following the development of the industrialization of the latest N-type cell technology, even some of the module technology to decide our road map. Right now is -- we cannot give a very detailed numbers or options on the table yet. But definitely, we will be one of the early movers for the technology for sure. Thank you.

And Gener, did you addressed perovskite specifically? Do you think you could be close to '21 or...

That's -- for me, I think that will be even longer term. I think N-type definitely will be earlier than the other technologies to become a mature and a massive applied industry. But definitely, we are not only looking to 1 year or 2. That's something we are looking for even 3, 5 years' time. Definitely, we are investing in that.

Great. And in the Q1 quarter, you guys had, I think, about 800 megawatts of wafer and cell sales. Can you talk about the margins on those sales, especially wafer, what kind of margin did you have there? Was it similar to your peers there?

So let me look into the numbers. But as far as I can remember, it should be somewhere around 20% margins for wafer size. The cell number is very small. So the shipment is very small, so I don't have the margin yet.

(Operator Instructions) Next up, we have Brian from Goldman Sachs.

I had a couple on the guidance. Maybe first off, a simple one, just it's the last week of June, the quarter is almost closed here. Your revenue and shipment guidance seems pretty tight in terms of the range, but there's still 300 basis points between low and high end on gross margins for 2Q. Can you give us some clarity or a sense of why there's still such a potential gap in what the gross margins end up -- the gross margins you realized for the quarter are going to be?

We -- in terms of guidance or the gross margin, it's really close to the end of the quarter. The gross margin is still some impacted from the polysilicon, business and polysilicon price as well as the foreign exchange rate and the RMB against US dollars. So we just gave a relatively wide range, 12% to 15%. I think it's probable on the high end of the range.

Okay. Fair enough. And then I think sticking with the gross margins, obviously, polysilicon has been more volatile and seeing much faster appreciation than people expected heading into the year. You and your peers, I think, are generally -- were thinking Q1 could be the bottom for gross margins based on the guidance here. Clearly, 2Q is going to be lower.

How should we be thinking about that in the context of gross margins for the rest of the year? Are we in this low teens level until poly starts to go down meaningfully? Or could we see another downtick into 3Q, given inventory of high cost poly still has some time frame that it needs to flesh out of your cost structure?

We are observing the market price, including modules on the upward trend. And we are expecting the stabilized price of polysilicon. So we think it's -- we have the capabilities to maintain a ratable gross margin in the second half year. And it's -- we hope it's better compared to the first half of the year because of stabilization of polysilicon as well as we continue to improve our production costs and to mitigate the cost pressures from polysilicon, and we will continue to maintain some flexibility in terms of shipments of modules, which is the mono wafers.

Okay. Fair enough. And then maybe 2 questions on the revenue portion of the guidance. You guys mentioned some projects delaying or seeing some timing issues because of the high cost of panels, and you have been raising prices throughout the year.

Are you having to reprice any of these contracts? Or are you seeing pricing, back half or early '22 deliveries starting to kind of go down again? Again, you have a view that polysilicon stabilizes. So are you reflecting that in maybe firmer or declining module prices as well moving through the year?

Yes. Thanks for the question. I think for that part, it's true that some of the projects or some of our client's projects has to accept some of the delays because of the unexpected high price. Not only module actually, if you take into the -- take the other factors into consideration as well, for example, the logistics, the labor cost, even the cost of the trackers, even sometimes inverters. So yes, in general, everything goes up. So that's why some of the project, which has very tight-budgeted IRR or CapEx has to delay or even recapped somehow to adapt itself to the situation right now.

For the next years, actually, we are expecting pretty stable years because even when the polysilicon price becomes stable as of now. And also, we are expecting more polysilicon capacity available for mid of 2022. But when we compare with the demand side, actually, we are expecting more demand coming up compared with the additional new polysilicon capacity, especially when so many projects and the demand get delayed into '22 as well as the new project coming up online. So we are expecting a very promising year of 2022 as well. Hope that answers your question.

That's helpful. I guess maybe just to simplify the question, are you helping your customers at all with pricing, i.e., you raised prices to reflect the poly increases earlier in the year. Now that poly may be peaking and could start to go down, are you anticipating or are you quoting more aggressive pricing to keep these projects on track on the module specifically?

It varies case by case. It won't be a general solution for everyone, but we are dealing with every customer case by case. Yes, we have all different kinds of business models to try to find mutual solutions for the customers to solve their problems, including all the measures you just talked about, but not only limited to that, right? So...

Okay. Fair enough. Last one for me, and I'll pass it on. You're maintaining the 25 to 30 gigawatt guidance. I know that shipment guidance for 2021, I know it includes the cells and the wafers as well as module shipments. I'm not sure if you spoke to this, but what's the module portion of the 25 to 30 gigawatts? Just trying to get a sense of how much is baked into second half growth here.

Right now, we are expecting a majority of it, but we don't have a budgeted number yet because we are totally flexible up to the market. If the -- for example, if the polysilicon market is -- keeps stable and the market demand starts to pick up, definitely, we are more than happy to ship everything in modules instead of wafer ourselves. But if the market itself continues to be volatile as it was in the last 3 or 6 months' time, we are forced or we have to be flexible to expose -- ship more wafers in order to adapt to the market risk.

(Operator Instructions) Next, we have [Reddy] from Santana Capital.

My question is about the gross margin. And you had a very nice positive surprise on the gross margin in the first quarter. And I understand that part of it is because the wafer business is higher margin. So is it fair to believe or think that you are now managing the business to improve gross income and to maximize gross income rather than just be maximizing revenues? And therefore, for the near term anyway, a better benchmark to evaluate progress is to be looking at gross income.

And I noticed that the gross income number was higher than a year ago despite obviously a decline in the pricing of -- despite the substantial decline in module prices, your gross income year-over-year was higher. So that's my first question, that -- is gross income, the better benchmark to evaluate progress?

Yes. I think that that's a very encouraging comments for the company. I think for the company, strategy-wise, we're not only looking to one goal, right, sorry, to operate or to do our job. Actually, it will be a balance between different goals.

Definitely, gross revenues and gross margins is a very important factor and the target for the company's management. But we have to also take care of the other factors such as market share, customers in a long-term partnership, as well as the revenues growth to make sure the company is growing in a sustainable way, right?

So long story short, it won't be a profit only or gross margin only, but definitely, that's a good angle to look into. Thank you.

And my second question is about the listing in the Chinese STAR market. Can you give us an update on that?

It's still in a preparation stage. And -- but we expect to and we will release the news if we reach a significant milestone.

Can you give us a sense of what the time line might be on that?

No, we are not in a position now to talk about the timetable. But just what I said, we expect to reach some milestone, and we will release the news if we reach that.

Next, we have (inaudible) from (inaudible) Capital.

My first question is regarding the -- we saw in June that many other module makers are cutting their production utilization rate again in June due to the high cost. Do you expect the utilization rate can rebound in July, given there will be more new projects released?

So you are talking about the company's specific situation of the industry explanations. If you -- I think the polysilicon is still in the high -- relatively high -- a nice, stabilized. And if it stabilized, it will be hard for the industry, the module makers to increase their [iterations] in the third quarter. But I think July, one again, probably in recent -- really still low compared to second quarter.

So when do you think the production rate can rebound for the sector?

It has a good indication, right? If you look at the polysilicon, the wafer cell price is stable and nice. And the downstream players are willing to take relatively high module price. I think it has high chance in the second half of the year. The utilization rate will be better in the first half of the year.

And also I want to ask if there is any further ASP cut for polysilicon or the wafer, are we seeing any potential for impairment loss for our inventory?

We don't expect that because, firstly, when we quote the module price, we estimate the potential pressures from a cost perspective. And the second one is because we are an integrated production, so we have relatively low cost compared to the players, which they don't have the model wafer capacities. So we don't expect -- and the inventory risk in the recent stage.

And my next question is regarding our capacity expansion plan. We cut the plan for around like 3 gigawatts. Can you elaborate why we were so cautious on the expansion right now?

Given the polysilicon, still very [unstable] times. And the interest rate utilization -- I mean, we model wafer utilization industry will not be 100%. And we make the CapEx investment relatively slowly to make sure we have relatively high utilizations. It doesn't mean we will not make the investment. And some of the investments, we will be first investors earlier next year.

My last question is, do we have any guidance for the operating profit margin? Because we're seeing some slight improvement in Q1, but still much lower than last year. So will you have any guidance on the OP margin?

Operating margin, we don't give the guidance, but there is some specific matters in the first quarter. And regarding the one-off impairment for the solar operating projects, international projects, and we don't expect to have the impairments throughout this year. So the operating expenses, the rent, will be roughly 12% to 13%.

Next, we have Reddy from Santana Capital.

Yes, my question is about the expectation for module prices in the second half of the year versus the first half. Obviously, many module companies have lowered their utilization rates because of the shrinkage in margins recently.

The question is, as you have a standoff between customers and suppliers on modules, while the near-term utilization rate has come down because customers are unwilling to accept the prices that you want to charge them, is it fair to think that in the second half of the year, it's just as likely that customers will accept somewhat higher prices than what they are paying in the second quarter?

Yes. Thank you for the question. I think for the ASP or the market price, let's talk about it for a second, right? So for the market price for the second half, we have seen, firstly, it's a stabilized polysilicon price. In the first half, the polysilicon raw material price jumped almost every day or every week. So it brings a huge uncertainty for the lower downstream, especially for the module market prices.

Sometimes, we have to update our quotes of prices every week or even every 2 or 3 days' time. That brings huge uncertainty for the customer end. For now, we have seen the stabilized polysilicon prices. And also the industry is not expecting any huge volatile polysilicon price in the near future as well. So we have seen a lot of customers start to take actions to build up their budget and CapEx even through construction schedule based on the current market prices.

So that's why we are so confident about the second half demand will continue to be strong. And especially, we have seen a strong China demand in Q4, which will become a very huge important cornerstone for the global demand for the second half as well. Thank you.

I will now pass the call to Ms. Ripple.

Thank you, everyone, for joining us on the call today. Have a good night. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.