Q2 2019 Earnings Call

Ladies and gentlemen, welcome.

She's in quarter two of 2019 Jinkosolar earnings conference call.

At this time all participants are in a listen only mode. There will be presentation, followed by a question and answer session at which time if you wish to keep her question you will need Prestero followed by one on your telephone keypad.

I would now like to turn the conference over to your Speaker today Mr. Zhao. Thank you. Please go ahead.

Thank you operator, thank everyone for joining us today for Jinkosolar second quarter trends when I say earnings conference call. The company for me, that's why because I got to say I got there Bill on the company website at <unk> Dot Jinkosolar Dot Com, that's where I found your flat services. We have also provided supplemental presentation for today's earnings call, which can also be found on our website.

On the call today, why Jinkosolar I need for trying to topping Chief Executive Officer, Mr., Todd Eecol nature regarding these and other risks is included in Jinkosolars, how many exciting ways that securities and Exchange Commission Jinkosolar got lot to field any obligation to update any forward looking statements, except as required under applicable law. It's now my pleasure to introduce Mr. Chen Kangping CEO of Pinkerton Jinkosolar Mr. Chen will speak in magazines and I will translate his comments into English. Please go ahead in his section.

If you have it all go if that's how oh.

Not that Ive got to get out there. Thank you <unk> good morning, and good evening to everyone and thank you for joining us today.

But you know comes to you I came from down two against all that data sounds I found that bottom here. So I'm just enough and then just can be summed up advocacy hurried to her young 3386 megawatts.

Increase up 12% sequentially and it took a while back Cynthia over here as with last quarter overseas shipments accounted for over 90% of total shipments.

Total revenue came in at one being a U.S. dollar increased 19% sequentially and 14% year over year, while gross margin roughly flat sequentially at 16.5% and accept substantially Suntrust person go in the same quarter last year non-GAAP net income for Q.

Thank you like what the fix Neenah U.S. dollar.

Significant a significant increase from 5 million U.S. dollar last quarter and 16 is like a 1 million U.S. dollars. During the same period last year with our mono wafer production capacity growing and oki migration cost structure. We are confident in the overall profitability of the second half of that you are hearing or somebody in Harris was actually to watch it somewhat which actually took cornell gasoline, so coaching or competing with them.

Sure Brian So most of that actually don't Johnson Witch Hunter should should I turn it off and then.

Well there was a hot area was on the hedging probably comes to conserve water heater again lead people getting conga project doesn't wish on the line.

Blocking thats dot com it sounds assessor, nor should it should drive globally. My feeling is that July looks like over the National development and Reform Commission and the National Energy Administration of a list of approved projects that security government subsidies for 2019. This was a follow up to that may allow for much of the first batch of wind power and the PV Kuwait parity collagen China is expected to install 40 gigawatt. This year before you actually supported the PV projects have already begun asks the domestic market to regain growth momentum we are rapidly approaching grid parity ways that paper without for projects such as Stella talk around that project in Maimone Province commitment I'm catching consisted a father Tom messaging.

Thank you Nat King is a milestone for the global solar industry as a great. Patrick you are rapidly approaching a number of emerging overseas market quickly switching gigawatts label as the market increasingly diversified away from traditional mature market. The cost of PV power continues to decline, resulting in lower begin practice, which are increasingly becoming more competitive.

Thermal power generation because in fact technological innovation, we expect that proportional PV, great parity projects to increase over the next few years.

We are optimistic that global demand will remain strong and a sustainable over the long term.

Question, just on that data junkies doctors actually touching bottom.

I will now begin to give you more color on the markets later.

Consulting yourself, which overall across our company and that was a joke.

Just a follow up on that each year.

Mark on the grid has shown.

Yes, so as an example, he is acting as subject on Monday.

Hi, Good afternoon, I talked about so you go to zero.

On a positive for us and so that's a hot seat would you are finding great some of that tends to mechanism.

Thank goodness and then of course with hotel classical SaaS easy product to patients would kick off somewhat tighter monetary settlement charges gross margin.

Karzai from environmental goals, the requisite, yes, perhaps as Jay.

Thats on the outside the mall, so we get that off so Dan would you should assume zero per socket.

Going forward, our view on that thanks, and good afternoon.

Yes, I do have a corporate fixed.

Or maybe on a heater Nancy coincident with the objective to agenda today, Jeff will get better. So when you sit down with your workforce solutions.

Local so Kevin do outstanding with it and then you got to do on a corporate finance.

Her product order entry guest.

Our in house high efficiency and capacity like what seven gigawatt of fill capacity and a 500 megawatts of NK cell capacity projects is of our mix goes without legal cost structures that are kind of operating room.

Since most of your 100 at some point to book group have gone much Internet services to see through the hospital her cortana congested final GRC targeting a heavy.

Our next question yourself that's about.

Okay third question, just with just one for Mike talked about progress on a machine cause I guess the timing.

So again, we're merging actual data so on paper, so I'm not suggesting from total our Permian form which is prudent use of our ads on a position and hydride oxide thin film technologies for modules, our latest innovative products into these less swung by feature a module with Dupont.

Pick a lot based action.

The new.

Like awake by feature technology has a huge potential to go last week, because it's worth not not only our deviate explanation provenance and the lowest cost.

Per kilowatt hour of electricity generated and also improved.

The efficiency of the modules and a logo power generations, especially for PV power plant.

Some sort of.

So he is asking dot jobs will pop out of Canada.

Wonder if I do the concerns that doctors in some years weve off I'm, sorry, if I'm, we're targeting certain different buttons on me. She said thats on boxing boxes are causing.

Sure attempt to fill up did you talk to me that haven't suggested licensee.

Well. This is also the weaker which is on schedule to that.

Were former dentistry to occur with a situation gene gillam about trends are struggling a little bit.

Thank you Mr. Jack whenever however, since our front end business is performing.

Our global distribution network and support teams working closely together, we will continue to drive growth in new era of grid parity.

Quite a target divestiture collectors are you assuming 2018 on aging essentially those objects order founder hardrock on Sunday Xerox Jay.

Yes, a little effects are there are you, making progress against key Imagings, Jay Miley fact avenues for Bob I'll start with US today are internet genetic disorder. Since your well costs are with your oxygen before turning the call over to dinner I will quickly go over our guidance based on current estimates for the third quarter of 2019. The company estimates total solar module shipments to be in the range of 3.2, Gigawatts to 3.5, because people Weve Zach Adler tank over two again.

Thank you Mitch.

Total shipments in the second quarter, but 3386 megawatt high increase of 21.2% from the same period last year and exceeding our previous guidance.

The increase was driven by non China, Asimow, which remained strong during the quarter.

In particular mono PERC products as a percentage of total shipments continued to grow steadily and I expect taping reached 70% for the full year of 2019.

In terms of geographic mix overseas shipments accounted for over 90% of our order books this quarter with China's latest the subsidy policy announcement in July the Chinese market is expected to regain considerable installation demand starting in late third quarter.

The Chinese garments July release of July release of our list of approved the solar projects that secure the government subsidy for 2019 has helped to kickstart fees for a number of projects that are expected to cement and if they drive domestic demand and growth in our shipments in China starting in September .

China is expected to install around 40 Gigawatts this year.

We also expect that the Chinese market tooling chase and robust to perform this well into 2020 two as number of cross year, Protex and the competitiveness of photo Latika power generation projects.

The U.S. market remains very strong.

Prices have rights and in the past quarter, which has resulted in our module almost setting up. In addition, our order book for tend to trend is rapidly filling up.

We have already had received a massive inquiries for tenure Transcanada 2020 , one deliveries from us market.

Furthermore, section kilowatt terrific Sam chest by fee for sort of Marcus has created a lot of discussion in the market.

Based on the current policy, we expect the demand in the us market start to shift toward spiky show module steadily where utility sector will be penetrated first.

Turning to Asia Pacific market reaction to the cost of the phenotype.

Russia installations across Japan largest large scale power costs are expected to continue until late seventies.

In Vietnam, although some projects in intra and Carlos how can postpone we expect the ministry of industry and trade witness to release, our new distributing the subsidy policy there so.

After such an announcement industrial on a commercial distribution will rapidly increasing that with makes market.

He Australia residential subsidies of quick touristic stays up being caps in place, which helped to revive the market driving further growth in the next two years for all residential commercial and industrial projects.

Already in India, the refund the PV targets can in larger than expected.

The government has indicated that it will provide assistance for larger scale pubic grid connected projects well if utility cost pace also issuing tenders for all global developed Prosensus investors.

With the calculation I my P. across European markets PV power generation costs to continue to decline with the percentage of grid parity projects continuing to grow European PV capacity is increasing and the expected to drive demand in the markets, such as France, Germany, Spain, and the Grace do into second half of this year.

Pocketbook respond to PBB have seen the lowest the pricing in Europe .

I think in order to achieve its renewable energy targets and keep pace with you energy conservation of the emission target PV, beating will continue for the rest of this year.

With more in the more traditional power stations being decommissioned each year.

The importance of solar energy is expected to rise in Europe with the benefits of long term cost advantages.

We are very optimistic about the future growth potential of European markets.

For key emerging markets.

The private pay and the commercial projects are driving the growth.

Especially in Mexico and Chile.

Brazil is expected to continue promoting solar tenders hours of meetings on the long term.

Argentina recently released a new subsidy policy, which is expected to drive median term installation demand in Latin America.

In middle East PV, beating half being in full swing this year with all of our our demand growing strongly.

Saudi Arabian market will soon be upgraded two gigawatt level well Oh man has released at the next or for large scale PV, beating prior four 2020 .

We are the market leader in terms of market share in a number of these countries and that will continue to invest in resources to explore more long term growth and the cooperation opportunities.

In general.

Grid parity becomes really reality, the mountain that will increasingly become sustainable globally and that will be less suspect both took fluctuations cost cut by policy changes.

Therefore, we expect a total global installation demand to continue growing in the future.

Asps overall increased slightly compared with last quarter.

We also expect to average annual prices to remain healthy.

We will continue to drive technology innovation to meet market demand at least reliable high quality products.

Our products were sold over 100 countries globally.

And if we remains our largest solar module supplier in the work over the years, we continue to be recognized for our leading technology and the reliable high quality products by respected third party institutions and the industry groups.

After having.

Extensive analyze this on the global solar PV market, we were awarded so for us to civilian 2019 Global Solar PV Technology Leadership Award.

Our dedicated efforts to improve our high quality products will also recognized by PV Tech from the solar media.

Good luck to Jinkosolar as a leading supplier to achieve double A. bankability rating.

Jinkosolar is the only PV module supplier to have double a briefing for the past 12 consecutive quarters.

This year Jinkosolar continue to move up the rankings as we see new milestones ranking 100, fiftys amounts of top 500, Chinese private enterprises in 2019 up from 2279 last year.

As a key opinion leader in the industry, we were much Warner to be the only privately owned cooperate.

So these are from to renewable energy sector invited to participate in to 2019 Summer Davos Forum energy panel titled China's Energy outlook.

During the second quarter, we attended coal trade shows and participated in 43 competencies work by.

We also hosted 16 customer events and the 54 co marketing activities with key partners across the globe.

Our marketing efforts continue to house Jinkosolars brand awareness and reputation in the global PV industry with that I will pass over to Carl.

Thank you operator, so to overall results beat our expectations.

We achieved better than expected shipments on gross margin our improved profitability resulted from lower production costs slightly higher is peace and the net foreign exchange gain.

Total solar module shipments at 3.4, Gigawatts up 12% sequentially and total revenue was one point in us dollars up 19% sequentially. The solar markets continued their strong momentum and we are on track to achieve our full year shipment guidance.

Total gross margin was stable at 16.5% compared to 16.6% in Q1.

Our investments on the Mama based high end facing capacity is expected to generate higher gross margin second half year.

Starting from this quarter, we beginning to provide additional guidance, including quarterly revenue and the gross margin range with our view on future performance. We believe this will provide a more transparent on a comprehensive picture of our operations and the future growth expectations.

For the third quarter, We act, we estimate total revenue to be a range of 980 million in us dollars to 1.07 pending eurostars on gross margin in a range of 18% to 20%.

So through operating expenses accounted for 12.8% of total revenue compared to 12.5% in Q1, the percentage is relatively higher given our high shipping cost relatively higher shipping costs from oversea markets.

We benefited from RMB depreciation against the US dollar second quarter net foreign exchange gain was 7 million us dollars compared to a net foreign exchange loss on line and drive starts in Q1.

EBITDA was.

The fifth system 66 million us dollars compared to 49 manager asks are seeing Q1 non-GAAP net income was 29.6 million US dollars. This translates into non-GAAP diluted earnings per year also related to some of the one cents.

Moving to the balance sheet at the end of Q2 rate increases our balance of cash passey covenants to 543 man Eurostars compared to 486 million your estars at the end of Q1.

The restricted cash balance was 158 menu asks ours at end of Q2 compared to 100 Sixs.

Four main your Srs at end of Q1.

We continue to improve our operating efficiency accounts receivable was 809 men dress ours down from 872 men dress ours at the end of Q1.

Our term over days improved to 76 days in Q2 compared to 94 days in Q1.

Inventory balance was flat at 966 men dress ours quarter over quarter.

Entering some over days reduced to 104 days in the second quarter compared to 120 days in Q1.

Total debt was 1.9 funding Sars compared to 1.8 is paying us ours at the end of Q1 being bridged 310 men you asked ours was related to international solar content.

Net debt was 1.2% in us cars compared to one point lumping in U.S. ours at the end of Q1.

The increase was due to the issuance of convertible senior notes in the second quarter.

This concludes our prepared propelled remarks, we are now happy to take your questions operator.

Thanks.

Operator, Thank you next question.

Thank you ladies and gentlemen, we will now begin the question and answer session. If you have any questions for your speakers today. Please press zero one on your telephone keypad and wait for your name to be announced.

If you wish to cancel your request please press ciro followed by two.

Again that zero one on your telephone keypad now.

Your first question is from Philip Shen from Roth Capital Partners. Please go ahead.

Hi, This is able to take I am on for Phil today, albeit are doing well. My first question is from Q1, you thought that 60% of the Q1 shipments were for non subsidize project and as much as 50% in 2019 shipments could be for non subsidized demand how much of your Q2 shipments do you believe served on for today's market and what's your latest view for second half 2019, and possibly 2020.

I assume you are talking about the markets without subsidies right great. How are you and.

Yes, I think Thats grain days is is there you know it's already is becoming more and more competitive and the most are raging, reaching sort of a great priority markets.

And then back to your specific question said, if you take China and Japan as subsidies supported markets. This year.

And we think our Sim in the quarter by quarter, the shipment to a ratings without subsidy.

It increased.

Step by step and the second quarter or roughly 70% to 80%.

And then looking to next year, China will be the biggest region and to reaching great partners and this year, we asked them in China.

Roughly a 10% is politics, we lost absolutely and next year and the no. We squeeze a you know with the government policy support.

And the you know and the lower system cost and the way. We believe me. So he will be a huge live next year in China for the.

Politics without subsidy.

Okay. Thank you. My next question is what is your latest view of China demand in Q1 and Q2 for 2020 have you heard of one the government may release into its next up through June and up what do you think it will look like.

Yeah for China market as we said just now China market will continue to be strong not only in the second half 2019, but also our independent Tracy. So one part is that there will be a lot of projects are naturally and they'll continue to construct and try to get a grid connection in the first half of 10 attention. Meanwhile, there will a there are a lot of let's say projects end up [laughter], a which is a great parity projects and the.

Should be expected to be constructed up by a year of 2020 regarding the there's rumors of the news games Oh, we have heard a several versions of it but I think that we should wait for the official announcement.

Okay Fair enough and then my last question I'll pass it on last quarter, you mentioned capex throughout the year was going to be about $450 million, we calculate about $212 million for the back half of 2019 can you give me some more color on the Capex for Q3 and Q4. Thank you.

I see the total comp axis theater.

Yeah, Youre right roughly 450 milligrams Nonres I know, we have spend I think it was roughly a 50% of the total contracts and no. The dominion part of 50% will be spread over second quarter and the fourth quarter.

And I will come past, they actually you know for both mono wafer capacity and pro capacity.

Our either Duncan Yom stage, and they're doing a sort of quarter and.

We expect to generate right for you know reached to full operational or you know I'll put it in the fourth quarter.

Okay, great. Thank you.

Thank you.

Uh huh.

Thank you.

Your next question is from Brian Lee from Goldman Sachs. Please go ahead.

Hey, guys. Thanks for taking the questions.

Maybe maybe just another capex one I'm on the back of that last one.

So the 450.

Million dollars of Capex for 19, it seems like that's intact can you give us some sense.

Yes, because I think in the prepared remarks, you mentioned the five gigawatt leash on facility going up 16 and a half.

What's the incremental capex for that what's the the expected timeline is that a first half 2028 on capital expenditure plan and then how much of the the capital funding is is being subsidized versus is coming off of your your balance sheet.

So Brad you are talking about now.

The second phase five gigawatts, our new capacity right and we are doing to kick off the preparation stage. It's another five gigawatts and mono wafer capacity and the making us to reach 16.5 gigawatt mono wafer capacity as you know the first trial a year or next year.

And no, which will help us to support our growth next year.

And then back to the Capex for this bar.

I think it's it's roughly.

150 million you asked Sars.

And the funding is is is its bombs or.

China based renewable energy actually your problems and there were walking away.

[noise].

Okay.

But what what per se is that fully being funded by that fund that you mentioned or that 150 portion I guess, maybe just to clarify the 150 is the gross capex and it's being fully covered by this third party or maybe you could give us the split.

Okay. It's a you know, it's roughly 70% 80% covered by the different its hard I don't have that many parts and do sort of person from the.

No not impossible.

Okay fair enough I'll take the rest offline maybe shifting gears couple of housekeeping questions for you Charlie or it was was there any 80 or CBD or other benefits in the second quarter reported gross margin or the 18% to 20% guided gross margin for Threeq.

Okay. That's a good question and Oh, some personal computers and attorneys sooner in second quarter. The corners. Some 80 CVD either here. So you know subsidy and we didn't have in the second quarter and they will be asked to me that we are going to have some lumber you know sort of quarter four the 80 CVD, but when we gave the guidance the 18%, 20% and we give them sometimes are just par.

Okay. So that's X any any benefit okay, and then any where there any project sales in the second quarter reported results or any.

Embedded in the third quarter a guidance revenue guidance.

So far no on the for international parties, and you're right. We are working very hard and we will.

The positive to monetize the international projects as reduced coal.

In my remarks, the total debt included roughly 310 million years honors. The project there for the fall for our projects, which have we have connected and we plan we plan to sell to two of the four projects yes.

Fourth quarter and the after the completion of the sale of the two positive fourth quarter, roughly a 170 million U.S. dollar that will be get out on the balance sheet for the remaining two projects we plan to sell down next year.

What's the two projects for this year, what's the capacity and expect the new if you can.

Yes, the two projects off the capacity is 150 megawatts the two part D C.

Mexico.

Okay great.

And then maybe just last one from me and I'll pass it on.

Yeah, Yeah, I was surprised the operating income increased you know like 8% versus Q1 sequentially. Despite the much higher shipments and revenues. So I know you had a big increase in EPS this quarter, but it seems a lot had to do with the Forex gain an income tax benefit and other below the line items is that is that is that fair and then what what should the income tax be going going forward.

You mean, the tax benefit rider.

Yeah, the tax benefit I know you can't offer for Forex gains sure. Okay, yeah attacks like <unk>.

Yeah.

Yeah, and as you know for the second quarter I think is pretty good.

No.

Good and the beating our estimates and if you looked at some you know.

One off items, we've also got head from the.

International positive interest rate swap, it's kinda accompanied to accompany you know accounting matters, because we didn't use the hedge accounting. So you know for the for the interest rate swap and the for the.

Tax no the benefits, it's a one off item is.

Is.

It is and in the related to the last year 2018 on the additional income tax deductions for for for our company as Hall and so we didn't expect you know the.

Continued tax benefit.

Second half the year.

Okay Fair enough last one I promise to pass it on the the pricing in China, I know you've been saying all year long like a lot of your peers have that China is going to be back half weighted and it clearly looks like it's going to play out that way you know we noticed that your pricing in China was something in the low 20 cents per watt for mono PERC volume in one of the recent China auctions I think it was SP I see so it seems pretty low not representing the pricing stability or strength.

Into year end in China, which I think was your original view you had talked about maybe even having the ability to raise prices a module is moving through the back half can you talk to why you bid so aggressively and you know what that might mean for future years in Threeq and Fourq pricing wise in China.

Okay on the first.

China is a developers were lucky and because after this is the third quarter because of the some kind of Oh.

More capacity for the PERC cell the proxy appliances dump a lot quarter over quarter.

That's a fair versus you know the first half year. The price is too high and you know the producers that they generate and huge gains probabilities.

And the this build a foundation for.

A little bit lower you know the module pricing the China market.

And second wise, if you're talking about the specific one positive no the price and the digital if you look kind of you know the not doing that beating passes some not politics. We are planning for the next year.

So this price is not currently as you know the.

Let me take that one this is John bright so for further pricing in China in General we believe so Q4 will become a stronger than Q3 Q3, I think will be the low point for the whole year or in the second half was a market price that's above market price and affords S.P. I see or other you know spot market place I have to say you know every player has its unique understanding and the tactic about different customer approach and they have a different understanding about the project pipeline construction timeline together, we saw the project side and the details I think that's a I think that's kind of been covered commercial confidential. So we cannot disclose too much but for us we do not see such prices only for 2019 and but it will continue as a very big fundamental pipeline for 2020 asphalt.

Okay I appreciate the additional color thanks, guys.

Thank you.

Thank you as a reminder, if you have any questions for your speakers today. Please press star one on your telephone keypad and wait for your name to be announced.

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Your next question is from my keep from Credit Suisse. Please go ahead.

Hey, thanks for taking the questions.

Just one or the other poly silicon cost structure could you just talk about like what was the bonus silicon costs in the quarter and Oh the expectations for.

Q3, and Q4 I'm, just trying to triangulate like a single latest new news in China that the policy that can cost might go up so trying to see like what are you seeing a children for drop that cost structure.

Mhm.

[laughter] policy limits on the spot price.

Assuming a lower level, yes, yes, second quarter and the comment a little bit and now we believe the noise is roughly I suppose a model based on this other than the price is 9.5 dollars for a kind of one and we expect you know the the price will be stable throughout the year.

And the thing is you know a lot about producers you have new capacity came out in the second quarter as needed.

The needs more time to produce high quality Amano base.

Panasonic and the so far we've seen in the you know they are jeopardizing passes as you saw on the track.

And so in general we don't believe.

A big risk you know for some of the Panasonic and the price is going down dramatically.

Got it.

And.

Just on guidance.

Separately, a Q4 weighted shipment guidance I'm then there's a lot of it is probably because of China demand, but are you seeing any higher demand from many other regions apart from China in Q4, like Oh demand pull and then U.S. due to the.

Tax credit so ER in Europe or other markets.

Yeah, sorry, I think my keep are definitely the Q4 demand will be stronger than Q3, not only China demand is kicking in but also or like you mentioned the U.S.P. Mount definitely is there, but it is a problem not short of supply and also as you know other markets such as you know, Japan, India market demand is still there.

Okay, and so how do you see the demand shaping up in Ah two the first over 2020 or 20 or the full year of next year I'm, just trying to understand your visibility for demand or into the next year, especially given your show me for capacity expansion plans.

A further market demand side. We believe this is a year of tend to try and she will continue to grow compared with Strensi Q1 9, and it's still a healthy global demand. If we look into that lets say the key markets such as China U.S. Europe , you. The Indians your pie submarkets, the Mali or all of their marquee demolishing 2020 will be higher than 15, 19, sorry, I think that that's a that's a fundamental growth for the whole industry and a very important. The reason why we are so confident about our expansion. Meanwhile, even though it's a customer inside of you know we continue to be sold out for us several months to announce or we believe me you know we have a very good market demand for the future.

[noise].

Got it and then just just on the you know the old and new technologies that you spoke about on the call on the thin films one by phase shows a larger mono wafer sizes.

So apart from the via for capacity expansion getting talk about which of these technologies would you be replicating across your Ah.

Capacity across their supply and then just trying to understand like how should we think about the capex for say going to bifurcate shell or.

Other technologies and 2020.

Hi, Thanks.

The market demand point of view, we are nice and marketing strategies client that we will continue to promote and launched our next generation generation. The paradox, we should be.

Very attractive and a very competitive in the market I well I think we are planning to launch as soon Meanwhile, the overall, our other products from Jinko side, even though for the whole industry. We believe the efficiency will continue to increase the cost structure side. It will decrease even diluted by the higher efficiency off the product I think that's a roadmap followed by the whole industry will continue to contribute to the grid parity, we are more and more competitive l. So you call. It's all over the world.

Oh, I'm, sorry, Oh those are the most questions from me I'm answering the questions.

[noise].

Thank you. Thank you.

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