Earnings Call: Q1 2021

Jun 25, 2021

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 Q1 2021 earnings conference call. The 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 Xian De, Chairman of the Board of Directors and Chief Executive Officer of JinkoSolar Holding Company Limited Mr. And Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Company Limited. Mr. Li will discuss JinkoSolar's business operations and company highlights, followed by Mr. Miao, who will talk about the sales and marketing and then Mr. Pan Li, who will go through the We will all be available to answer your questions during the Q and 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 press today. Further information regarding this and other risks is included in JinkoSolar's public filings with the Securities and It's now my pleasure to introduce Mr. Li Xian De, 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. In the Q1 of 2021, Our equipment, including wafer, cell and module, were 5.4 gigawatts. Total revenues were US1.21 billion dollars 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 continued to impact commodity prices, which further increased sequentially for several production materials, Such as Solar Junction Boxes and EVA, in the Q1, we adopted a relatively flexible business strategy and continued to reinforce the management and control of our supply chain, while accelerating in the supply chain caused by the imbalance between polysilicon supply and the strong downstream demand continued in the 2nd quarter and the overhaul of some polysilicon manufacturing plants intensified the shortage even more. The price of polysilicon reached RMB220 per kilogram recently more than doubled compared with the end of last year. Although the Price of solar glass declined significantly in the Q2. It was far from being able to offset the increase in production cost caused by And the Suez Canal incident, transportation capacity worldwide decreased sequentially compared with the 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. Faced with so many challenges, we continue to maintain close communication with all our customers to work out feasible solutions. The majority of our customers have a deep understanding of microeconomics 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 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 sufficient to support 160 gigawatt of installation this year and at least 210 gigawatt 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 Inner Mongolia Xinte Energy recently. At the same time, we signed a strategic cooperation agreement with China COSCO Shipping Corporation, which to help us provide customers with long term high quality transportation solutions. We are currently one of the 60 key accounts of China Costco Shipping Worldwide. At the end of the Q1, 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 strategy, we continue to leverage 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 The challenges faced by the PV industry have accelerated technological advancement, such as wafer sealing to say polysilicon consumption, technology improvements to further increase module output and the ramp up of production automation to reduce cost and increase efficiency. Companies with advanced technologies can enjoy 1st mover advantages and achieve relatively stable economic benefits despite rising material costs. Our wafer capabilities have reached industry leading standards, and our smart factories are optimizing process and improving automation every day. This Initiatives will continuously contribute to our economic benefits and consolidate the advantages of in house manufacturing capabilities. Sales 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, Cat Edge, R and D in technologies are highly cooperative and innovative system from wafer, Sale module to system and the ability to quickly commercialize R and D results in mass Production have prepared JinkoSolar to the top and we continue to lead technology breakthroughs in the industry. We started to produce the 800 Megawatt N type Topcom sale 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 a highly Efficiency, let me let it perovskate sale 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. In terms Capacity expansion. Taking into account this year's supply chain and market conditions, we adjusted the expansion To reach 30 gigawatt, 24 gigawatt and 33 gigawatt, respectively, by the end of 2021, CapEx will be reduced accordingly and in line with supply chain situation this year. Before turning over to Gener, I would like to go over our guidance for the 2nd quarter of 2021, we expect total shipments to be in the range of 5.1 to 5.3 gigawatts, including Total revenue for the 2nd quarter is expected to be in the range of US1.2 billion dollars to US1.25 US25 $1,000,000,000 Gross margin for the 2nd quarter is expected to be in the range of 12% to 15%. The full year 2021 shipments guidance, including wafers, sales and modules, is unchanged and expected to be in the range of 25 gigawatts to 30 gigawatts. Thank you, Ms. Li. In the Q1 of 2021, total shipments of modules reached 4.6 gigawatts, a new red quarter for the first In addition, roughly 800 megawatts of cells and wafers were shipped to China market. From a regional perspective on module shipments, shipments 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 Q2, 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, market demand remains optimistic. The imbalance in supply chain is Expected to continue for some time. So we are keeping our order book and its execution at flexible and sustainable level. Our product structure continues to be optimized according to the demand. With call. 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 the 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-nineteen in Southeast Asia, rising cost of PV power station projects due to price hike in polysilicon and the barcode commodities and extended delivery delays caused by logistic disruptions. We believe these challenges will be gradually resolved in time. Meanwhile, we are Constantly, we're improving our mechanism of dealing with risks. We are optimistic about the growth in global market demand over the next and remain fully confident about our ability to capture a larger global market 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 net margin all improved sequentially. This is due to the sequential increase in our ASP quarter over quarter and our Let me go into more details about this quarter now. The Total revenue was CNY1.21 billion, up 9 percentage year over year if we exclude impact from the Disposal of overseas power plants in the Q1 last year. Gross margin was 17.1 percentage compared with 16 percentage in the 4th quarter last year and 19.5 percentage in the Q1 last year. Total operating expenses in the Q1 was CNY184,600,000,000, A decrease of 15.8% is compared with Q4 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 point 7 percentage of total revenues in the Q1 this year compared with 14% in the Q4 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 percentage in the Q1 this year compared with 0 point 8% in the Q4 last year. EBITDA was To $3,000,000 compared with $100,000,000 in the Q4 last year. Net income was 33 point $7,000,000 and the non GAAP net income was $7,500,000 both increased sequentially compared with last quarter. Diluted earnings per ADS was RMB0.15. The impact from foreign exchange rates remained. We recorded a net exchange loss of CNY4,100,000 in the Q1 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, we gained strength. The pandemic caused further delays and inefficiencies in import operations. As a result, we expect that the overall freight rate will not decline until the Q1 next year. In the face of the tough situation, we adopted CFR model for quoting and continue to foster strategic partnership with logistic companies. At the same time, as module power and proportion of large Size module shipments continues 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 Q1, our balance of Cash equivalents were about $1,000,000,000 compared with 1 point to RMB4 1,000,000,000 at the end of last year Q4 last year. Accounts receivable turnover days were 59 days compared with 50 days in Q4 last year. Inventory turnover days were 100 26 days compared to 97 days in the Q4 last year. Total debt was CNY2.67 billion at the end of the first quarter compared to CNY2.8 billion at the end of the Q4 last year, Gradually improving quarter over quarter. Out of the total debt, RMB70 1,000,000 was related to international solar projects. Net debt was RMB1.59 RMB1.56 billion compared with RMB1.56 billion at the end of the Q4 last year. In light of supply chain volatility and the market conditions, we are reducing capital expenditures and expect total CapEx to be around RMB800 1,000,000 for the year. This concludes our prepared remarks. We're now happy to take your questions. Operator, please proceed. We will now begin the question and answer session. First, we have Philip Shen. Your question please. Hi, everyone. Thank you for taking my questions. Given the recent WRO in the U. S. On Ho Jing, I was wondering if you can comment on how much Hi, Echo. 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 Zabuao. So we will Keep everyone updated once we got anything. Thank you. Okay. Thank you, Jenner. Is there something else? Sorry. Okay. A few more. Thanks. As it relates to your guidance, I think The implied shipments for Q3 and Q4 are roughly 17 ish gigawatts. What's the mix you think In Q3 and Q4, is it evenly split or do you think it's heavily or more weighted to And then also if you can comment on the outlook for 2022, what kind of I know you gave global market growth. Do you Your shipments to grow in line with that market growth? So, yes, that's a great question. Actually, the second half is always peak season for solar, especially Q4 for 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 numbers contains both modules and wafers, even small volumes of the cells. So regarding the detailed breakdowns between that, we will Now keep ourselves flexible enough to adjust that to the market changes in Q4. But for me, I'm pretty confident that with the strong demand in Q4, we will deliver a Solid performance for the whole year's shipment and profitability. Regarding 2022, the market itself is believed to continue And we, Jinko itself, we plan to grow organically as well. So we will keep everyone It's still very early to provide any detailed number yet. Okay. Thanks. I noticed the technology details around the perovskite cell reaching Over 30% efficiency, that's a very 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 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? Thanks. For N type, I think we currently we stick to the 800 megawatts, 900 megawatts we have and those product is 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 realization of the latest N types cell technology, even some of the module technology to decide Our road map right now is we cannot give very detailed numbers or options on Yes, but definitely, we are we will be one of the early mover for the technology for sure. Thank you. And Jenner, did you address perovskite specifically? Do you think you could be closer to the 121? That 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 in this industry. But definitely, we are not only looking to 1 year or 2. That's something we are looking for Even in those 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 WaferSense. The sales number is very small. The shipment is very small, so I don't have the margin Okay. Thank you, Gener. I'll pass it on. No problem. Thank you very much. Thank you, Philip. Next up, we have Brian from Goldman Sachs. Brian, your question please. Hey, guys. Yes. Good evening. Thanks for taking the questions. 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 We in terms of guidance of the gross margin, it's really Close to the end of the quarter, we the gross margin is still some impact from the Recent polysilicon price as well as the foreign exchange rate, the RMB against U. S. Dollars. So We just give a relatively wide Range, 12% to 15%. I think it's comparable on the high end of the range. Okay, fair enough. And then I think sticking with the gross margins, People expected heading into the year, you and your peers, I think, are generally were thinking Q1 could be the bottom 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 probably still Some time frame that it needs to flush 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 reasonable gross margin And it's we hope it's Better compared to the first half year because of the stabilization of polysilicon as well as we continue to To improve our production costs and to mitigate the Cost pressures from prior seconds, and we will continue to maintain some flexibilities in terms of shipment Okay, fair enough. And then maybe two questions on the revenue portion of the guidance. You guys mentioned some Projects are 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 For early 'twenty two deliveries starting to kind of go down again and 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 The projects or some of our clients' projects has to accept some of the delays because of the We expected a high price, not only module, actually, if you take into the take the other factors into For example, the logistics, the labor cost, even the cost of the trackers, even sometimes In general, everything goes up. So that's why some of the project which has Very tight budget to the IR or CapEx has to delayed or even recapped somehow to Adapted itself to the situation right now. For the next years, actually, we are expecting a pretty stable year 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 Many projects, the demand got delayed into 2022 as well as the new projects coming up online. So we are Expecting our 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 with pricing, I. E, you raised prices to reflect the poly increases earlier in the year. Now that Poly is maybe peaking and could start to go down, are you anticipating, are you quoting more aggressive pricing to These projects are on track on the module specifically, sorry? Yes. It varies case by case. It won't be a general solution for everyone, but we are dealing with every customer case by case. We have all different kinds of business models to try to find mutual solutions for the customers to solve their problems, Yes, including all the measures you just talked about, but not only limit to that, right, Sur. 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 20 5 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 keep stable and the market Demand starts to pick up. Definitely, we are more than happy to ship everything in modules instead of wafer themselves. But if the market Itself continued 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. Okay. Thanks a lot guys. Appreciate it. Thank you very much. Thank you, Brian. Next, we have Reddy from Santanna Capital. Your question please. Can you hear me? Yes, please. Yes. My question is about the gross margin. And you had a very nice positive surprise on the gross margin in the Q1. 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 And pricing of despite a substantial decline in module prices, your gross income year over year was higher. So that's my first question. Is gross income the better benchmark to evaluate progress? Yes. I think that's a very Encouraging comments for the company. I think for the company, strategy wise, We are not only looking to one goal, right, so to operate or to do our job. Actually, It will be a balance between different goals. Definitely, gross revenues and gross margins It's 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 the 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 call to look into. Thank you. My second question is about the listing in the Chinese Star market. Can you give us an update on that? It's still in the C. Wei:] The previous stage and but we expect to and we will release the deals Can you give us a sense of what the time line Mike, you on that? No. We are not in a position now To talk about the timetable, but just one last thing, if we expect to reach some milestone, And we will release the news and if we reach that. Thank you, Radey. Next, we have Wailu Chen from Reece Capital. Your question, please. Hi, management. Thank you for taking my call. 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 specific situation of the industry, you know, if you look about I think the policy can still be High, relative highs, but now it's stabilized. And if it's stabilized, it will be hard for In the Q3, but I think in July, when I get probably information, this is So when do you think the production rate can rebound for the sector? This has a good indication, right, if you look at the On the second, the wafer cell price is stabilized and the downstream players, We are willing to take relatively high margin price. I think it has high chance second half of the year utilization Thanks. And also want to ask if there's any further ASP For polysilicon or the wafer, are we seeing any potential for impairment loss for our inventory? We don't expect that because, first, When we caught the module price, we estimated the potential pressures from the And the second one is because we are integrated in production, So we have relatively low cost compared to The players which they don't have the model wafer capacities, so we're only correct And the inventory risk in recent in the recent states. Thanks. And my next question is regarding our capacity expansion plan. We 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 tight, the industry utilization, I mean, the model wafer is transitioning. Industry will not be 100%. And 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 Invested in early 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 OOP margin? Operating margin, we don't give the guidance, but there is some specific matters in the Q1. And Regarding the long term impairment for the solar upgrade projects, international projects, and We don't expect to have the impairment throughout the year. The operating expenses range will be roughly 12% to 13 Thanks. No further questions. Thank you. Thank you, Jen. Next, we have Reddy from Santana Capital. Your question, please. 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 The shrinkage in margins recently. The question is, as you have a standoff between customers and suppliers 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 Q2? 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 The market price for the second half, we have seen firstly, the stabilized polysilicon price. In the first half, the polysilicon raw material price For the module market prices, sometimes we have to update our quotes or prices every Even every 2 or 3 days' time, that brings huge uncertainty for the customer. For now, we have seen the stabilized Polysilicon crisis and also the industry is not expecting any huge volatile 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 the CapEx even though 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. Thank you, Reddy. I will now pass the call to Ms. Rippo. 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.