Hello, ladies and gentlemen, thank you for standing by for JinkoSolar Holding Co, Ltd's 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 available on the company's IR website at www.jinkosolar.com, as well as on Newswire services. We have also provided a supplemental presentation for today's earnings call, which can also be found on the IR website.
On the call today from JinkoSolar are Mr. Xiande Li, Chairman of the Board of Directors and Chief Executive Officer of JinkoSolar Holding Co Ltd , Mr. Gener Miao, Chief Marketing Officer of JinkoSolar Co Ltd, Mr. Pan Li, Chief Financial Officer of JinkoSolar Holding Co Ltd, and Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Co Ltd. Mr. Li will discuss JinkoSolar's business operations and company highlights, followed by Mr. Miao, who will talk about the 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 US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks is included in JinkoSolar's public filings with the Securities and Exchange Commission. JinkoSolar does not assume any obligation to update any forward-looking statements except as required under the applicable law. It's now my pleasure to introduce Mr. Xiande Li, Chairman and CEO of JinkoSolar Holding. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li.
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In the first quarter of 2021, our shipments, including wafer, cell, and module, were 5.4 GW. Total revenues were $1.21 billion. 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 first quarter, we adopted a relatively flexible business strategy and continued to reinforce the management and control of our supply chain while accelerating manufacturing process improvements in order to ease pressure on costs.
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The volatility in the supply chain caused by the imbalance between polysilicon supply and strong downstream demand continued in the second quarter. The overhaul of some polysilicon manufacturing plants intensified the shortage even more. The price of polysilicon reached RMB 220 per kilogram recently, more than doubled 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 cost 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.
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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 macroeconomic 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 notice that the lower demand has kept the price from rising further, and the lowering and stabilization of the material prices should drive up downstream demand. On a positive note, polysilicon output is sufficient to support 160 GW of installation this year and at least 210 GW 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 Inner 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 one of the 60 key accounts of China COSCO Shipping worldwide.
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At the end of the first quarter, we made a judgment call based on the prevailing market conditions and lowered the production volume of modules, while mono wafers and cells remained at full production levels. In terms of business 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 volatility on our profit margin.
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The challenges faced by the PV industry have accelerated technological advancement, such as wafer thinning to save polysilicon consumption, technology improvement to further increase module output, and the ramp-up of production automation to reduce costs and increase efficiency. Companies with advanced technologies can enjoy first-mover advantages and achieve relatively stable economic benefits despite rising material costs. Our wafer-thinning capabilities have reached industry-leading standards, and our smart factories are optimizing processes and improving automation every day. These initiatives will continuously contribute to our economic benefits and consolidate the advantages of our in-house manufacturing capabilities.
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Mainstream crystalline silicon cell technology has been gradually transitioning from P-type to N-type cells. The industry is expected to usher in a new phase of technological upgrades. [Cutting-edge ] R&D in technologies are highly cooperative and innovative systems from wafer, cell, module to system. The ability to quickly commercialize R&D results in mass production have prepared JinkoSolar to the top. We continue to lead technology breakthroughs in the industry. We started to produce the 800 MW N-type TOPCon cell two years ago. 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 efficient 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.
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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 30 GW, 24 GW, and 33 GW respectively by the end of 2021. CapEx will be reduced accordingly and in line with supply chain situation this year.
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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 GW-5.3 GW, including module shipments to be in the range of 4 GW-4.2 GW for the second quarter of 2021. Total revenue for the second quarter is expected to be in the range of $1.2 billion-$1.25 billion. Gross margin for the second quarter is expected to be in the range of 12%-15%. The full year 2021 shipments guidance, including wafers, cells, and modules, is unchanged and expected to be in the range of 25 GW-30 GW.
Thank you, [Ms. Z]. In the first quarter of 2021, total shipments of modules reached 4.6 GW, a new record for the first quarter. In addition, roughly 800 MW of cells and wafers were shipped to China market. From a regional perspective on module shipments to Europe and emerging markets both had significant growth sequentially and a 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 cost and transportation, our sales team kept a 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 o verall 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 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%-25%, while China, Europe, and emerging markets for 15%-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 costs of PV power station projects due to price hike in polysilicon, and the bulk commodities, and extended delivery delays caused by logistic 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 structures. Let me go into more details about this quarter now. The total revenue was $1.21 billion at 9% year-over-year if we exclude 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 million, a decrease of 15.8% 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 the 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 risk 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 rates 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 logistic companies. At the same time, as module power and proportion of large size 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 equivalents were about $1 billion, compared with $1.24 billion at the end of the first 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 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're 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.
We will now begin the question- and- answer session. All you participants with questions to pose, please press zero one on your telephone keypad and you will be placed in the queue. To cancel the queue, please press zero two. Once again, zero one on your telephone keypad now. 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 Hoshine, I was wondering if you can comment on how much Hoshine content do you guys have in your modules?
Hi, Philip. This is Gener. Thanks for the question. Actually, that's a 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. We will keep everyone updated once we get anything. Thanks.
Okay. Thank you, Gener. Is there something else? Sorry. Okay.
[crosstalk] No.
Yeah. I have a few more. Thanks. As it relates to your guidance, I think the implied shipments for Q3 and Q4 are roughly 17-ish GW. 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? Also, if you can comment on the outlook for 2022. I know you gave global market growth. Do you expect your shipments to grow in line with that market growth?
Yeah, that's a great question. Actually, the second half is always a 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. Regarding the detailed breakdowns between that, we will keep ourselves flexible enough to adjust that to the market changes in Q4. For me, I'm pretty confident that with a strong demand in Q4, we will deliver a, let's say, solid performance for the whole year's shipment and profitability. Regarding 2022, the market itself is believed to continue to grow. Jinko itself, we plan to grow organically as well. We will keep everyone posted. It's still very early to provide any detailed number yet.
Okay, thanks.
Thank you.
I noticed the technology details around the perovskite cell reaching over 30% efficiency. If you get that this year, that's great, t hat's incredible. Can you talk about when you think the perovskite cell could be commercially available? How stable is it now? I think on the last quarter, you talked about the N-type capacity for 2021 being 800 MW. With the capacity expansion reduction, do you continue to see 800 MW for 2021? How much do you see in 2022 for N-type? Thanks.
For N-type, I think currently we stick to the 900 MW we have, and those product is super popular in the distribution market. 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 roadmap. Right now, 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. Great. Gener , did you address perovskite specifically? Do you think you could be competitive in 2021?
For me, I think that will be even longer term. I think N-type definitely will be earlier than the other technologies to become mature and massively applied in this industry, but definitely, we are not only looking to one year or two. That's something we are looking for even in 3 to 5 years' time. Definitely, we are investing in that.
Great. In the Q1 quarter, you guys had, I think, about 800 MW of wafer and cell sales. Can you talk about the margins on those sales, especially wafer? What kind of margins did you have there? Was it similar to your peers there?
Let me look into the numbers. As far as I can remember, it should be somewhere around 20% margins for wafer side. The cell numbers are very small. The shipment is very small, so I don't have the margin yet.
Okay. Thank you, Gener. I'll pass it on.
No problem. Thank you very much.
Thank you, Philip. All you participants with questions to pose, please press zero one on your telephone keypad, and you'll be placed in the queue. Next up, we have Brian from Goldman Sachs. Brian, your question please.
Hey, guys. Yeah, good evening. Thanks for taking the questions. I had a couple on the guidance. Maybe first off, a simple one. It is 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 is still 300 basis points between low and high end on gross margins for Q2. Can you give us some clarity or sense of why there is still such a potential gap in what the gross margins you realize for the quarter are going to be?
In terms of guidance of the gross margin, it's really close to the end of quarter. The gross margin is still some impact from the recent polysilicon price, as well as the foreign exchange rate, the RMB against US dollars. We just give a relatively wide range, 12%-15%, and I think it's probable on the high end of the range.
Okay, fair enough. Then I think, sticking with the gross margins, obviously polysilicon has been more volatile and seen a much faster appreciation than people expected heading into the year. You and your peers, I think, are generally thinking Q1 could be the bottom for gross margins based on guidance here. Clearly Q2 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? Could we see another downtick into Q3 given inventory of high-cost poly still has some timeframe that it needs to flush out of your cost structure?
We are observing the market price, including modules, is undergoing upward trends. We are expecting the stabilized price of polysilicon. We think we have the capabilities to maintain a reasonable gross margin this half year. We hope it's better compared to the first half of the year because of the stabilization of polysilicon, as well as we continue to improve our production costs and to mitigate the cost pressures from polysilicon. We will continue to maintain some flexibilities in terms of the shipments of modules versus mono wafers.
Okay, fair enough. 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. You have been raising prices throughout the year. Are you having to reprice any of these contracts? Are you seeing pricing back half or early 2022 deliveries starting to go down again? Again, you have a view that polysilicon stabilizes. Are you reflecting that in maybe firmer or declining module prices as well moving through the year?
Yeah, thanks for the question. I think for that part, it's true that some of the projects or some of our clients' projects had to accept some of the delays because of the unexpected high price. Not only module, actually, if you take the other factors into consideration as well. For example, the logistics, the labor cost, even the cost of the trackers, even sometimes the inverters. Yeah, in general, everything goes up. That's why some of the project which has a very tight budget to the IRR or CapEx has to delay or even recap to 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 middle of 2022, but w hen 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 2022 as well as the new projects coming up online. We are expecting a very promising year of 2022 as well. Hope that answers your question.
Yeah. That's helpful. I guess maybe just to simplify the question, are you helping your customers at all with pricing, i.e., you raise 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 or are you quoting more aggressive pricing to keep these projects on track? On the module specifically, sorry.
Yeah. It varies case by case. It won't be a general solution for everyone, but we are dealing with every customer case by case. Yeah, we have all different kind of business models to try to find mutual solutions for the customers to solve their problems. Yeah, including all the measures you just talked about, but not only limited to that, right?
Fair enough. Last one from me, I'll pass it on. You're maintaining the 25 GW-30 GW guidance. I know that shipping 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 GW-30 GW? 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. For example, if the polysilicon market keeps stable and the market demands start to pick up, definitely we are more than happy to ship everything in modules instead of wafer itself. But if the market itself continues to be volatile as it was in the last three or six months' time, we are forced or we have to be flexible to ship more wafers in order to adapt to the market risk.
Okay. Thanks a lot, guys. I appreciate it.
Thank you very much.
Thank you, Brian. All you participants with questions to pose, please press zero one on your telephone keypad and you will be placed in the queue. All you participants with questions to pose, please press zero one on your telephone keypad and you will be placed in the queue. To cancel the queue, please press zero two. All you participants with questions to pose, please press zero one on your telephone keypad and you will be placed in the queue. Next, we have [Reddy] from [Santana] Capital. Your question please.
Can you hear me?
Yes, please.
Yes. My question is about the gross margin. You had a very nice positive surprise on the gross margin in the first quarter. I understand that part of it is because the wafer business is higher margin. 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 maximizing revenues? Therefore, for the near term anyway, a better benchmark to evaluate progress is to be looking at gross income. I noticed that the gross income number was higher than a year ago despite a substantial decline in module prices. Your gross income year-over-year was higher. That's my first question, is gross income the better benchmark to evaluate progress?
I think that's very encouraging comments for the company. I think that for the company, strategy-wise, we're not only looking to one goal, right? 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, long-term partnership, as well as the revenues growth or to make sure the company is growing and in a sustainable way, right? 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.
My second question is about the listing in the Chinese stock market. Can you give us an update on that?
It's still in the preparation stage, but we will release the deals if we reach the significant milestone.
Can you give us a sense of what the timeline might be on that?
No, we are not in a position now to talk about the timetable. Just what I said, we expect to reach some milestone, and we will release the news and if we reach that.
Thank you.
Thank you very much.
Thank you, [Reddy]. Next, we have [Wailu Jiang from Leaf Capital]. Your question please.
Hi, management. Thank you for taking my call. My first question is regarding. 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?
You are talking about the company's specific situation or the industry explanations? If you talk about, I think the polysilicon is still in the relative highs. Now it's stabilized. If it's stabilized, it will be helpful for the industry, the module makers to increase their utilizations in the third quarter. I think in July, once again, probably the utilization rate is still low compared to the second quarter.
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 stabilized. The downstream players, they are ready to take relatively high module price. I think it has high chance, second half year, utilization rate will be better than this first half year.
Thanks. Also want to ask, is there 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 cost perspective. Second one is, because we are integrated in production, so we have relatively low cost than compared to the players, which they don't have the mono wafer capacities. We don't expect the inventory risk in the recent stage.
Thanks. My next question is regarding our capacity expansion plan. We cut the plan for around 3 GW. Can you elaborate why we are so cautious on the expansion right now?
Given the polysilicon is still relatively tight, the industry utilization, I mean, the mono wafer utilization, the industry will not be 100%. 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 investment will be first invested in early next year.
Thanks. My last question is, do we have any guidance for the operating profit margin? Because we're seeing some slight improvements in Q1, but still much lower than last year. Will you have any guidance on the OP margin?
Operating margin, we don't give the guidance, but there are some specific items in the first quarter, and regarding the one-off impairment for the solar operating projects, international projects. We don't expect to have the impairment throughout the year. The operating expenses, the range will be roughly 12%-13%.
Thanks. No further question.
Thank you.
Thank you, Gene. Next, we have [Reddy] from [Santana] Capital. Your question please.
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?
Yeah, thank you for the question. I think for the ASP or the market price, let's talk about it for a second, right? For the market price for the second half, what 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. It brings a huge uncertainty for the lower downstream, especially for the module market prices. Sometimes we have to update our quotes or prices every week or even every two or three days, right? That brings huge uncertainty for the customer. For now, we have seen the stabilized polysilicon prices. Also, the industry is not expecting any huge volatile polysilicon price in the near future as well.
We have seen a lot of customers start to take actions to build up their budget and the CapEx, even the construction schedule based on the current market prices. That's why we are so confident about the second half demand will continue to be strong. 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.
Thank you, [Reddy]. 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.