Hello, ladies and gentlemen. Thank you for standing by for JinkoSolar Holding Co., Ltd. Business Updates Conference Call. At this time, all participants are in listen-only mode. After management's speech, 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. Stella Wang, JinkoSolar's Investor Relations. Please proceed, Stella.
Thank you. Thank you, operator. Thank you everyone for joining us today for JinkoSolar's Business Update Conference Call. We have posted a PowerPoint presentation that accompanies our comments to our IR website at ir@jinkosolar.com. On the call today from JinkoSolar is Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Company Limited, and Director of JinkoSolar Holding Company Limited. Firstly, I will provide a brief update on our business operations and company highlights, including our technology advancements, long-term business strategy and outlook. Then Charlie will be available to answer your questions during the Q&A session that follows. Please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.
As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks is included in JinkoSolar's public filings with the Securities and Exchange Commission. JinkoSolar does not assume any obligation to update any forward-looking statements, except as required by under the applicable law. Now let's move on to the presentation. So in the first slide, I think we demonstrate some operational and financial highlights for the second quarter and the first half. We overcome volatility in supply chain prices and end market demand, and demand, thanks to our excellent marketing network, high quality products, and high effective supply chain management. So in the second quarter, I think we became the number one in the industry for not only the second quarter and the first half shipments.
In terms of our product mix, our high efficient N-type shipments account for about 60% of first half module shipments. We are the first module company in the industry to deliver 10 GW of N-type modules in a single quarter. Financially, our adjusted net income for second quarter was $197 million, increased nearly 2.9x year-over-year. At the end of the second quarter, we generated our net operating cash flow of CNY 5.5 billion , increased roughly 150% year-over-year. Yesterday, we announced a cash dividend with approximately $77 million to be distributed, which is about $1.50 per ADS. This dividend demonstrates our board's continued confidence in our performance and outlook, and our commitment to enhance our shareholders' value.
Now, let's move into JinkoSolar's competitiveness. So from the competitive pattern, I think we are in a good position to consolidate our competitive and to lead the industry in the following three factors, perspectives. So firstly, as a pioneer of N-type TOPCon technology, we have a very clear technology roadmap and mass production capabilities for our N-type technology and our products. The first half, our cell, TOPCon cell production efficiency has reached 25.5% and we expect it to reach 25.8% by the end of this year. This new technology, including double-sided passivated contact technology applications, we expect our mass-produced efficiency next year to reach 26.5%. From the shipment penetration perspective, in the first half, N-type shipments accounted for roughly 60% of our total shipments.
For full year, we expect it to have 60% of total shipments for Jinko. Next year, our shipments of N-type penetration expected to be 80%-90%, which is higher than the industry average. Because the N-type can have 25-30 watts peak output higher than standard P-type, so we can command roughly RMB cents premium. That's where we share, that's the, the N, N, Chinese RMB premium, and we believe this premium will maintain as we can help our customers to continue reduce their LCOE and improve their project IRR. I would say from the cost perspective, at the end of last year, we have reached a cost parity between N-type and the P-type.
The first half this year, because the polysilicon price is re- the price of polysilicon is reduced, is dropping a lot, and the thinning wafer benefit from the thinning wafer is less than-- is reducing. So, right now, the cost between N-type and the P-type is CNY 0.02-CNY 0.03. But at the end of this year, our target is to reach cost parity between N-type and the P-type. In terms of the TOPCon, we believe that in the next three to five years, we believe the N-type TOPCon still be, still will become the mainstream technology in terms of efficiency. It's cost-effective advantage, and it's easy for the industry to be implemented.
The second strength for the Jinko is our diversify the global market layout and our global supply chain. So leveraging our extensive global market network with our localized after-sales service, we have delivered our shipments to over 160 countries and regions globally. Most importantly for, I think our, for the US market, at the last year, Jinko has suffered a lot from the US market because starting from the WRO and UFLPA, our shipments to US market reduced during the year. We suffered a lot from the US market. This year, thanks to our efforts, including our traceability improvement and our continued communication with CBP and some other efforts, we have seen both the efficiency of customs clearance and our shipments to US market gradually improved starting from July this year.
As we continue to make effective progress, we expect our shipments to the US market to gradually increase in the coming quarters. In terms of overseas capacity construction, by the end of this year, we will reach and integrate the capacity of over 12 GW, 12 GW overseas, versus 7 GW last year. We will have roughly 2 GW module capacity in U.S. And in terms of the capacity structure, the N-type will account for over 75% for the total overseas capacity, and Jinko will have the largest overseas capacity and also largest N-type capacity in the world. We will continuously to strengthen and expand our global industrial chain to provide a premium and high-quality products and services to our global clients.
Thirdly, I think the strength of JinkoSolar is we have the largest N-type capacity to serve our customers' demands and to gradually improve our global market share. From the capacity structure, right now, I think JinkoSolar has a relatively competitive capacity structure. By the end of this year, we will have 85 GW for wafer, 90 GW for cells, and 110 GW for modules by the end of this year. Over 75% will be N-type capacity. On top of that, we all foster our future competitiveness with the construction of a major production base of 66 GW integrated wafer, cell, module capacity in Shanxi, which will become the largest N-type integrated production facility in the industry.
Our Shanxi integrated base is another strategic expansion of the production model championed by JinkoSolar in the PV industry. That will fully demonstrate our advantages in highly efficient technology and products, in lower investment costs, and greater operational efficiency, as well as intelligent and smart manufacturing and traceability capabilities. In summary, we believe the industry will become one more concentrating in the next one to two years, and the tier 2 to tier 3 players that do not have a technology or development, supply chain management, and a global footprint, will gradually be obsolete in the next one to two years.
But for Jinko, with long-term R&D and product leadership, our global industrial chain footprint and our market network together, as well as our effective and efficient management capability, we are relatively in good position to improve our market share and profitability. That concludes my introduction. So we're now happy to take your questions. Operator, please proceed. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up your handset to ask your question. Our first question comes from Philip Shen with Roth MKM. Please go ahead.
Roth MKM.
Hi, everyone. Thanks for taking my questions. Wanted to talk about the dividend. You guys announced a new dividend yesterday. I think it's the first one for NYSE shareholders. Do you expect this to be regular? Could it be quarterly? Would it be more likely annual? And would it be about the same time next year as well? And what kind of outlook can you give us on the potential for future dividends? Thanks.
... Yes, Philip, this is Charlie, and yes, you're right. And I think the first, you know, the solar companies to declare dividends to investors, and we think it's the right timing and, you know, to reward the U.S., you know, investors and to increase, you know, very good positions and we as leaders, let's say, the next generation technology, and we are very confident to the long-term goals as well as the earnings. And the $1.5, you know, the dollars per ADS is pretty, you know, 5%, 6% is a pretty decent dividend. And going forward and on annual basis, we will do evaluation, of course, subject to the shareholder, let's say the board approval.
I believe, you know, it's going to be kind of recurring, but the level, you know, what kind of percentage will vary, you know, based on the earnings, you know, each year. But at least for the next year, I'm pretty, you know, confident for the short term. And as well as on top of that, we, you know, we are also evaluating the potential, you know, it's not determined the purchase of the ADS in the future. Because now if you look at our, you know, valuations, it's PB is less than 0.66, and we think it, you know, we need to take actions to firstly, to reward the investors.
Second one is we think, you know, it's a right timing to share some, you know, profitabilities and with our investors.
Great! Thanks, Charlie. As it relates to capacity expansion outside of the U.S., it sounds like you're gonna hit 12 GW. Was wondering if you could walk us through the polysilicon sources for the 12 GW.
Yeah.
Does the 12 GW also include the 2 GW of U.S. capacity? Do you expect that 2 GW to be done by year-end, or is that in addition, so eventually it's 14, maybe by year-end next year? Thanks.
Yeah, for the 12 GW, you know, integrated from the wafer to the cell to modules, we have the largest, you know, overseas capacities and including 2 GW solar module capacities, which are under construction and are expected to, I think, you know, go to operations by the end of this year. And I think we are in a good position and very advantageous with our peers, and that is, we have separate, standalone, overseas integrated capacity. And we have, you know, very complicated traceability systems, which has been improved, you know, in the last six months. And our modules have been, you know, go through this CBP very smoothly. And on the, you know, it's not only for the capacity, right?
12 GW, and we have built up a very, I think, resilient supply chain, including the polysilicon out of China. And, we roughly have locked in over 10-20 thousand metric tons, you know, for the overseas polys to support, you know, the 10 GW target for the US market.
Great, thanks for that. Shifting over to CapEx and funding, can you give us a sense for CapEx and funding for, you know, 2024? And is there an update on the timing of a capital raise in China?
Yeah.
Thanks.
Okay. Thank you for your questions. For 2023, this year, we are expecting to spend CNY 15 billion-CNY 20 billion on CapEx, on capacities to reach roughly, you know, let's say 85, 90, 110, you know, total cumulative capacities by the end of this year. This year, we estimate the operating cash flow will be around CNY 10 billion. By 2024, the CapEx level will be lower than 2023, and it's around, we estimate around CNY 10 billion. But next year, we estimate the operating cash flow roughly in the range of CNY 10 billion-CNY 15 billion. So which means it's going to, you know, free cash flow will be, you know, either neutral or maybe positive in 2024.
Next year, our key focus will be the 28 GW, you know, integrated capacities in Shanxi Province. Yeah, that's the, you know, CapEx, you know, estimations for next year.
...Okay, great. Thank you very much, Charlie. Then, coming back to the U.S., you know, we, we talked briefly earlier about the poly. You know, my sense is you have Wacker and Hemlock poly. Are you able to get any OCI poly, modules into the country yet? Or if, if not, do you expect to, and is it required to be able to hit your 12 GW of outside, you know, non-China volume or capacity?
Yeah, it's positive, you know, for all the, you know, the three major, you know, polysilicon producers. I don't want to touch on very details. Maybe it's kind of the confidential information, but we're pretty confident and, based on our experience and to lock, you know, again, I said, you know, to lock over 20,000 metric tons from the three polysilicon overseas producers.
Hello? Sorry, with this, and then I'll pass it on. As it relates to, U.S. shipments, next year, how many GW do you think you could get into the U.S., knowing what you know today? Thanks.
Yeah, our target is 10 GW, and it's a kind of minimum, yeah. I think the-
Great.
The 10 GW is a base, base case.
Great. Okay. Thanks, Charlie. I'll pass it on.
Thank you.
Again, if you'd like to ask a question, please press star then one. Our next question comes from Alan Lau with Jefferies. Please go ahead.
Thanks a lot for taking my question. So, my first question is about so, with the 10 GW of module shipment target to the U.S., I would like to know what is your expectation on the ASP in the US market? Because it used to be $0.35-$0.40 in the U.S., but in a recent RE+ conference, seems there are some decline in the price. So would wonder what is the module price you're expecting for next year, and how much of order has been signed? And also, how does it correlate with your polysilicon sign? Because to my understanding, overseas polysilicon are still trading at a higher price than China.
Yeah. Yeah, you're right. Let's say, you know, the US market, I think the market price are a little bit lower, you know, compared to maybe two, one or two quarters, but it's still a very decent, you know, price range. I think 30, just like you said, $0.35-$0.40. DG is a little bit, you know, kind of the demand is slower, but the utility is pretty, pretty strong, very good. And the 10 GW, the majority is, you know, the majority is utility scale projects, and we're expecting to get all the orders filled by the end of this year. And we have roughly 50%-60% done already for the US market.
For the polysilicon, the overseas polysilicon, the price is different, you know, different pricing mechanism, let's say, with China, with China is still, you know, relatively expensive. But to compare, compared to the, you know, the end market module price in the U.S., we, we believe, you know, US market will, you know, will, you know, deliver a very decent earnings next year for Jinko.
Thanks a lot. So, just to clarify, we have already signed 50% of the 10 GW shipment, which means that the order book has already reached 5 GW. And then the price for utility, for these utility orders are still in the range of $0.35-$0.40, right?
Yeah, you're right, you're right. It's kind of the way, the way we typically fall off the, you know, the market price, right? The market price in the range of $0.35-$0.40, you know, depending on different projects. So we are in that range.
Yeah, that would be very impressive.
Yeah.
So I would like to learn more about one, the polysilicon contracts that you are entering into. So whether it's linked to the market price when you deliver the modules or it's locked in already now, or it's based on some index at that time, like PV InfoLink or PV Insights, like how do you structure your supply contracts with polysilicon producers?
So different supplier, you know, contract has different, you know, mechanism, but it's not the fixed price, and it's based on some kind of the index. But the index is not 100%, you know, 100% linked to China, right? It's a different market, different, you know, mechanism, but the index typically is some kind of index linked to the poly price out of China.
Understood. Thanks a lot. So my next question is related to the cash dividend. So, I think after the announcement last night, a lot of investors are curious on. Because the company has actually had operating cash flow that sometimes might be negative, but it's clearly improving in second quarter. So, the commitment of the company in paying out cash dividends, does it mean that JinkoSolar is confident that in the following quarters or even in 2024, the company will deliver positive free cash flow?
Mm. You mean the A-share company or the US company?
U.S. level, I think, yeah, because investors are concerned on, like, why the company-
Yeah.
is having negative free cash flow, but it's distributing dividends.
I mean, the U.S., you know, and let's talk about, you know, firstly, the A-share company, right? So all the assets, you know, for the key, you know, all the manufacturing assets, right, integrated, everything is in A-share companies for the manufacturing business. I just said, you know, this year we estimate the operating cash flow will be CNY 10 billion, but we spent CNY 15 billion-CNY 20 billion on, you know, capacity expansions. But we did, you know, convertible bonds, right? In-
Yeah.
- on April this year, so it's sufficient cash. And, I, I, on top of that, you know, A-share companies typically will declare 20%-30%, you know, net income as dividend. And the, the US companies, the Investco, you know, the, the US Investco companies is, is, is holding 58%, of the A-share companies, and, so the US company will get the cash dividends. So we declared a $0.015 , you know, one point five, you know, dollars. But it is, it's, it's, it's, it's a cash. We, were close to the, the amount we, you know, we, the US company received, from A-share companies, I think in May this year, you know, for the, cash dividend for the A-share companies.
Yeah. Thanks a lot. So, my last question is in relation to technology, because I've noticed that you have put in a very compelling comparison between HJT, TOPCon, and BC technology in your presentation. So, it's interesting that you expect a couple of years later, BC technology may its cost may be comparable with TOPCon. So, can you share about your technological roadmap as to the next steps for TOPCon and also BC technology going forward? And do you expect to sell BC products in premium markets like some of your peers, like Maxeon does?
Yeah, we have worked out a roadmap, you know, for the products, you know, TOPCon-based products. And the efficiency by the end of this year will reach to 25.8%. And starting, I think, starting second quarter, maybe third quarter, our efficiency will reach to 26.5%. And in 2025, our target is 27%-27.5%. And we are going to firstly adopt the, let's say, it's called, you know, double-sided poly technology. Now, the TOPCon is one-sided, and then next year, we're going to adopt a double-sided poly. And we are also optimistic, you know, for implementation from some kind of the metallization, let's say, technology.
And for the BC, it's, we believe it's a kind of the, a platform, the BC can be integrated with the, with the TOPCon as well as the HJT, and we have, some kind of small production, R&D production lines already on the, on the BC. But the BC, we, we're seeing now it's kind of the more, more niche market for the DG and, particularly the, the front side, you know, the efficiency is relatively higher, higher. But, you know, the, the production is relatively, I think, you know, complicated. The cost is not, so economic, makes sense. But, we are still, you know, optimistic for the, for the, you know, let's say integration of the TOPCon with the BC technology in the future. So it's...
But it's not, you know, it's not the plan, let's say, for next year, and it's possible in the future, but at this stage, we don't believe it's economic making sense, you know, for particularly the, for both, you know, I think the DG markets and as well as the utility. And our peers doing the HPBC, right? HPBC, it's kind of, you know, from the efficiency side, we don't see, you know, even from for the front side, you know, output, we still believe, you know, if the TOPCon versus n-type TOPCon versus p-type BC, it's we still is we think the TOPCon is better, you know, n-type TOPCon is better for the DG as well.
Thank you. So, my final question is on the premium. Do you think it will stay, remain a $0.01 premium over PERC for TOPCon?
... Yes, yes, and the fundamental thing is, let's say now the standard 108, you know, mm, the size of the module, 72, it's the P-type is 550 watts, right? For each piece of the modules. And N-type, we are able to deliver 580, so it's a 30-watt per piece difference for the N-type. But next year, we believe it's going to be expanded to, let's say, 40-45 watts for the N-type versus the P-type. And we believe, you know, the product can deliver additional values to our customers, and it's making sense to maintain the premium, you know, $0.01-$0.015, you know.
Thanks a lot for taking my questions, and, yeah, I'll pass on. Thank you.
Thank you.
Our next question is a follow-up from Philip Shen with Roth MKM. Please go ahead.
Hey, guys, thanks for the follow-ups. Just wanted to kinda pull it back a little bit and kinda at a higher level, wanted to just check in with you on the purpose of the call. You know, this is not something that you guys do regularly. And so what, what's the key message that you want investors to take away from today? Thanks.
Yeah, I think the purpose of today is the call is the kind of business update as well as, you know, we are declaring a dividend, the first Chinese-based solar companies. I think, you know, investors are wondering, so what has happened to Jinko? And the second one is, from technology side, there's a kind of a very hot topic in recent weeks, versus for the BC versus the TOPCon, HJT, whatever. So we want to highlight, you know, we believe that the TOPCon will dominant... is dominating, not well dominant, is dominating the market in the next three to five years. And, there's a lot of those roadmap based on the platform, the TOPCon technology.
We are going to, you know, from an R&D perspective, we have finished the double-sided poly, you know, the technology and will be adopted to the, let's say, the TOPCon platform next year. Then, next year, our focus is on the 28 integrated capacity in Shanxi Province. It's a brand new, very complicated, digitalized, and, you know, the factories and the facilities will significantly improve our automation technology as well as the efficiencies, including the labor efficiencies.
We estimate the new facilities next year to be ready, is going to be, you know, the cost from—even from the cost perspective, will be lower than around 8%-10% with our existing most advanced capacities. Well, on top of that, you know, we are doing pretty good on the US market, and there's a lot of, you know, discussions on the determinations on modules in recent six to nine months. I think we have more learning curve and capabilities to make sure our, you know, the overseas operations complies as well as to get more, you know, the market shares in the premium markets. So Philip, that's the overall, I think, the purpose of that. Yeah.
Great. Thanks, Charlie. Yeah, I think people appreciate that. And then in terms of you know, module pricing, I think we talked through U.S. pricing, but you know, we're going through a big cycle down cycle here, and wanted to understand you know, your view of how this plays out. You know, you guys are ramping capacity. There's a lot of other capacity. You know, pricing is very low in Europe and many other places. And so how does this down cycle end? You know, and what's the timing as to when it ends? And from an industry structure standpoint, you know, how do you expect the industry to evolve? You know, do you expect a number of companies to exit the business? Or, you know, what's the...
Can you give us a roadmap as to how you and your team see the current, you know, down cycle evolving and when it ends? Thanks.
Yeah, yeah. I think the, this cycle is kind of mini cycle. It's not the big cycles in histories, you know, two or three cycles in histories for solar industries under the backdrop of the, you know, the, the solar is not getting the grid parity, but now it's totally different stories. And, from my perspective, I think solar, the industry, the growth is, you know, 100% sure.... And even next year, we forecast, we estimate, you know, the global installation this year may be 400 GW, next year reach to 500 GW. And, if you look at the, the, and, you know, the, the business models, and a couple years ago, it's, solar is kind of 100% to be to, you know, big company, you know, to be business.
Now it's kind of the DT markets is taking different countries, 30%-50%. There's a lot of business models for the, let's say the solar plus the storage, you know, solar plus the, you know, BIPV, whatever, you know, solar, and plus the transportations. Even, you know, in China, we are talking about installing solar on the, you know, on the sea. So there's a lot of business models and, for the, you know, the solar industries. And, for the short term and, first, I think after the mini cycles and the Tier-One companies will get more stronger. And, I strongly believe, you know, particularly for the participants, the newcomers or the Tier-Two, Tier-Three companies, they're going to be phased out in this mini cycles. Because if you look at the...
When we look at the, you know, we are Jinko, we are managing a very international companies. We deliver products over 180 countries through over 100 sales centers. We have very strong capabilities to doing international, you know, international productions and deliveries. That is very difficult. Each year, we invest over CNY 5 billion on R&D, you know, for the R&D activities. We have very strong and lean supply chain teams. It's a different, you know, competitiveness landscape, if you look at it, the top Tier-One companies versus the Tier-Two, Tier-Three companies. The capacity is really, you know, you're right, a little bit more.
By the end of this year, we estimate 900 GW to 1,000 GW capacity. But the structure is kind of, you know, if you break down the capacity, 900 GW, wow, 1,000 GW capacities, around 50% is the P-type based capacity and to be phased out in the next two years. And N-type is roughly 50%. And even for the N-type, you know, the different companies that produce, let's say the N-type TOPCon products, the output, the yield rate is totally different. So the market will be continue to be shortage for the supply of the supply for the high efficient capacities.
So that is why, you know, at Jinko, we are very confident we are taking the lead on the market shares, because we have, you know, strong capabilities on N-type with R&D and capacities. But, the competition, you know, because of the little bit more capacities, I think the competition will be getting more and more. But after the, let's say, the mini cycles phase out the inefficient, low efficient, you know, capacities, the Tier-Two, Tier-Three companies, as well as newcomers, we think the ecosystem will get more healthy, particularly for the top companies.
When do you think that is? Do you think that happens in the back half of 2024? Do you think it's the early part of 2024, or do we have to wait till 2025? And then, coming back to the pricing question, when do you think pricing, module pricing stabilizes outside of the U.S.?
For the global, let's say excluding U.S., U.S. is very, you know, different, different supply chain, different production, different markets, because of the uncertainties, I mean, as a whole market uncertainties, from the implementations of your UFLPA, right? Uncertainties from the, anti security regime, right, the results and the impact to the supply chain. So I believe, you know, U.S. will be, the supply will be, continue to be very tight. And, I think the end customer, the project developers and customer in US market, they are more likely to partner with Jinko, the companies like Jinko. We have very strong capabilities, and we locked down the-
... Charlie, sorry to interrupt. Yeah, I, I'm asking about module pricing outside of the U.S., not in the U.S. Like, when-
Yeah, I know your question.
Sure.
So, I think-
Okay, sorry
... it's for the U.S., it's totally different, but outside of U.S., I think it's already stabilized. CNY 1.2, CNY 1.15, it's kind of by the end of this year, I think has been stabilized. And I don't see, you know, significant room continue, the module price will be weak. Second one is there is anticipation the poly price some kind of recovery, right, in the recent two or three months, but expect the poly price will go down starting from November. So that is some of the reasons why the module price has not rebounded, right?
I believe the module price is a very good price for the developers, and I think not only in China, all the countries, other Chinas, and I don't see, you know, continue the trend of the downsides for the module price.
Okay. Got it. Thanks. You know, you talked a lot about N-type. Can you give us an outlook for the tandem research that you're doing? When would you expect to bring a tandem cell to market on a commercial basis?
Sorry, can you repeat your question? Sorry.
Yeah. So you've talked a lot about N-type. You're the leader in N-type.
Yes.
But as it relates to the next generation beyond N-type TOPCon, you know, my sense is we probably have to move to a tandem cell. And so, meaning, you know, crystalline silicon paired with a thin film or a perovskite or something like that. How close are you guys-
Yeah
... to commercializing that? You know, that's, that's probably in the next chapter.
Oh.
Do you think two or three years away, or do you think we're five plus years away?
I think it's, you know, it's a, I think after five years, but we are, first being out internally, we are positive, you know, for the long term, you know, the multi-junction, right? The TOPCon plus the, you know, perovskite, you know, the, the, so, let's say, the multi-junction solars, you know, solars. But, you know, in R&D perspective, it's going to be rich, you know, 35, 32, 33, even higher efficiencies. But, you know, the stabilities, right? It's kind of the issues and the of, you know, the technology available to make the mass productions for the multi-junction solar, you know, cells is still a big challenge. So it's not short term. It's not short run.
We believe it's kind of, you know, three years, the time frame. After three years, it's possible.
Okay, got it. I have more questions. I'll ask one more and maybe I'll pass it on again. As it relates to the U.S. shipments, because of the anti-circumvention AD/CVD moratorium ending in June, does that impact your shipments at all? Because you're found to not be circumventing, my guess is, you have no issue shipping through the whole year of 2024. Or do you think there's a greater concentration of your 2024 shipments in the first half of 2024 versus the second half? Thanks.
You know, we are not, you know, the result is very positive for Jinko, right? We are not circumventing. And, so I don't see any other impact of, you know, for Jinko, you know, shipments through 2024. And, I think, you know, it will going to be relatively stable, you know, each quarter next year, and, it's not, you know, back half, you know, concentrated for the 10 GW shipments, you know, in next year.
Great. Okay. Thank you very much. I'll pass it on again.
Thank you.
And, um...
Our next question comes from Brian Lee with Goldman Sachs. Please go ahead.
Hi, thanks for taking the questions. This is Grace on for Brian. I just have one question. Just want to circle back on the dividends. Just curious, why now you think it's a good timing to announce the dividend? Like, i.e., what are you seeing in the underlying business, or what has changed between now and your Q2 earnings call that makes you feel comfortable to announce this dividend? And also, since you mentioned share buyback, can you talk about your capital allocation strategy going forward? Thank you.
Yeah. Yeah, yeah, and it's not because, you know, the third quarter, second half year earning is better than the first half year of this year, that, and we declare dividend. It's, you know, in... Again, the US companies is holding 58% of the Chinese, you know, Asia companies. And typically, the Asia companies declare dividends in each May or June. And this year... The Asia companies declare dividend. It's around, I think, $80 million or $70 million, $80 million, attributable to the US companies, U.S. holding companies. And so but the US holding companies are typically, you know, get cash through some approval process.
On top of that, again, I said, you know, we think, you know, the US company is kind of the Investco companies, and the majority assets is Asia companies. But the US company has some kind of private equity investment for some pot good companies for solar industries focus on the equipment, the new materials, et cetera. But we're thinking now the US company stand alone has sufficient cash positions, and it's right time to, you know, declare dividend to return to the investors.
Thank you. I'll pass it on.
Thank you.
Our next question comes from Rajiv Chaudhri with Intrinsic Edge Capital Management. Please go ahead.
Thank you. Good morning, Charlie, or good evening, Charlie. I have a few questions. The first one, I'll start with the dividend itself. So what you're really saying is that the dividend paid out this year is based on the earnings of the previous year, right? And Chinese companies typically pay out 25%-30% of the earnings of the year in dividends the following year. So, so what we got in the $1.50 was really 25%-30% of the earnings that we had last year. And so my question is, you know, this year it looks like your earnings are going to be probably four or 5x what they were last year.
So, just based on that kind of calculation, would it mean that the dividend next year, if you were to pay out, based on the same rule of formula, 25%-30%, and then the Investco pays out everything in dividend instead of buying back stock, you know, if the assumptions are similar, are we looking at a dividend that would be $6 or $7?
I think I understand your questions, and, we are going to, you know, again, we are going to evaluate our annual basis. You're right, and, we, we have, very, very strong earnings this year, even for next year. And, U.S. Chinese company typically declare 20%, 30%, you know, dividends as well. And next year, the US company are supposed to get more cash dividends from the, the Asia companies, but we need to do evaluate allocation, how to allocate the total, you know, the total dividends from Asia companies. It may be, you know, some, you know, kind of the dividends continue, continue there, right, continuously. And some allocations to the, the investment fund, we continue to invest on the kind of supply chain equipment, new materials companies.
On top of that, we may consider, let's say, to buy back some shares. So it's not, it's not, you know, straight calculation, and we need to evaluate each year.
Right. Right. But, but, my question was, you know, if, if those assumptions were to stay the same, then the, then the dividend... I mean, if, if you were to allocate all of it to dividends instead of doing a share buyback or using it for some other corporate purpose, then the dividend would basically scale up, proportionately with earnings, which it's looking like, you know, 5x last year's earnings. So, you know, so it's a, it, it would be a $6-$7 kind of a number. I'm just asking if my logic is correct.
It's not a kind of 4x or 5x . If you look at our earnings next year, the Asia companies, right, it's roughly $3 billion, right? This year, you can look at the projections, right? Maybe I think 2x . Sorry, maybe 2x , maybe 3x or whatever, but you know, it's not 5x . But for sure, it's kind of at least double, right?
Right. Okay. Okay, let me move on to my next question, which is on gross margin. In the second quarter, you had stated that you know, there was an inventory reserve taken because you had written down the polysilicon inventory. Excluding that write-down of the polysilicon inventory, the gross margin would have been around 20%. And you had also told us that gross margin would be sequentially up in the third quarter compared to the second quarter. So, what kind of gross margin are we looking at in the third quarter? Is it you know, what kind of number is it above 20%?
It's, we have not finalized the accounting book, but, I think, you know, second half year, you know, particularly in the third quarter, we're expecting some, you know, some, gross margin expansions.... It's, you know, better than expected cost structures, and, we have, more, you know, shipments percentage on N-type, which has, better earnings, and we have relatively more shipments quarter by quarter for the US markets.
Right. So, just to be clear, when you say that the gross margin will improve, you are talking about improving from 20%?
No, I'm talking about improving from the second quarter, the number. Second quarter is the base.
The second quarter is the base. Okay, but, you know, but assuming that there's no inventory write-down in the second—in the third quarter, then the base would be 20%, right?
Yeah, you're right. You're right, but you need to get everything together.
Right. Okay. Okay, you mean we don't know whether there'll be a write-down in the third quarter as well, for example, is that what you're saying?
No, the write-down, I think I don't believe a significant write-down, you know, in third quarter or fourth quarter. But, when we look at the margins, we combine everything like, you know, including the inventory write-downs, including the, let's say, logistic cost, and we combine together, so.
Right.
Yeah.
Is it fair to say that the rate at which the price of polysilicon has come down so far in the third quarter is greater than the rate at which module prices have come down? I don't mean in terms of percentages. I mean in terms of per watt.
Yeah, I know, but it's a very complicated calculation, you know. We need to finish the bulk, but it's not purely the polysilicon, and I think, again, I said, you know, we have more shipments on N-type. On N-type, we are progressing pretty good and getting, you know, cost structures relatively, you know, getting better and better, and we continue to, let's say, streamline and improve in production efficiencies as well. So it's a kind of combination, and we are expecting better cost structures in the second half year.
Right. Okay. Just moving on to EBITDA and operating cash flow. I just want to reconcile two numbers, Charlie. One is that you have said that the EBITDA in the first half of the year was $1.3 billion. You are also saying that operating cash flow is going to be CNY 10 billion for the full year. What is the difference between operating cash flow and EBITDA?
You know, we operating cash flow and versus EBITDA, is a kind of the tax, right? The tax payments, the, let's say, the interest expenses payment, as well as, you know-
Right
... because of we have more and more shipments on the, let's say, more and more higher shipments, our working capitals will increase as well, including the inventories, accounts receivable, and et cetera. And so you can, you cannot just simply, let's say, simply do the calculations and, you know, EBITDA is equaling, you know, let's say, the operating cash flows. Yeah.
I see. Okay. Okay, so you are taking out taxes and, and working capital requirements in the operating cash flow. But what you're also saying is that based on the, the operating cash flow assumptions, you still expect that next year, operating cash flow should be higher, equal to or higher than, the capital spending?
Sorry. So what's your question? Yeah.
Yeah. So, no, my question was that, based on your definition, the operating cash flow next year will be CNY 10 billion-CNY 15 billion, which is still higher than the CapEx for next year.
Yeah, yeah, you're right. Yes. That's the key message, yes.
Okay. The next question is, you have talked about how the Shanxi capacity that is coming on next year is going to be 8%-10% more efficient than your best capacity right now for N-type. And, so, and you've also said that it is also going to reduce your working capital requirements from 40 days to, sorry, in the work in process from 40 days to 7 days. And, and I'm curious that, you know, those are very big shifts. You know, that will shift down your total inventory-oriented working capital, will it not?
Yes, yes, you're right. But think about it, it's a kind of the brand-new capacities. It's 28 GW and accounting 25% our total capacity. It's not, you know, all the capacity are integrated together, right? So it's going to be improve our our working capital, you know, and cash conversion cycles, but it's not, you know, the all the capacity improves to another level. It's kind of the new capacity around, you know, 25% of our total capacity, and to drive the efficiency improvement.
So, you know, one other question is, that, you know, typically the way you have done your planning for capacity, the module capacity that you, you end up with at the end of the year, and, you know, is typically equal to your target, your target for the next year. So, you know, so for example, this year, your, target is 70-75 GW of modules, and roughly that was the module capacity you had at the end of last year. And this year, you are, you are planning to end with 110 GW of modules. Is it reasonable to think that that's the kind of, module target you are hoping to, to, module shipments you are hoping to target next year?
Yeah. We are doing the business plan, you know, next year. You're right, when we do the capacity, if we look at the end capacity, it's typically preparations for next year. So it's for sure next year, it's over 100 GW, but detailed numbers we are evaluating, you know, and it's going to release in next earnings call.
Right. Charlie, have you set a date for the next earnings call?
You mean the timing?
Yeah, for the third quarter, yes.
I think so. I think by the end of October, you know, next month.
Okay. Okay, thank you. That's, that's all my questions.
Thank you. Thank you.
This concludes our question and answer session, as well as our conference for today. Thank you for participating. You may now disconnect.