JinkoSolar Holding Co., Ltd. Q4 FY2020 Earnings Call

Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Corporation Limited’s Fourth Quarter 2020 Earnings Conference Call. 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, Ms. Ripple Zhang, JinkoSolar’s Investor Relations Manager. Please proceed, Ripple.

Thank you, operator. Thank you everyone for joining us today for JinkoSolar’s fourth quarter 2020 earnings conference call. The company’s results were released earlier today and are available on the company’s IR website at www.jinkosolar.com as well as our Newswire services. We have also provided a supplemental presentation for today’s earnings call, which can also be found on the IR website. On the call today from JinkoSolar are Mr. Li Xiande, Chairman of the Board of Directors and Chief Executive Officer of JinkoSolar Holding Company Limited; Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Holding Company Limited; and Mr. Gener Miao, Chief Marketing Officer of JinkoSolar Company Limited. Mr. Li will discuss JinkoSolar’s business operations and company highlights, followed by Mr. Miao, who will talk about sales and marketing and then Mr. Cao, who will go through the financials. They will all be available to answer your questions during the Q&A session that follows. Please note that today’s discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks is included in JinkoSolar’s public filings with the Securities and Exchange Commission. JinkoSolar does not assume any obligation to update any forward-looking statements except as required under applicable law. It’s now my pleasure to introduce Mr. Li Xiande, Chairman and CEO of JinkoSolar Holding. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li.

2020 was a very challenging year for the solar industry that kept its momentum for strong growth despite the year being shrouded in uncertainty as we went through the COVID-19 pandemic on a global scale. Although demand for solar installation was affected and we experienced the domino effect of the global economic slowdown, and went through some of the lowest points, we were still able to recover rapidly as restrictions were eased in major markets. In the second half of 2020, shortages of polysilicon and solar glass, rising shipping costs, and the appreciation of RMB, together with the impact of COVID-19, led to significant volatility in the industrial value chain in a year full of extreme challenges. We continued relentlessly to optimize costs through technical innovation and improved processes. Gross margins in the fourth quarter were within our expectations, and both revenues and shipments for the full year recorded significant growth compared with 2019. Meanwhile, our brand and global distribution channels further demonstrated our strong advantages and resilience during market volatility, and we were able to actually increase market share and solidify our leading status in the global PV industry. Our solar module shipments during the quarter and for the full year 2020 both hit historical highs. As of the end of 2020, our accumulated module shipments reached 70 gigawatts, making JinkoSolar the world’s largest PV manufacturer. We expect our shipment to sustain a growth rate of over 30% in 2021. As the global economy continues to face unprecedented impacts from the COVID-19 crisis, the solar industry has shown solid resilience against the pandemic and achieved rapid recovery amidst positive news and heightened enthusiasm for clean energy. In 2020, the performance of the global solar market exceeded expectations with newly added installations worldwide of approximately 134 gigawatts, an increase of 22% year-over-year compared with 2019. During the pandemic, governments introduced stimulus packages, which issued new opportunities for renewable energy to develop across the global industry chain. Economic stimulus often leads to large-scale capital investments, which will most likely determine the direction of the economic recovery now and for decades to come. More than 170 countries in the world have made specific policy objectives to encourage the development of renewable energy, a unified move that has not only boosted the industry but made the move to clean energy solutions unstoppable. For the Chinese market, which accounts for about one-third of the world’s total new PV installations, the pledge to reach the peak of carbon-dioxide emissions by 2030 and carbon neutrality by 2060 covers both energy safety and economic development by adopting supportive policies and measures in China’s near-term decarbonization plans to switch electricity generation from fossil fuels to renewable energies as the primary source. China has been accelerating the application of new technologies and the reform of the electricity system. Meanwhile, grid parity worldwide has brought rapid development to improve distributed photovoltaic generation and energy storage systems. Following the proliferation of clean energy globally, the solar industry will continue rolling out its ambitious plans and leveraging all opportunities. We are aimed for strong growth momentum over the next few years. Since the fourth quarter of 2020, the mismatch between supply and demand drove up the price of polysilicon due to the relatively long capacity expansion cycle for polysilicon production and volatile short-term market sentiment. At the same time, the price increases of bulk commodities and higher production costs were passed down the industrial value chain, resulting in significant price increases in modules. In response, some investors in solar power generation have accepted lower yields. However, prices in each upstream and downstream segment continue to fluctuate, and we predict will do so into the second quarter of this year. Since installations are still likely to increase and supply is sufficient in most segments of the supply chain, we anticipate that demand for modules will stabilize once market prices stabilize. While there are still supply shortages, there is enough polysilicon to support over 180 gigawatts for module production. This will help balance demand with supply in the year. We remain optimistic about global installation levels in 2021. Continuous volatility in the industrial value chain further highlighted the resilience to risk of integrated manufacturers. Economic uncertainties have continued to concentrate key players and heightened competition for survival of the fittest, rewarding highly adaptive companies to gain more market share. We closely monitor market trends and adjust flexibility at each link of the production process, continuously optimizing our supply chain management throughout our network and partners. Firstly, we signed long-term agreements with material suppliers to secure the steady supply of core materials. Secondly, we continued to build symbiotic partnerships around upstream and downstream to share resources, especially for segments with more severe supply shortages, and actively establish factors forming an industrial ecosystem. In addition, we maintained flexible tracking and storage of alternative technologies and materials to minimize market risks caused by supply chain volatility. As the solar industry enters the era of great parity around the globe, JinkoSolar continues to expand successfully with more business scenarios and business models leveraging our brand reputation built on years of global marketing and excellent service. We have established a foothold to build specific standardized and industrialized energy storage development models in 8 major regions worldwide. Currently, we have shipped our energy storage product to the Middle East and Africa, and we will launch products specially designed for the U.S. and Japanese markets in the second half of 2021. Meanwhile, our business in the global distribution market is showing a rapid upward trend, and our products for BIPV systems have been installed in a number of commercial real estate projects in China. JinkoSolar’s renowned brand and expert teams continue to drive the successful execution of our business from stable supplies to global customers to localized after-sale services that guarantee reliability and consistency of our products and services. JinkoSolar is committed to promoting the acceleration of carbon neutrality through product innovation and operating excellence. Over the next 1 or 2 years, our technical goal is to reach the highest laboratory efficiency of 25.5% for N-type monocrystalline silicon solar cells and 29% for multi-junction solar cells. So far, our new generation Tiger Pro flagship products have accumulated orders of over 10 gigawatts. Tiger Pro provides the best match between the maturity of the industry and high-efficiency large-area products. We expect the Tiger Pro service to account for 40% to 50% of our total shipments this year. Additionally, we will continue to leverage our leading technical innovation capabilities to promote the development of safe and highly efficient energy systems in response to increasing demand in this space. We have been actively deploying solutions for the solar plus industries, such as technical storage for photovoltaic hydrogen production and integrated PV storage smart systems. We remain bullish on the mid to long-term growth of the solar market space and continue to invest in new production capacity with technical and cost competitiveness, taking into consideration multiple factors like technical maturity and capability to meet increasing downstream demand for high-efficiency products. We expect our in-house annual production capacity of monosilicon wafers, high-efficiency solar cells, and modules to reach 33, 27, and 37 gigawatts respectively by the end of 2021. We expect the proportion of our in-house production capabilities to exceed 75% in 2021, which will enable us to become even more resilient to risks from continued volatility of the supply chain and technical upgrades. This long-term investment in our business will help optimize operational efficiency and increase profitability. Before turning over to Gener, I would like to go over our guidance. We expect total solar module shipments to be in the range of 4.5 gigawatts to 5 gigawatts for the first quarter of 2021. Total revenue for the first quarter is expected to be between $1.18 billion to $1.3 billion. Gross margin for the first quarter is expected to be in the range of 12% to 15%. Based on current estimates, full 2021 shipments, including wafer sales and modules, are expected to be in the range of 25 gigawatts to 30 gigawatts.

Thank you, Mr. Li. In the fourth quarter of 2020, total shipments of dollar modules reached 5.8 gigawatts. For the full year of 2020, total annual shipments were 18.8 gigawatts. Even though supply and demand remains volatile, we were still able to reach our shipment target for the full year 2020. Our modules were shipped to nearly 160 countries and regions around the world, as our overseas markets remain our main shipment destinations, with the Asia-Pacific, U.S., and Europe accounting for the major portion. Shipments in Asia-Pacific achieved significant growth of over 60% in 2020. During the fourth quarter, we strategically increased the portion of shipments to emerging markets in order to capture growth opportunities as these economies gradually recovered from the pandemic. Our well-recognized solar brand, global network of localized real-time customer service, quality products, and advanced technology were major assets that helped mitigate risks and increase our global market share in 2020. The shipment of high-efficiency monocrystalline products increased significantly from 74% in 2019 to nearly 100% in 2020. In May 2020, we launched our new generation of flagship products for the Tiger Pro series, leading the industry to fully enter the era of ultra-high power efficiency above 500 watt-peak. As technology innovation continues to accelerate product integrations, we estimate that shipments of Tiger Pro modules will reach 40% to 50% of total shipments in 2021, which will greatly reduce the LCOE for the customers under similar conditions. Recently, we launched new ultra high-efficiency Tiger Pro products, especially designed for the distributed DG market and well-suited for a wide range of distributed scenarios, including industrial and commercial rooftops and residential rooftops. In the future, we will continue to launch premium PV products and diversified solutions, expanding our brand influence in the field of distributed generation segments. In the recent price hikes along the supply chain, we have seen a correlated increase in module prices, which pressured downstream installation demand. However, we believe the short-term price rise will have relatively limited impact on demand. Following China’s pledge to achieve peak carbon emissions by 2030 and carbon neutrality by 2060, state-owned enterprises have signed mandatory targets for renewable energy installations. According to client feedback, several major Chinese SOE investors have already lowered yield targets for the power generation projects, bringing strong installation expectations for the downstream market. We believe that newly added PV installations will sustain significant growth momentum in 2021. In the mid to long-term, global transitions to clean energy will become irresistible as more and more countries launch policies to reduce carbon emissions; demand-side incentives are expected to partially offset cost pressure. The solar industry will continue its strong growth momentum. Next, I will detail each region’s market trend. In China, 2021 is the first year of the 14th 5-year plan and it is also the first year for the solar industry, except the residential sector, to enter the era of grid parity without subsidies. According to the new 2021 policy draft, projects should be won through bidding; otherwise, new installations would be approved as a result of reductions in subsidies on existing projects. This will lead to lower-priced projects going forward, and increasing solar generation capacity will further drive down the cost of solar power. Furthermore, because delayed projects not connected to the grid by June 30 will lose subsidies, this will account for most of the connections to the grid this year, including residential projects which are expected to reach 10 gigawatts. The Chinese market is expected to achieve a growth rate of 25% year-over-year in new installations, reaching the 55 gigawatt level in 2021. Average annual installations during the 14th 5-year plan are expected to reach 70 to 90 gigawatts. According to the latest report from Bloomberg New Energy Finance, new solar installation capacity in the U.S. reached a record high of 16.5 gigawatts in 2020. The solar industry showed tenacious vitality amidst the pandemic and economic contraction. President Biden has announced that the U.S. will rejoin the Paris Agreement, and the House of Representatives has reintroduced a Green Act, a critical view that includes a 5-year extension of the solar investment tax credit. The economic recovery policy in the post-COVID era and the acceleration of decarbonization of the U.S. energy system will further enhance the attractiveness of solar power and energy efficiency. In 2021, newly added solar installations are expected to exceed 20 gigawatts for the first time. Compared with other renewable energy sources, the price of solar power in the U.S. is very competitive, and the market competition is more rational due to its unique supply-demand relationship and market entry room. We are confident about maintaining our leading position in the U.S. market with our stable supply capability, excellent customer service, and high-quality product advantage. In 2020, our shipments in the Asia-Pacific market reached a historical high, with Vietnam contributing the largest growth in shipments affected by the expiration of old FIT projects. Japan rushed to install a large number of projects in September 2020. As the economic advantage of rooftop projects continues to grow in Japan, rooftop solar power generation is expected to replace utility-scale projects, becoming the main source of newly added power generation capacity for the country. Affected by some adverse factors, including the pandemic and excessively high electricity costs, new installations in India experienced a decline. However, it is worth mentioning that the Ministry of New and Renewable Energy will impose tariffs of 40% and 25% on solar modules and cells respectively from April 2022. This move is expected to stimulate a new round of installation rush before the deadline. Demand in other markets in the region, such as Australia, is expected to remain stable. According to the European market outlook for solar power published by Solar Power Europe, the European market reached 18.7 gigawatts of newly installed solar power, producing double-digit growth of 11% in 2020, marking the highest growth rate since 2011. In terms of market performance, the new Renewable Energy Sources Act will benefit the development of rooftop installation in Germany. The long-established leader in solar generation and residential energy storage is expected to become another emerging growth driver. Spain stood out in 2020 as the country led Europe’s subsidy-free market growth, becoming the third largest solar market in Europe. In January 2021, Spain awarded a total of over 3 gigawatts of solar and wind power capacity in the first renewable energy auction held since 2017, with the lowest LCOE for solar at $0.018 per kilowatt hour. The solar markets in the Netherlands, Poland, and France all maintained solid momentum. We remain bullish on the long-term development of the European market. Most countries in emerging markets like Latin America and the Middle East are actively promoting solar power projects. Applications for solar power generation have been extensive and are a major driving force for solar power development in emerging markets. Brazil’s state-owned energy research office recently announced that it has registered nearly 67 gigawatts of renewable energy projects for auction in June this year, including 1,050 solar projects with a total capacity of over 41 gigawatts. The Dubai Supreme Council of Energy recently announced a significant increase in the share of renewable energy in Dubai’s total energy mix. Following a strong recovery from the severe impact of dynamic emerging markets, they are expected to become powerful contributors to the development of the global PV industry. We see solar generation becoming widely popular in more and more countries, and the growth of the global solar market will no longer rely on single or dominant markets like the U.S., Europe, or India. We will continue to diversify. The general trend of the global clean energy transition will open up a new growth cycle for solar plus energy storage projects to achieve cost-effective integration of flexible resources in smart distribution grids. Currently, we have developed diversified solutions for our residential, C&I, and utility customers in our major markets around the world. We will cooperate with leading companies in the energy storage supply chain to accelerate deployment across the entire energy storage business chain. Recently, we won the overall high achievers award in the 2020 Photovoltaic Module Index Report published by the Renewable Energy Testing Center. Our high performance across three essential indicator categories — reliability, performance, and quality, demonstrate our commitment to product status. As the world’s first global solar manufacturer to join RE100, JinkoSolar was the first company in the industry to sign the Global Framework Principles for Decarbonizing Heavy Industry. In 2021, we will strengthen our distribution channels, expand our network of value-added customer service, and bring greater value to our global customers with high-quality, reliable modules and premium services. With that, I will turn it over to Charlie.

Thank you, Gener. In the fourth quarter, driving costs of raw materials and shipping costs, combined with RMB appreciation, put pressure on our profitability. Gross margin was 16%, or 14.3% if excluding the reversal benefit of AD and CVD, which is in line with our guidance. Our long-term competitive advantage in branding and distribution channels and demand for our high-efficiency products and customer services have helped to partially offset pressures from upstream price volatility. As costs along the supply chain stabilized, our highly efficient production capacity release and better integration will continue to give us a competitive edge in the industry. Let’s go into more details about the quarter now. Total revenue was $1.4 billion, a decrease of 1.1% year-over-year. Gross margin was 16% compared to 17% in the third quarter of 2020 and 18.2% in the fourth quarter of 2019. Excluding the AD CVD reversal benefit, gross margin was 14.3%, in line with our previous guidance. Total operating expenses in Q4 were $220 million, an increase of 51% sequentially and an increase of 26% year-over-year. The sequential and year-over-year increase was mainly attributable to an increase in disposal and impairment losses as a result of the company’s upgrade of production lines. Total operating expenses accounted for 15% of total revenues in the fourth quarter of 2020 compared to 10.8% in the third quarter of 2020 and 11.9% in the fourth quarter of 2019. Operating margin was 0.8% in Q4 compared to 6.2% in Q3 and 6.2% in Q4 last year. EBITDA was $100 million compared to $144 million in the third quarter. Non-GAAP net income was $5.1 million, a decrease of 92% year-over-year, which translates into non-GAAP diluted earnings per ADS of $0.11, taking into account the loss from the change in the fair value of convertible senior notes and costs due to the sharp increase in the stock price of the company in Q4. GAAP net loss was $57 million. I will brief you on our 2020 full-year financial results. 2020 was dramatically stronger compared with 2019. Total solar module shipments were 18.8 gigawatts, up 31% year-over-year. Total revenues were $5.4 billion, up 18% year-over-year, benefited from an increase in shipments of solar modules and production volumes of our integrated high-efficiency capacity, as well as cost reductions from the company’s industry-leading integrated cost structures. Gross profit for the full year was $945 million, an increase of 13.6% year-over-year. Gross margin was 17.6% compared to 18.3% in 2019. Excluding the AD CVD reversal benefit, gross margin was 17%, flat with 2019. Operating margin for the full year 2020 was 5.1% compared to 5.8% for the full year 2019. Operating expenses were 12.5% of total revenues in 2020, flat with 2019. EBITDA was $463 million compared to $376 million in 2019. The net debt to EBITDA ratio was 3.4x. Non-GAAP net income was $147 million compared to $139 million in 2019. This translates into non-GAAP basic and diluted earnings per ADS of $0.0328. Moving to the balance sheet, at the end of the fourth quarter, our balance of cash and cash equivalents was $1.2 billion compared to $943 million by the end of the third quarter, and our cash levels significantly improved. AR turnover days improved to 50 days compared to 61 days in Q3. Inventory turnover days were 97 days, flat with the third quarter. Total debt was $2.8 billion compared to $2.5 billion at the end of the third quarter and $1.9 billion by the end of last year, in which $150 million was related to international solar projects. Net debt was $1.5 billion compared to $1.59 billion in the third quarter and $1 billion by the end of last year. In September 2020, we announced our plan to list our principal operating subsidiary Jiangxi Jinko on the STAR Market in China by the end of October 2020. Jiangxi Jinko completed an equity financing of RMB 3.1 billion. This process is progressing smoothly. This concludes our prepared remarks. We are now happy to take your questions. Operator, please proceed.

Your first question is from Philip Shen from ROTH Capital Partners. Your line is now open, Philip. Please go ahead.

Hi, everyone. Thank you for taking my questions. With Q1 over now, can you talk about what you see for pricing in Q2 as well as shipments and margins? I know you have not provided official guidance, but any color on the Q2 outlook would be very helpful. Thanks.

Hi Philip. From the pricing perspective, input costs continued to be relatively high, particularly for polysilicon, and we are seeing negotiations with our customers. The module prices globally, including China, are trending to go up to reflect the impact of input costs. We didn’t provide guidance for the second quarter, but I think overall gross margin is expected to remain relatively stable throughout the first half of the year, and we are expecting some positive developments, such as lower prices for solar glass. The RMB depreciation also appears favorable in offsetting some of the input cost pressures, particularly from polysilicon. However, I think there will be a slight impact on global demand from the module perspective due to high input costs, and I believe most Tier 1 companies are balancing shipments versus high input costs. I don’t expect a dramatic increase in shipments in the second quarter.

Okay. Thanks.

Philip, this is Gener. Regarding shipments, our disclosure of shipment targets includes total shipments instead of module-only shipments. This reflects our strategic flexibility because we see an imbalance between demand and supply from upstream to downstream right now. That’s why our shipment targets are still in line with what we projected, but we are keeping flexibility between wafer, cell, and module shipments to mitigate market risk and optimize margins.

Thanks, Gener. I did notice that. I was wondering if you could share a little bit more on that and specifically how much wafer-only or cell-only sales could we see, so that we can get a more accurate picture of module-only shipments in 2021? Thanks.

We don’t have that number yet because we are keeping flexibility to adapt our strategy to the current polysilicon price hike. That’s why we maintain flexibility in this area. In general, we are still focusing on modules as our main business, but a portion of our shipments will be wafer or cell sales, depending on the margin in the spot market.

Okay, thanks. One other question for me: you guys added, I think, 16 gigawatts or plan to upscale capacity by the end of this year. Can you give us a little more color on that strategy around capacity expansion and why you’re investing so much in cell? And then help us with the CapEx for 2020 total? What do you expect it to be in '21, and how much do you expect that to come from partner contributions in terms of the CapEx? Thanks.

The CapEx in 2021 is in the range of $1 billion to $1.2 billion, reflecting our investment in solar cells and wafers. For our strategy regarding solar cells, we didn’t increase capacity for the last 2 to 3 years because we believed the technology was not mature enough. Now that the market is shifting towards larger size and high-efficiency N-type solar cell technology, we think it’s the right time to increase our solar cell capacity and our levels of integration, which is why we are expanding solar cell capacity in 2021.

Great. And the 2020 CapEx, Charlie?

2020, I didn’t have the exact number handy, but I think it’s roughly $500 million.

Okay, great. Thank you. I will pass it on.

Thank you, Philip.

Your next question is from Brian from Goldman Sachs. Your line is now open, Brian. Please go ahead.

Hi, guys. Thank you for taking my questions. I have a couple of questions for…

Hello?

Right. Can you hear me?

Yes, your voice is breaking up, right, so…

Is it better now?

Yes, yes. It’s better. Please go ahead.

Yes. Thank you for the questions. This is Grace on for Brian. I have a couple of questions further. Just wonder how far events are you booked for modules? And is there flexibility in pricing or were you not able to raise pricing until like the second half of 2021? Thanks.

Thank you for the question. I think for module prices, on one side, we have firm commitments for the contracts we signed. However, we always keep a portion of our capacities to the spot market to adapt to volatile market changes. For the signed contracts, we do our best to respect the legal commitments; however, since we have had long-term partnerships with many customers for years, we are still in discussions with many of them to find ways to be flexible and work together in facing the market challenges. That’s in progress. Does that answer your question?

Yes, yes. Thank you. And how far events are you booked for the module for 2021?

I think our order book is more than half booked. Still, we have some contracts with firm commitments and some with flexibilities under framework contracts only.

Okay, great. Thanks for the color. My second question is now that there are more details around the China 14 5-year plan. You talked about expectations for like 55 to 65 gigawatts. So I just wonder how are you thinking about the demand picture here, like in terms of what could drive upside or downside?

Sorry, can you repeat what’s the upside and downside for what?

For China demand, what could drive like upside or downside?

Okay, yes. In the short-term, we are facing some challenges because of the growth imbalance between the capacities in upstream and downstream. The growth of upstream capacity is much slower than the expansion of downstream demand. So, there are short-term turbulence and volatility in the market right now. However, in the long-term, we remain believers in the growth of both the Chinese market and other markets as well due to the ambitious targets announced by the Chinese government. We have received clear signals from our downstream customers about their ambitious pipelines in China. The current challenges are more short-term market and supply-demand imbalances occurring in upstream; however, we expect these to be resolved in the near-to-mid term, because the Chinese grid parity projects generally require a longer time from PPA signing to grid connections. So yes, we believe the market will adapt based on market principles, and together with the global demand, the Chinese market will continue to show strong and rapid growth.

Okay. Thank for the color. If I can sneak one more, just to, how should we think about the OpEx in 2021, should we think about around 12% to 11% as a percentage of sales and how should we think about gross margins in the second half of 2021 versus the first half?

We expect some more competition among Tier 1 companies in the second half of 2021. One of the bottlenecks is still material. We expect the second half to see less pressure from materials, and costs should improve compared to the first half of the year. With increased integration of key materials, we see potential for improving gross margin in the second half of the year.

Okay, thanks. And...

Pardon the interruption, Grace. Are you still there? We lost you for a minute there?

Yes, yes. Thanks for the color. And the OpEx, how should we think about the OpEx? Do you expect it to return to a normal range around 11% to 12% of sales?

Yes, it’s still in our range, around 11% to 12% against total revenue.

Okay, thanks. I will pass it on.

Thank you.

Thank you. Your next question is from Philip, who has a follow-up question from ROTH Capital Partners. Please go ahead.

Hi, everyone. Thank you for taking my follow-ups. One of the questions I had was around polysilicon. Given where pricing is and the dynamic there of pricing continuing to go higher. I was wondering if you could share how much polysilicon you have secured for 2021, possibly in metric tons?

So Philip, I think from the supply side, we have secured enough polysilicon supply. The challenge is that, due to the market situation, even secured polysilicon supply is always contingent upon the market conditions. So that presents a significant pressure for everyone. Currently, it’s extremely challenging to secure long-term polysilicon pricing. We have secured the volume, which should be enough, but pricing-wise, it remains dependent on the market.

What’s your view, Gener, on when that pricing can become stable? I think some capacity is coming online at the end of this year. Do you think we have to wait until Q4, or if we see relief before that, what could cause that relief?

We believe pricing will improve step by step. It won’t change overnight, but gradually, I think the pressure will ease. The demand side is very robust right now, which contributes to upstream holding expectations that demand will support the price. In the short term, we expect continued market volatility up and down. However, in the long run, as you mentioned, the pressure will release progressively, following market principles.

Okay. And as it relates to Q2 shipments, we discussed this earlier, but when I look at Q1 relative to what we forecasted, the Q1 levels were lower than you guided to; for Q2, should we expect something similar? If you think back to what you expected to do in Q2 at the end of last year, do you expect shipments to be lower in Q2 now versus then, given the raw material outlook is so challenging and the fact that customers are pushing out orders?

I think, Phil, the principle we hold in the company is to keep module capacity more flexible than others. Our wafers and cells are fully loaded, but for modules, we hold more flexibility based on margins and market conditions. I don't think it's the right time to discuss specific numbers, but we can talk about it next time.

Okay, alright. I appreciate that. And then in terms of the China listing, Charlie, I know you mentioned some details on that. I was wondering if you could share the potential for the China listing to be in Q3 or Q4 this year. Is it meaningful, or is it more likely in early 2022? I know you talked about it being a two-year process, but I wanted to see if others are going this year, like Daqo, and I think Canadian Solar has a chance of getting out there this year. Do you think you guys could also make it this year for the China listing?

We have a separate team working on the China listing process. It’s more complicated compared to the U.S. listing, and the process is still on track and progressing smoothly. We’re expecting to reach some significant milestones in the next couple of months, and we will keep the market updated on our progress. In terms of the timetable, a lot of the processes are beyond the company's control. Specifically, we go through several rounds of submissions and respond to comments from regulators. The regulators have different tendencies to control the total volume of China listings. From a company perspective, we are striving to expedite the process as efficiently as possible, but some components depend on government regulators’ perspectives.

Okay, thanks very much for the follow-up questions. I will pass it on.

Thank you, Phil.

Thank you. Your next question is from Johnny Chen from Green Court Capital. Your line is now open, Johnny. Please go ahead.

Yes. Hi everyone. Can you hear me?

Yes.

Thank you for taking my questions. I have two questions for you. Firstly, we know that the company has been developing untapped solar cell technology, especially in TOPCon. Could you elaborate a bit more on the capacity plan and the efficiency and success rate? My second question is, is there any possibility that the company could develop another N-type technology, known as HJT?

We built up our R&D capabilities in N-type a couple of years ago. Starting from 2019, we established around 800 megawatts of TOPCon-based capacities, with efficiencies reaching roughly 24%. This year, we are building more capacity focused on solar cells, and we have flexibility to upgrade quickly to TOPCon-based technology. In terms of HJT, we still believe it’s not very cost-effective at this stage; however, we have the R&D and technology available and continue to monitor maturity, particularly from the equipment and material perspectives. For now, we do not have plans to roll out large-sized capacity for HJT in the next 1 to 2 years.

Thank you. As a follow-up, could you clarify what your capacity expansion plan is for TOPCon this year in 2021?

In 2021, we did not plan to increase our TOPCon capacity. However, I want to emphasize that the new capacities can be easily converted, and we have the flexibility to make the upgrade to TOPCon immediately.

Yes. The capacity expansion is based on the existing technology, right?

Yes, you are right.

Hi. Can you hear me? Hello?

Yes.

Hi. Thank you for taking my question. I have a couple of questions. One is, you mentioned in your opening remarks that SOEs are willing to accept now lower-than-normal returns with the new solar farm projects. Can you give us a little bit more color on that? What kind of returns are they willing to accept now? My second question is that I wanted to ask a little more about your view as to the current supply-demand situation of polysilicon materials? When do we think we would see a return to normal pricing for polysilicon? At what level, currently, would you need to maintain a margin comparable to your normal operating margin from 2020?

Regarding your question about Chinese SOEs' IRR expectations, many Chinese SOE IPPs have set ambitious renewable targets for this new 5-year plan. According to what we have heard from the market, their IRR expectations have dropped from around 8% to 10% to now around 6% to 8%. That marks a significant decrease that could help stimulate more renewable projects, giving much hope and ambitious targets for the entire industry, especially in China. On the second question regarding the supply-demand relationship for polysilicon, we’ve previously indicated that the attention on polysilicon supply is mainly driven by the supply-demand imbalance between upstream and downstream, notably the slower ramp-up of upstream capacity relative to downstream demand. So there is a short-term turbulence and volatility in the market currently. However, in the mid to long-term, we maintain strong belief in the growth of the market, including both China and globally. The ambitious targets announced by the Chinese government, along with positive signals from our offshore customers, give us reason to be optimistic. The present challenges are short-term in nature, and we expect the market will adjust and continue to grow rapidly.

Can I have a follow-up?

Sure.

I am just thinking, given the fact that there is not that much new supply for polysilicon coming online until the end of the year, do you think we should be able to reach a more reasonable polysilicon price and margin levels for us towards the end of the year?

Well, first say about the polysilicon, I believe capacities are starting to ramp up, and new capacity will begin to release polysilicon materials to the market gradually. It won’t happen overnight. I think you can examine the ramp-up plans of the main polysilicon manufacturers, as there is a lot of public information available. Regarding margins, they will follow market principles, which means they will go up and down. Recently, solar glass prices have dropped significantly, which has provided some relief to module makers from upstream pressures.

Thank you.

Thank you.

Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes our conference call for today. Thank you all for your participation. You may now disconnect.