JinkoSolar Holding Co., Ltd. Q3 FY2023 Earnings Call

Thank you for standing by and welcome to the Third Quarter 2023 JinkoSolar Holding Company Limited Earnings Conference Call. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. Please note this conference is being recorded. I would now like to hand the conference over to Stella Wang of Investor Relations. Please go ahead.

Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar’s third quarter 2023 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. Li Xiande, Chairman of the Board of Directors and CEO of JinkoSolar Holding Company Limited; Mr. Gener Miao, Chief Marketing Officer of JinkoSolar Company Limited; Mr. Pan Li, Chief Financial Officer of JinkoSolar Holding Company Limited; and Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Company Limited. Mr. Li will discuss JinkoSolar’s business operations and company highlights, followed by Mr. Miao, who will talk about 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. 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.

We are pleased that we were able to overcome the challenges posed by market volatility and deliver a strong third quarter. We achieved this by capitalizing on our advantages in N-type TOPCon technology, our extensive global operations network, and our advanced integrated capacity structure. Our module shipments, gross margin, and net income all saw significant year-over-year increases. Total module shipments rose to approximately 21.4 gigawatts, reflecting a 107.9% year-over-year growth. Polysilicon costs decreased from the previous quarter, and high-efficiency N-type products, which command a premium, accounted for over 60% of total module shipments. Module shipments to the U.S. market showed sequential growth in the third quarter, boosting our profitability. Year-over-year, our net income surged by 140.7% to $181.4 million, and adjusted net income rose by 215.1% to $184.6 million. Our diluted earnings per ordinary share grew by 188.7% to $0.63, with the gross margin increasing from 15.7% to 19.3%. Since the third quarter, declining prices in the supply chain have stimulated demand in the end market. In the domestic market, newly added PV installations reached 128.9 gigawatts in the first nine months, nearly 50% more than the total installations for 2022. Solar has become a key driver of China's economy and contributes to the global energy transition. However, heightened competition due to fluctuations in supply and demand, rapid technological advancements, high interest rates in some areas, and geopolitical tensions have caused volatility in the global PV market, challenging all industry players. We believe that as the industry leader, we will emerge even stronger amid this intensifying competition. By the end of the third quarter, we became the first module manufacturer globally to deliver a total of 190 gigawatts of solar modules to over 190 countries and regions. Our global sales, operations, and management capabilities, supported by continued R&D and innovation, help us create a comprehensive competitive barrier. We are confident in our ability to navigate through the cycles of volatility, achieve sustainable profitability, and enhance shareholder value. By the end of the third quarter, the mass production efficiency of N-type cells reached 25.6%, while the power output of N-type modules was 25wp to 30wp higher than that of comparable P-type modules. There is continued global demand for these products as their levelized cost of electricity is lower. N-type modules continue to command a premium over similar P-type modules, with the premium above the market's average. By the end of the third quarter, we had over 55 gigawatts of N-type cell production capacity, which is expected to reach around 70 gigawatts by the end of this year, positioning us competitively within the industry. Recently, our integrated projects in Shanxi, China began construction. Phase 1 and Phase 2, with a combined capacity of 28 gigawatts for wafers, cells, and modules, are anticipated to start production in the first half of 2024. Additionally, we are optimistic about the long-term growth potential presented by solar storage parity, and our efforts in expanding capacity and developing the energy storage business are progressing well. Our high-efficiency 182 N-type TOPCon cell has recently set a new record with a maximum lab conversion efficiency of 26.89%, marking a significant milestone in our product and solution innovation. Due to our leadership in advancing N-type TOPCon technology, we expect N-type TOPCon products to capture over 70% of market share in the entire industry, establishing absolute dominance. With their higher conversion efficiency, lower industrialization costs, and other advantages, we are confident that TOPCon technology will remain the main technical focus for now and in the next three to five years. We believe we are positioned to lead the industry by about six months in terms of power output, cost, and product competitiveness through ongoing technological iteration and our integrated capacity. As a responsible global company, we continue to make strides in sustainable development. Our strong performance reflects our commitment to social responsibility, as evidenced by a high rating from Ecovadis, surpassing that of other mainstream PV companies. We are dedicated to providing clean, efficient, and reliable solar products and energy storage solutions to an increasing number of countries and regions, contributing to the global energy transition. Before I hand over to Gener, I would like to outline our guidance for the fourth quarter and the entirety of 2023. By the end of 2023, we expect the mass-produced efficiency of N-type cells to reach 25.8%. We are confident we will exceed our four-year module shipment guidance of 70 to 75 gigawatts, with N-type modules making up approximately 60% of total shipments. We anticipate our annual production capacity for module wafers, solar cells, and solar modules to reach 85, 90, and 110 gigawatts respectively by year-end, with N-type capacity accounting for over 75% of total capacity. We expect module shipments for the fourth quarter of 2023 to be around 23 gigawatts. We are confident in our ability to continue leading the industry with our advanced technology and premium high-efficiency products.

Thank you, Ms. Li. Total solar shipment was 22.6 gigawatts in the third quarter, with module shipments accounting for 95%. As we continue to improve product quality and further develop our client service network, our brand influence continues to grow. By the end of the third quarter, our all-time cumulative global solar module shipments exceeded 190 gigawatts, covering over 190 countries and regions. In response to market volatility, we flexibly adjusted the geographic mix of our shipments during the quarter. The domestic market became the dominant area for our shipments, accounting for around 40%. Shipments to emerging markets remained stable sequentially while Asia Pacific and North America increased compared to the last quarter. We are particularly pleased that the shipments of high-efficiency Tiger Neo modules exceeded 60% of total module shipment as Tiger Neo accelerated its market penetration, especially in China, the Middle East, North Africa, and Asia Pacific. Thanks to higher efficiency and high added value to customers, Tiger Neo products still carry a significant premium compared to similar P-type products and continue to outperform the industry average. In terms of prices, lower upstream costs have been reflected in module prices, which decreased compared to the second quarter. As prices declined, some clients have slowed the pace of new orders, and some of the existing orders were delayed. However, lower module prices leading to greater economic benefits also drove plenty of demand, which filled the gap caused by delayed orders. We adjusted prices and market strategy timely to cope with market shifts and have solicited real-time feedback from clients. Recently, we signed a 3.6 gigawatt module supply agreement with N-type Tiger Neo with ACWA Power with industry-leading efficiency, reduced degradation, a better temperature coefficient, an enhanced bifacial factor, outstanding low light performance, and unparalleled yield per watt to reduce system lifetime energy cost. Tiger Neo delivers at least 3% of power generation gain to clients, particularly under the climate conditions of desert areas in the Middle East. The excellent temperature coefficients and bifacial factor will significantly raise power generation and the project IRR. As industry chain prices declined and started to stabilize, large-scale utility projects accelerated the connection to the grid, and we expect a new installation record in China this year. Relatively high inventory in Europe is being gradually digested, and demand remains strong in the U.S. market under the Inflation Reduction Act. We are also optimistic about growing solar demand in Saudi Arabia and other Middle Eastern countries to support energy transition. With high demand certainty and the help of our high efficient product and services, we are confident that we will expand our market share.

Thank you, Gener. The significant growth in our module shipments, decrease in raw material cost, as well as our continuous cost control helped our key financial metrics including total revenue, gross margin, operating margin and net margin improve year-on-year. At the end of September, we declared a cash dividend of $1.5 per ADS, which is expected to be paid on or around December 6th this year. With the continuous expansion of our global industrial chain, market footprint and the power of our products, we are confident to maintain healthy and sustainable profitability, meeting our commitment to shareholders. Let me go into more details now. Total revenue was $4.36 billion, flat sequentially and up 63% year-over-year. Gross margin was 19.3% compared with 15.6% in the second quarter this year and 15.7% in the third quarter last year. The sequential and year-on-year increases were mainly due to the decrease in the cost of raw materials. Total operating expenses accounted for 9.9% of total revenues, compared with 10.6% in the second quarter of this year and 15.4% in the third quarter last year, improving year-over-year. Income from operations was about $410 million compared with income from operations of $212 million in the second quarter this year and $8.8 million in the third quarter last year, improving both sequentially and year-over-year. Operating margin was 9.4% compared with 5% in the second quarter this year and 0.3% in the third quarter last year, improving sequentially and year-on-year. Net income attributable to JinkoSolar Holdings’ ordinary shareholders was $181.4 million, flat sequentially and compared to $77.3 million in the third quarter last year, improving year-over-year. Excluding the impact of a change in fair value of the notes and long-term investments and share-based compensation expenses, the adjusted net income was $184.6 million, flat sequentially and up two times year-over-year. Let's move into the balance sheet. At the end of the third quarter, our cash and cash equivalents were $1.93 billion compared with $2.35 billion in the second quarter. AR turnover days were 87 days compared with 79 days in the second quarter of 2023. Inventory turnover days decreased to 67 days in the third quarter from 70 days in the second quarter this year. At the end of the third quarter, total debt was $4.23 billion compared to $4.73 billion in the second quarter this year. Net debt was $2.29 billion compared to $2.38 billion in the second quarter this year. Our debt structure is improving. This concludes our prepared remarks. We are now happy to take your questions. Operator, please proceed.

Our first question today will come from Philip Shen of ROTH MKM. Please go ahead.

Hi, everyone. Thanks for taking my questions. You guys had a pretty nice margin in Q3 despite the collapse in module prices. It seems like you've been able to match your cost structure with your module pricing. So I was wondering if you could give us your sense of how you expect module pricing to trend in Q4 and then also Q1. And then also in terms of margins, what do you expect? Similar margins in Q4 and Q1 versus Q3, or do you think there could be potential for even margin expansion in Q4 and Q1? Thanks.

Hey, Fred, this is Charlie. And we did very well in the first nine months, including the third quarter. Thanks to our strong order visibility, we almost finished this year's target of 70 to 75 gigawatts. Regarding the module price, the trend is in a downward direction. We are expecting the ASP in Q4 to be in a downward trend versus the third quarter. Because we have more exposure to the Chinese market in the fourth quarter, we expect the gross margin to possibly be slightly down quarter-over-quarter. Next year, we believe module prices will stabilize relatively. It's very important for us next year to increase sales orders as quickly as possible, and we are in a good position. I think we have the largest N-type in TOPCon capacities, and we have the largest integrated capacities out of China for the US market. We expect to have over 30% of shipments to the European and US markets combined. We aim for over 85% shipments on TOPCon next year. Therefore, we are confident that we can deliver relatively better performance compared to our peers next year.

Got it, okay. So Q4 margin could be down slightly because of the China mix, and then Q1, perhaps you could have some expansion beyond, so growth or expansion of the margin in Q1 and Q2?

It's too early to say, but this year our performance in the US market is not so good because the module was delayed and detained. We expect that next year everything will be back on schedule, and the margin contribution from the US market will be quite significant starting from next year.

Great, okay. Thank you. You mentioned, Charlie, just now about US shipments. So I was wondering, in Q3, was there a large benefit in margin from the healthy amount of US shipments because you've been able to be released from detention very quickly? And also next year, I think in the past you were talking about 10 gigawatts of shipments for the US market in ‘24, but in your PowerPoint today, you highlighted 12-plus gigawatts by year-end ‘23 of integrated capacity. So do you think ‘24 could actually be closer to 12 gigawatts? And we can leave it there. Thank you.

Next year, yes, our target is over 10 gigawatts shipment in the US market, and that's our best target. The earnings contribution from the US market in the third quarter is not good because we shipped around 1.3 to 1.4 gigawatts. Most of the modules were produced six to nine months ago, and it's a relatively high cost, including storage cost. Therefore, back to your question, it is improving quarterly. I believe from the beginning of next year the earning power from the US will improve for Jinko.

Got it. So you were able to generate 19% margin in Q3 despite the high storage cost and the high...

Right, right, yes.

That's very interesting. One last question, and I'll pass it on. Can you compare the pre-impairment margins in Q3 versus Q4 actuals? In other words, what is the like-to-like margin trajectory?

You mean the impairment margin or the margin including impairment?

Right. What is the margin before impairment?

We did experience some inventory impairment by the end of June in the second quarter. However, we do not anticipate any further or significant impairment for the third and fourth quarters. We are in a strong position, and all orders are in place. We believe our pricing remains competitive when compared to the smaller market price, and we do not expect any inventory impairment.

Great. Okay. Thank you for all the detail. I'll pass it on.

Thank you.

Our next question today is from Brian Lee of Goldman Sachs. Please go ahead.

Hi, thanks for taking the questions. This is Grace on for Brian. I guess my first question, just to follow up to the ASP questions earlier, I just wonder if you can talk about the ASP trends by maybe end markets and by different geography? Just asking because we have heard that some of the markets, especially the DG market have seen really high channel inventory. So can you provide a bit more color on the ASP trends? Thank you. And I have a follow-up.

Yeah, sure. Normally, we see the DG market's ASP is relatively higher than utility. That's what people think. However, at the current stage, we see a special situation in the US market, especially. The US market, due to various reasons, the DG market is more pressured than the utility market. This is what we have observed. I personally believe a very important reason is because of the supply side. If the supply side is using fully traceable raw material or is employing a spot market opportunity game, that could be one reason for the observed oversupply in the US DG market in such a short term. For other parts of the world, we believe that the DG market is relatively healthy, so we still see a strong DG market, even in Europe. There are some pressures from the inventory side, but in the long term, we are still fans of the European market, whether it's DG or utilities. We believe that the pre-remarked speech we have is starting to digest, so it will take some time, but it will be there.

Great. Thank you. And then my second question on your shipment guidance, your Q4 shipment guidance of 23 gigawatts kind of implies a flattish quarter-over-quarter growth. Historically, your Q4 is much higher than Q3. Is this driven by the orders delay that you referenced in the prepared remarks or is there something else? And also, can you quantify how much of the delay was that, and when do you expect those orders to come back? Thanks.

Yeah, thank you. We are providing a relatively conservative number which is at the high end of our annual guidance, which will be around 75 gigawatts. Still, on the order book side, we have more than we need, but we still have some supply bottlenecks. That's one of the reasons why we continue to expand our capacity to fulfill all these commitments we are making. Overall, we are fully confident that we can beat our guidance if needed. This depends on the supply side and market trends. Regarding next year's order book, we are also fully confident that market will rise by another 20%, even 25% compared with 2023. In the key market, we believe high quality, high efficiency, N-type TOPCon product is still in some shortage. Hence, we still have the confidence we will continue to build up our order book and extend our market share next year.

Okay, thank you. I’ll pass it on.

Our next question will come from Rajiv Chaudhri of Intrinsic Edge Capital Management. Please go ahead.

Good morning and congratulations on a very strong quarter despite the challenges in the industry. I have a few questions. I want to start by asking if there were any inventory-related charges included in the gross margin number for the third quarter.

Hello, Rajiv. The answer is no.

Okay. And were there any charges in the selling and marketing or general and administrative expenses that were one-time expenses?

Excuse me, can you repeat that again?

Yeah. Were there any one-time charges in the SG&A line items?

We did have some, roughly, I think maybe $20 million to $25 million one-off pool for some previous litigation regarding one of the module contracts a long time ago. So it's one time. I think it's in the other operating expenses, not in the G&A expenses, but we did have this $20 million one-off charge.

Okay, going back to the gross margin, I'm trying to understand what your cost of polysilicon was for the quarter. The number I'm estimating is around $16 on average for both Chinese and US polysilicon. Is that a fair estimate?

Rajiv, we don't discuss the exact number, but you can look at the index, and in China poly is roughly in the range of RMB60 per kg to RMB90 per kg. However, the polysilicon out of China is approximately two to five times higher than that. The price makes sense.

Yeah, actually, DQ Energy just reported their ASP for the quarter was actually $7.60. So that is actually closer to RMB50 per kg.

Yes, you're right. You know, there's a public index for the poly and the calculations. However, keep in mind we have an inventory turnover days of roughly 60 to 80 days. We have production lead times as well. You need to think about the time difference to do the calculations. You can do the calculations based on the trend, but the details, the numbers, I think we have the supply chain advantage compared to the market price. We have different mix, and for the US market, the poly price is indeed different.

So, Charlie, is it fair to say that because you have 60 to 80 days of inventory, that your poly prices are always lagging the spot market by 60 to 80 days?

Yeah, you can make that estimation based on that.

Okay, my other question is about competition. At the prices where modules are right now, what percentage of the industry players between Tier 2 and Tier 3 do you think are losing money right now? And what percentage of these companies are cutting back on their production because they are below their cash cost?

We have seen this situation in recent months. For different utilization rates for different players in the industry, Tier 1 integrated companies, like Jinko, we have order visibility and a very good mix for N-type versus P-type. We can manage costs well. For some orders at relatively low prices, we are able to continue to deliver reasonable margin growth. However, Tier 2 and Tier 3 players, even some who are not integrated and non-international companies, are reducing their utilization rates. This will result in different situations for different companies. The Tier 1 top-tier companies will take advantage of this to gain more market shares.

Right, right. Do you see that happening already, that Tier 3 companies are cutting back their production right now?

Yes, they are reducing utilization for Tier 2 and Tier 3. They are decreasing their utilization rate.

So it is reasonable to think that your ASPs are going to be much higher than the spot market prices because you are selling into the utility market, which is more contract-driven, and a lot of the spot prices that Tier 3 companies are selling into really are fire sales.

It's fair to say that, but different companies have different mixes for different countries and different product mixes to DG-based utilities. For Jinko, we are confident and our module price is relatively higher than the market price. It's not market price, it's the small price you see from the public website.

Charlie, can you also talk about what was the level of depreciation in the third quarter and the EBITDA for the third quarter?

Actually, we have disclosed the EBITDA. So including the details breakdown, you can look at the details. It's roughly $600 million. You can view the calculations there.

I see, okay, sorry, I have not had a chance to look at that. Can you also talk about what percentage of the market, not Jinko, but the market this year will be TOPCon and what the percentage will be next year in terms of how much TOPCon will be produced by the other companies?

This is the first year for N-type TOPCon to penetrate the market. We think that the overall market size is 20% to 25% this year. We deliver 60%. Next year, it is possible that N-type will achieve 60% to 70%. We are able to achieve, I think, over 85%.

So if the market this year is over 400 gigawatts, you're saying that TOPCon this year is over 100 gigawatts?

Let me take it as the last follow-up. Roughly we estimate the total industry output for TOPCon this year will be somewhere around 100 to 110 gigawatts. Across which, Jinko will contribute around 70 gigawatts. Next year, the number will definitely be more than doubled for the total industries, we're expecting somewhere around 400 gigawatts. Jinko will take a significant share but definitely not as large as this year.

Right. Okay. Okay. And finally…

Thank you.

Finally, one last question on the interest-bearing debt. You made a point that the interest-bearing debt came down in the third quarter. Is that something that we should expect will continue in Q4 and Q1?

Yeah, we are gradually decreasing the debt because our earnings increased gradually.

The operating cash flow for our company generated, I think, around RMB11 billion in operating cash flows for the first nine months. That's a significant improvement. Regarding leverage, total debts, we're expecting to decrease it several steps.

Great, thank you and congratulations again.

At this time, we will conclude our question-and-answer session. For any additional questions, please contact ir@jinkosolar.com. The conference has now concluded. We thank you for attending today's presentation, and you may now disconnect your lines.