JinkoSolar Holding Co., Ltd. Q4 FY2023 Earnings Call

Hello ladies and gentlemen and thank you for standing by for JinkoSolar Holdings Co. Limited Fourth Quarter 2023 Earnings Conference Call. At this time all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, to Ms. Stella Wang, JinkoSolar's Investor Relations. Please proceed, Stella.

Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's fourth quarter 2023 earnings conference call. The company's results were released early today and are 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 and CEO of JinkoSolar Holding Company Limited; Mr. Gener Miao, CMO of JinkoSolar Company Limited; Mr. Pan Li, CFO of JinkoSolar Holding Company Limited; and Mr. Charlie Cao, CFO of JinkoSolar Company Limited. Mr. Li will discuss JinkoSolar's business operations and company highlights, followed by Mr. Miao, who will talk about the sales and marketing, and then Mr. Pan Li, who will go through the financials. We 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 to report impressive operational and financial results amid a challenging year by utilizing our strengths in N-type TOPCon technology, global operations, and integrated capabilities. Thanks to our team's strong execution, our module shipments for the full year grew 76.4% year-over-year to 78.5 gigawatts, returning us to the leading position in the industry. Our focus on cost optimization led to a significant year-over-year improvement in profitability, with a gross margin of 16% compared to 14.8% in 2022. Net income reached $485.8 million, an increase of 4.56 times year-over-year, while adjusted net income was $573.8 million, up 1.93 times year-over-year. In the fourth quarter, module shipments were 26.3 gigawatts, surpassing our guidance. As module prices fell more than anticipated in the fourth quarter, nearly half of our modules were sold through the Chinese market at lower prices. The gross margin for the fourth quarter fell to 12.5%, down from 19.3% in the third quarter. In China, new PV installations reached 216.88 gigawatts in 2023, reflecting a year-over-year increase of 148.1% to a historical high. However, excess supply across various parts of the industrial chain led to price declines. By year-end, tender prices for modules dropped over 40% to below RMB1 per watt. Compared to the start of the year, export volumes of PV products in 2023 saw a significant increase year-over-year, even as export volume dipped slightly due to falling prices. In early 2024, seasonality coupled with intense competition from specific manufacturers intensified market panic and led to irrational pricing. We are approaching the situation with caution and rationality amid abnormally low tenders. While some manufacturers with uncompetitive costs or outdated products are scaling back or halting production, we have kept our utilization rates among the industry's leaders due to our cost advantage and strong order visibility. Moving into March, as demand increased and inventory levels decreased, module prices began to stabilize, with some bidding prices recovering slightly. In the short to midterm, we believe that declining module prices will significantly enhance the economics of solar energy, and we expect global PV market demand to continue rising in 2024. Additionally, the rapid advancement of new technologies and the phase-out of outdated production capacity will drive industry consolidation. The market share of the top 10 module manufacturers is anticipated to rise from 70% in 2023 to over 90% in 2024. We are confident in our ability to enhance our competitiveness through market cycles and expect our market share to grow further in 2024. Thanks to our integrated manufacturing strategy and early leadership in N-type TOPCon technology, by the end of the fourth quarter, our N-type capacity exceeded 70 gigawatts, with continued improvements in our cost structure. Our mass-produced N-type cell efficiency now exceeds 26%, and the integrated cost for N-type is nearly equivalent to P-type. With ongoing advancements in cell technologies and cost-reduction processes, we anticipate our cost structure becoming even more competitive. We place significant importance on intellectual property rights and are committed to maintaining our technical leadership supported by extensive intellectual property. By the end of the fourth quarter, we had secured 330 TOPCon patents, one of the largest patent portfolios in the world for this technology. With the largest integrated overseas capacity exceeding 12 gigawatts in the industry and an efficient supply chain traceability system, we have established ourselves as the most reliable module supplier for the US market, which is expected to yield substantial profits in 2024. Our investment in an innovative production model is projected to generate returns over time. The first and second phases of our integrated projects in Shanxi are set to commence production in the first half of 2024 as scheduled, with a gradual ramp-up in the second half. The full automation will significantly enhance labor and operational efficiency and is expected to result in substantial cost savings once full production is achieved. Over the mid to long term, the rapid growth of AI and electric vehicles may tighten global power supply, further increasing demand for clean power generation. To date, lowering solar costs have markedly boosted solar competitiveness in energy sectors. Looking ahead, solar is poised to play a critical role as a productive force in addressing the energy crisis and energy transition. We are optimistic about PV market growth in the mid to long term and are confident in our position as industry leaders with advanced technologies and high-efficiency products. Considering supply chain and market conditions, we are scaling back investments in capacity expansion for 2024. Our focus will be on expanding our advanced N-type capacity, including 28 gigawatts at our Shanxi plant and about 4 gigawatts of N-type cell and module capacity in Vietnam. We will continue to emphasize improving working capital efficiency and achieving sustainable growth in operating cash flow. Before handing over to Gener, I would like to outline our guidance for the first quarter and the entire year of 2024. By the end of 2024, we anticipate that mass-produced N-type cell efficiency will reach 26.5%. Our expected annual production capacity for mono wafers, solar cells, and solar modules is projected to be 120, 110, and 130 gigawatts, respectively, by the end of 2024, with N-type capacity representing over 90% of the total. We also expect module shipments to fall between 18 to 20 gigawatts in Q1 2024 and 100 to 110 gigawatts for the full year, with nearly 90% of those being N-type modules.

Thank you, Mr. Li. We are pleased to have achieved a historical high in quarterly and annual module shipments, thanks to our excellent global marketing network and the power of our products. Total shipments were 27.9 gigawatts in the fourth quarter, with module shipments accounting for approximately 95%. Annual module shipment increased 76.4% year-over-year to 78.5 gigawatts. Both module shipments in the fourth quarter and the full year 2024 ranked number one in the world. We continued to improve product quality and build our customer service network to expand the influence of our brand. By the end of the fourth quarter, our accumulated global module shipment exceeded 210 gigawatts, covering more than 190 countries and regions. In terms of geographic mix, China and the Asia-Pacific became our major shipment regions in the fourth quarter, accounting for approximately 70%. For the full year 2023, shipments to Asia-Pacific and North America grew significantly more than doubling year-over-year. As we continue to expand our footprint in overseas markets and the use of integrated capacity, we move on to invest in North America and emerging markets. Based on our business conditions and market trends, China and Europe will continue to be the major contributors to the shipments in 2024, with North America, emerging markets, and Asia-Pacific expected to flourish. On the product front, the competitive high-efficiency Tiger NEO accounted for 70% of the shipments in the fourth quarter, with an average premium of RMB0.10 per watt versus P-type modules. The Tiger NEO accounted for approximately 60% of annual global shipments, achieving the goal we set at the beginning of the year and accelerating its market penetration globally. Currently, the power output of Tiger NEO modules is more than 30 watt peak higher than that of similar P-type modules, providing our customers with higher power generation yield. Shipments of our Tiger NEO were expected to account for over 85% in the first quarter of 2024, and its product strength will continue to lead the industry. We are always committed to bringing greater economic value to our customers with high-efficiency, highly reliable products, and sustainable solutions. Recently, we unveiled the first Neo Green panels produced with renewable energy. These panels were produced in factories that received the Zero Carbon Factory certification by TUV Rheinland. JinkoSolar is also the first company in the industry to receive the Zero Carbon Factory certification by TUV in silicon manufacturing, wafer cutting, cell manufacturing, and module manufacturing. We also continue to improve our ESG practices and optimize our traceability system. In the first quarter, we were awarded the ESG Transparency Award from EUPD Research, which recognized our far-reaching commitment to sustainability and transparency. Recently, bidding for some domestic projects began to activate; EU inventories became depleted, and we have seen additional demand, especially in the DG business. This gradually improved the PV economics and the growing demand for transition to clean energy globally. PV demand in the global market is expected to further increase in 2024 but at a relatively slower pace than in 2023. In the longer term, the requirement of AI for computing power will further increase the demand for electricity and electrical equipment, ensuring strong growth potential for PV plus storage. As a responsible global company, we are always committed to providing clients with reliable and highly efficient products and solutions, practicing the values we share with our clients, partners, and investors to accelerate towards a greener future. With that, I turn the call over to Pan.

Thanks to the solid execution, our operations and management strategies, as well as successful efforts in cost optimization, we delivered excellent financial performance. For the full year, key metrics such as total revenues, gross margins, income from operations, and net income all significantly increased year-over-year. We also improved working capital efficiency and optimized operating cash flow. By the end of the fourth quarter, we had cash and cash equivalents of $2.75 billion, and our net debt decreased by over 20% year-over-year. In December, we announced the extension of our existing share repurchase program. By the end of February this year, we had repurchased nearly 1 million ADS in an aggregate amount of approximately $28 million. With our advantages in N-type TOPCon technology, globalized operations, and integrated capacity, we are very confident in our growth prospects and will continue to improve working capital efficiency and achieve sustainable growth in operating cash flow. Let me go into more details now. Total revenue was $4.6 billion, an increase of 3% sequentially and more than 9% year-over-year. Gross margin was 12.5% compared with 19% in the third quarter and 14% in the fourth quarter of 2022. The decreases were mainly due to the decrease in average selling prices of solar modules. Total operating expenses were $526 million. The increases were mainly attributed to loss on disposal of PPE and expenses related to the settlement of a dispute with a customer. Operating margin was 1.1% as compared with 2% last year. Excluding the impact from a change in fair value of the notes and long-term investments and share-based compensation expenses, adjusted net income attributed to JinkoSolar Holding Company ordinary shareholders was $65 million compared with $45 million in the fourth quarter last year, up 73% year-over-year. Now I'll brief you on our 2023 full-year financial results. Total module shipments were 78.5 gigawatts, up 76% year-over-year. Total revenues increased 43% year-over-year. For the full year 2023, gross profit was about $2.7 billion, an increase of 55% year-over-year. Gross margin was 16% compared to 14.8%. The increase was mainly attributed to a decrease in the material cost of solar modules. Total operating expenses were $1.8 billion, up 9% over the year. The increase was mainly due to an increase in payment loss on PPE, expenses related to the settlement of a dispute with a customer, and an increase in staff costs. The operating margin for the full year of 2023 was 5% compared to 0.5% last year. Excluding the impact from a change in fair value of notes, long-term investments, and share-based compensation expenses, the adjusted net income attributed to JinkoSolar Holdings ordinary shareholders was about $574 million, up nearly two times year-over-year. Let's move into the balance sheet. As mentioned, at the end of the fourth quarter, our cash and cash equivalents were significantly higher at $2.75 billion, up from $1.93 billion at the end of the third quarter, and $1.64 billion at the end of the fourth quarter of 2022. Accounts receivable turnover days were down to 76 days in the fourth quarter from 87 days in the third quarter. Inventory turnover days were down to 57 days from 67 days in the third quarter. The total debt was $4.38 billion at year-end compared to $4 billion last year. Net debt was $1.6 billion compared to $2.3 billion last year. This concludes our prepared remarks. We're now happy to take your questions. Operator, please proceed.

Your first question comes from Philip Shen with ROTH MKM. Please go ahead.

Hi everyone, thank you for taking my questions. First one is on pricing. Was wondering if you could share with us the Q4 ASP. Sorry if I missed it. And then what do you expect that ASP to be in Q1 and Q2 as we get through the year? Thanks.

Hey, Gener, would you like to answer the question?

I'm currently traveling, so I didn't catch all of your questions, but I understand it's about pricing. The significant drop in pricing occurs between December and January. This means that if we compare the average selling price from Q4 to Q1, there will certainly be a noticeable difference due to changes in market prices. Unfortunately, I don't have the detailed numbers with me at the moment.

Okay, yeah, hey Gener, thanks for that. So can you share what the ASP was in Q4 for modules? And then can you quantify how much lower Q1 might be? Thanks.

Charlie, can you take that? I don't have the number with me now.

Yeah. Philip, I think the most important thing is we believe it's kind of panic sales for the modules over the last two quarters, and we don't believe the price, particularly in China, is sustainable. We are expecting, as well as the market, expecting the module price to stabilize and maybe go up a little bit. As for back to the pricing, depending on different markets, the US is priced significantly premium, and Europe is a little bit better than China, while different segments, DG versus utility have different price differences. But to answer your question, if Q1 and Q2 are compared to Q4 last year, we think the ASP is still in a downward trend, but it's not dramatic; it’s slight, and we think it's reaching the bottom in the first half of the year 2024 for the ASP.

Okay, so do you have the average selling price for all the regions for Q4? Can you share that price for Q4?

No, we don't disclose, but you can calculate the figures if you take the total revenue with this module shipment. Typically, we have 95% of the revenues coming from module business.

Okay, thank you. So it sounds like the bottom could be Q1 or Q2. And do you think the bottom is more Q2 or more Q1, in terms of module pricing?

I think different companies have different mixes, but I think it’s relatively stable Q2 versus Q1. Maybe slightly lower, but it's not significant. The most important thing is that we think China's demand is exceeding expectations. China's demand is very, very good, and Europe, the destocking has been completed, and they are picking up the stock. We think there's an improved outlook from the demand side. Still some oversupply situations. For Jinko, we have over 90% of N-type in global sales and manufacturing capabilities, and we think we're relatively better than our peers. But it takes time for the low inflation cycle; Tier 2 and Tier 3 companies will face challenges, but it takes time. The focus should be on our added revenues throughout this relatively challenging year.

Okay, thanks, Charles. Shifting over to margins, you've given us a little bit of a framework for how to think about pricing trends through the year. How do you expect, like, what do you expect your margins to be for Q1? I know you haven't given official guidance, but just relative to Q4, maybe you can say a little bit up or down or something, and then as it relates to Q2, when do you see a bit of a recovery of the margins? Thanks.

We estimate Q1 and Q2 for the first half of the year to be slightly lower than Q4 last year. It's not dramatically lower for Q4 versus Q3 last year, just slightly lower throughout Q1 and Q2. But we believe there are opportunities, and maybe in the second half, we will expand.

Got it, that's very helpful. And then finally, I think in your slides, you talked about 2 gigawatts of integrated US capacity. Again, sorry if I missed this, but does that mean you might do wafer cell and module in the US? Can you share if so, what the locations are?

Yeah, the US capacity, we started construction last year, and it's getting ready. I think we will start operation in March or April for 100% module, which is 2 gigawatts, no wafer cell.

Got it. Okay. So it's only 2 gigawatts of module. Well, it is 2 gigawatts of module. The way it was written on the slide, Slide 6, it sounded like 2 gigawatts of integrated capacity could be in the US. But my follow-up here, and then I'll wind it down, is, what is, and this might be a bit of a tough question, but what is your view of the discussion around the foreign entity of concern language, which a lot of people are talking about could be added to the 45X manufacturing PTC, which might make it more difficult for you guys to add or to receive the PTC? You're ramping up your facility basically now, if not maybe in a month in April. To what degree does that concern you? Are you following that topic at all? Thank you.

I'm not, first of all, familiar with the topics you're talking about. The regulations updates, but we will follow up after the call. But I think, I'm not sure you're talking about, like the semiconductor, the sensitive technology, but we think solar is more pervasive and very common for each country to develop and it's not data sensitive. But anyway, we will follow up on the topic you mentioned, but not for many reasons, the progress.

Okay. Thank you, Charlie. I know I asked a lot of questions. Appreciate it. We'll pass it on.

Thanks.

Thank you. Your next question comes from Alan Lau with Jefferies. Please go ahead.

Thank you for taking my question. So I would like to know, because there is a very detailed capacity expansion plan, and I just would like to ask a bit on the details. By the end of 2024, it would be 120, and then 110, and 130 gigawatts for wafers, cells, and modules. So my question is mainly on the cells. Because the company has 70 gigawatts of TOPCon by the end of 2023, and supposedly the remaining 20 gigawatts is PERC. So will it be 100 gigawatts of TOPCon plus 10 gigawatts of PERC? If that is the case, then do you mean you would impair the 10 gigawatts of PERC this year?

The answer is we will phase out the 20 gigawatts of PERC capacity throughout the year. That's the plan. By the end of the year, the capacity will be 100% N-type. No P-type capacity. The sales capacity is 110, and the major part is the 28 gigawatts from Shanxi, plus what we are talking about the 4 gigawatts from Vietnam. We also have some improvements in production and volume from existing capacity. So total is 110 for the entire TOP capacity. We did have 28 gigawatts of PERC capacity and we don’t have time to upgrade, and we believe it's not economic; it makes sense. The most important thing is we have depreciated the capacity over five years. So we don't believe we have significant burden for the 20 gigawatts of PERC. We focus on the new technology and new PERC. That is, I think, that is the smart decision.

Actually, so just to confirm, basically for the 20 gigawatt of PERC, they are fully depreciated. So basically, they were built in 2019, and by now they are fully depreciated. So you do not see major impairment risk this year, right?

Yes, roughly, yes. And we did have some kind of residual value but it's not significant. Most of the assets have been depreciated.

Yes, I think that's impressive because a lot of peers in this industry might have a lot of impairment this year. So my next question is what is the new signed ASP for the contracts that you are signing in the US market because I have been hearing different feedback saying that prices for utility projects in the US are declining from $0.30 to below $0.30 since Q4. So I'd like to learn your view on this front.

Yeah, we have an index for the US, and I think the price range is a little bit, a little bit high, low 20s to low 30s that kind of the range. It looks like it's in a downward trend but relatively stable. Different customers have different preferences. We think we are in a good position because we have traceability and we have separate poly and wafer through the modules. We believe we can still maintain a price premium over our peers.

Thanks. So you have mentioned overseas polysilicon. So we would like to have an update on the overseas polysilicon price. Is it rebounding or is it still trending down?

I think in the last three months, it's relatively stable because the polysilicon out of China is around 100,000 metric tons. There are no new capacities expected in the next 1.5 years. The other thing is maybe some Chinese parties, but I think there's a relatively risk, and there's a very complicated compliance. So we don't see significant downward trends; it's relatively stable.

I see. So switching gears to the European market, because you mentioned destocking has basically completed. So we would like to follow up on this. Are you receiving orders in a normalized manner? Like, how is it from the residential market compared to the utilities market in Europe?

I think both. In the recent quarter, I think the majority is the DG market. But we see both utility and DG will grow year-over-year.

So you don't see inventory as an issue even in the DG market anymore because last year it was a huge issue.

Yeah, yeah. In last year, the first half year, there were issues for DG distributors and destocking. It seems on top of that, even not only in the European market but also other markets, the customers were waiting to see the bottom of the module price. It seems stabilized now. A lot of customers accelerate their purchase decisions, and they are also destocking. The stock level is going back to a normalized level in Europe. The past logistics issue, Red Sea issue, we see a rebound from the European market, and the second quarter is pretty sure to be a strong quarter for the European market. For storage, we build up the capabilities, the teams, products, and capacities from last year. The key focus is we develop our R&D capabilities and products and focus on some key markets. So far it's in a relatively early stage, but we are confident we will discuss maybe the full year guidance later this year, maybe in the second quarter, or third quarter. We think this year presents a good opportunity to catch up to the markets and build a strong foundation for the next few years. So that's the key focus, not the focus for the shipment this year. Thank you.

Your next question comes from William Grippin with UBS. Please go ahead.

Excellent. Thank you very much. My first question was just on your 300 plus patent portfolio. I was wondering if you could provide a little more color on where those patents are granted. Are any of them international? One of your peers is asserting their IP rights related to some TOPCon technologies. Just maybe, how are you thinking about that? How do you view that relative to your patent portfolio? Thank you.

The patents, we put a lot of R&D efforts in the recent couple of years and we developed over 300 TOPCon patents that we developed ourselves. In addition to that, we have additional TOPCon patents acquired from others. The patent is our key differentiator, and it is our key strategy, and we have licensed to one of the top 10 module companies and one of the top five solar cell companies. This illustrates the strength and capability of our R&D teams and the cutting-edge technology.

Okay, yeah, appreciate that. And then just on the 26% mass production N-type cell efficiency that you referenced in the press release, how do you expect that to translate into mass production module efficiency, and when do you think that would ultimately be realized in mass production? Thank you.

For the 26% cell capacity, we have reached that level in mass production, and our target is to achieve 26.5% by the end of this year.

Your next question comes from Rajiv Chaudhary with Intrinsic Edge. Please go ahead.

Yes, good morning. I have a few questions. First of all, just in terms of housekeeping, can you tell us what the depreciation number was in the fourth quarter and what you expect it to be in 2024?

So sorry, could you repeat that?

Yes. The question was about depreciation in the fourth quarter and what the expectation is for 2024?

Oh, depreciations. It's roughly around RMB16 billion to RMB17 billion for 2024. So each quarter roughly RMB1.5 billion to RMB1.8 billion.

Sorry, can you repeat that? RMB1.5 billion to RMB1.8 billion?

Yes, depreciation.

And that's in 2024. What about the fourth quarter?

Last year, right?

Yes, ‘23. Yes, sorry.

Yeah, similar amount. It's not significantly different.

So around RMB1.5 billion in the fourth quarter?

Yeah, roughly.

Okay. And then what was the total CapEx, capital spending in 2023, and what is the expectation for 2024?

For CapEx, our total CapEx for 2023 is around RMB18 billion. We expect a range in 2024 from RMB11 billion to RMB15 billion, depending on the market.

I see. Okay. And out of this RMB11 billion to RMB15 billion, is it almost 100% related to the module business, or is there anything related to the storage business as well?

It's related to our integrated solar manufacturing.

Okay. The next question is about the charges that you had in the operating expenses. You mentioned that the write down of assets as well as the settlement with the customer. If they had not happened, then the total operating expense would have been the same as the third quarter. So by my calculation, that is about RMB60 billion or about $85 million. Is that the correct number?

You're right. We did have some kind of special one-time items in the fourth quarter last year. One was related to a customer dispute, which was around $30 million, and impairment for the equipment around $10 million. So we did have $40 million of one-off items that you can exclude as non-recurring items.

Okay. And comparing your cost structure to the Tier 2 manufacturers, can you give us an idea? My calculation is that your cost structure in the fourth quarter was about 10 percentage points better than the Tier 2 and Tier 3 manufacturers. For example, if you did 12.5% gross margin, the Tier 2 and Tier 3 were operating at 2% to 3% gross margins. Can you comment on that?

We are confident that our cost structure is leading. By the way, we don't comment on detailed numbers, and different companies have different situations. But you're right, if we are making lower profit levels, a lot of companies doing a similar business will lose money. We are very confident. It will take time to phase out the Tier 2 and Tier 3 companies. After consolidation, we believe we can gain more market share and decent profitability. But it takes time.

Do you think at this point your cost structure is better than other Tier 1 manufacturers?

I don't guarantee 100%, but we are confident.

So you're confident that your cost structure is already equal to or better than other Tier 1 manufacturers?

Yes, we are confident that our cost structure, capacity, and technology are leading.

Can you elaborate on the expected cost improvements that are likely to happen as a result of the integrated production that you are going to roll out next year of the Shanxi plant? How much of a cost advantage are you going to create as a result of the integration and everything happening in one location?

It's not purely a cost advantage. The Shanxi super factories will be digitalized and automated, and the ESG traceability is low carbon, everything is integrated with a lot of advanced equipment. We have streamlined production and phased out some stages, leading to significant workforce efficiency, high turnover ratios, and optimal locations serving customers in Western China as well as global markets. The cost structure reflects this advantage, and we believe it will be substantial, but we don't disclose specifics. We think it represents a significant advantage compared to existing production structures in the industry.

And finally, I want to confirm a number that I think Gener gave. The total volume of shipments of N-type in the fourth quarter was it 70% of total shipments?

That's 70%, yes. 70%.

And did he say that in the first quarter it will be 85%?

For the full year, it's around 90%. It will gradually increase from 70% to 95% quarter by quarter this year. So Q1 will be roughly 80%.

Okay. So in terms, going back to the gross margin, so you are suggesting that the first-quarter gross margin should be slightly lower than the fourth quarter. So are we still looking at a number around 12%?

You mean the absolute number?

Yeah, the actual gross margin.

Yeah, we don't disclose, but I said it would slightly go down, but not dramatically. We think it might reach the bottom for the first half of the year.

So if the gross margin is around 12% in the first quarter, and the prices stabilize from March onward, is it reasonable to think that gross margin could improve in the second quarter because your costs will keep coming down, and also your shipments to the US, which are higher ASP, will go up?

We believe there’s a likelihood of improvement in the second half of the year. The improved outlook and demand outlook are important. You mentioned US shipments in the second half year, low risk. I think roughly 60% to 65% of shipments will go to the US in the second half year, while the Shanxi super factory will be at full operational capacity by the end of the third quarter. We believe margin expansion is likely in the second half of the year.

And what do you think the impact of, you mentioned that in the fourth quarter, you expect that Tier 1 companies or top 10 manufacturers will have as much as 90% of the market. That basically means Tier 3 will have shut down, and Tier 2 will be selling much lower output than they are currently selling. What do you think that does to pricing by the fourth quarter?

The fourth quarter this year, right? It’s difficult to estimate, but it should be stabilized. By the end of the fourth quarter, I believe many industry players in Tier 2 and Tier 3, as well as companies that just entered the solar industry in the past one or two years, will have their capacity phased out. That’s my estimation.

Okay, great. Thank you very much, and good luck in 2024.

Thank you. There are no further questions at this time. And that does conclude our conference for today. Thank you for participating. You may now disconnect.