Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Co. Ltd. First Quarter 2024 Earnings Conference Call. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host for today's call, Ms. Stella Wang, JinkoSolar's Investor Relations. Please proceed.

Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's First Quarter 2024 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 on Newswire services. We have also provided a supplemental presentation for today's earnings call, which can also be found on the IR website. On the call today from JinkoSolar are Mr. Xiande, 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 sales and marketing, and then Mr. Pan Li, who will go through the financials. We will be available to answer your questions during the Q&A session that follows. Please note that today's discussion will contain forward-looking statements made under the safe harbor provision 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 the applicable law. It's now my pleasure to introduce Mr. Xiande, Chairman and CEO of JinkoSolar Holding. Mr. Li will speak in Mandarin and we will translate his comments into English. Please go ahead, Mr. Li.

We are pleased to report that our N-type TOPCon technology, along with competitive products and a strong global marketing and manufacturing strategy, led to a 53.3% increase in module shipments year-over-year, reaching nearly 20 gigawatts in the first quarter, positioning us as the industry leader. The share of N-type shipments rose to nearly 80% from around 70% in the prior quarter, reinforcing our top position. Module prices have continued to decline, while overall industry utilization rates have sharply decreased. However, we have maintained a high utilization rate. In the first quarter, over 70% of our module shipments were destined for international markets, with notable increases in shipments to Europe and the U.S. Our gross margin was stable at 11.9%, while net income soared to USD 84.4 million, reflecting a sequential increase of 19.8 times. Adjusted net income reached USD 65.1 million, a 1.6% rise from the previous quarter. Newly added installations in China were 45.7 gigawatts, climbing 35.9% year-over-year. Module exports amounted to 61.7 gigawatts, marking over a 20% increase year-over-year. The photovoltaic sector remains one of the few areas experiencing higher growth, and we anticipate global demand for PV technology to rise by approximately 25% to 30% in 2024. As we move into the second quarter, polysilicon prices have continued to fall due to reduced demand, while broader macroeconomic conditions have driven commodity prices up, raising costs for materials like glass and film. These factors have kept module prices relatively stable. In the short term, we expect pressures on the profitability of integrated solar companies, but differences in operational capabilities could lead to varied performance outcomes. We foresee a reduction in overall industry production capacity as weaker competitors exit the market, unable to sustain competitiveness or technology upgrades. In light of various external challenges, we will focus on enhancing our competitive edge, confident in our ability to outperform first-tier peers. In response to shifting market dynamics, we have modified our sales strategies to better align shipments with profitability. With our global presence and competitive products, our order visibility for 2024 exceeds 70%. To address continued industry pressures, we are adopting new technologies aimed at improving the efficiency of TOPCon cell production and module output while optimizing costs through supply chain improvements. We are also expediting the reduction of our P-type capacity. By the end of 2024, we expect N-type capacity to exceed 90% of our total capacity, reinforcing our industry-leading production structure. As the company with the highest integrated overseas capacity in the sector, we are committed to expanding our global supply chain; we have already commenced production of a 1 gigawatt N-type module capacity in the U.S., with another 1 gigawatt set to begin in the second quarter. Leveraging our extensive operational experience and risk management capabilities, we are confident in our ability to navigate international trade shifts and consistently deliver high-quality products and services to our global clientele. According to the International Energy Agency, solar PV and wind energy will represent 95% of global renewable growth, benefiting from lower generation costs compared to fossil and non-fossil fuel alternatives. By 2028, the contribution of wind and solar PV to global electricity generation is projected to double to 25%. Solar PV continues to hold substantial growth potential. Additionally, the decreasing costs of solar plus storage will enhance the economics of investing in PV storage projects, spurring demand in this area. We are optimistic that solar plus storage will become the primary model for future electricity generation growth, and we are committed to leading the industry with innovative technologies and high-efficiency products. Before I hand it over to Gener, I'd like to outline our guidance for the second quarter and the full year of 2024. By year-end 2024, we expect to achieve a mass production efficiency of 26.5% for N-type cells. We project our annual production capacity for mono wafers, solar cells, and solar modules to reach 120, 110, and 130 gigawatts, respectively, by the end of 2024. For the second quarter of 2024, we anticipate module shipments will be between 24 to 26 gigawatts, and for the entire year, between 100 and 110 gigawatts, with N-type modules comprising nearly 90% of total shipments.

Thank you, Mr. Li. Total shipments in the first quarter reached 21.9 gigawatts, with module shipments making up over 90%, once again leading the industry. Due to the pressured market prices during this quarter, we adjusted our geographic focus, moving over 70% of modules to international markets, particularly in the Asia Pacific and emerging regions. Shipments to the U.S. remained stable, while those to Europe grew to almost 20%, indicating a future inventory reduction. On the demand side, the overall trend for global low-carbon transformation is still intact, despite some regions facing installation and connection challenges, while others show positive trends. We continue to anticipate relatively rapid growth in global demand in 2024. Our extensive sales network and strong local customer service will enable us to adapt and respond swiftly to market changes. There is an increasing demand for more reliable, low-carbon, and compliant PV products. For the full year, we expect the share of shipments to Europe and the U.S. to further increase compared to last year. Shipments of our competitive high-efficiency N-type Tiger Neo modules accounted for nearly 80% of the total, significantly surpassing the industry average as customers increasingly recognize the value of Tiger Neo. In Europe and emerging markets, Tiger Neo's penetration rate exceeds 90%. Demand from distribution markets in China, Europe, and Asia Pacific was robust in the first quarter. In line with market trends, we raised our ratio of distribution to about 50% during the quarter. We place great emphasis on building our brand recognition, as a strong brand is essential for earning the long-term trust of our clients. Recently, we were honored as a Tier 1 energy storage provider by Bloomberg New Energy Finance, reflecting our commitment to delivering safe and reliable energy storage solutions and our customers’ recognition of our timely delivery and effective deployment capabilities. Additionally, we once again received the AAA rating in the 2024 Q1 release of PV-Tech's ModuleTech bankability report, showcasing our leadership in manufacturing, reliable quality, market share leadership, sound financial performance, and technological innovation. With that, I will turn the call over to Pan.

Thank you, Gener. We are pleased to report that our solar module shipment increased by about 53% in the first quarter where solar module prices declined. We enhanced control over costs and expenses. Gross profit margin was flat, and adjusted net income slightly improved sequentially. At the same time, thanks to our efforts in debt management, our net debt improved sequentially, leveraging our advantages in N-type technology and global sales and manufacturing networks. We're very confident in our growth prospects and will continue to improve the efficiency of our working capital, achieving sustainable growth in operating cash flow, and enhancing our resilience to risks. Let me go into more details now. Total revenues were $3.2 billion, down sequentially and slightly down year-over-year. The sequential decrease was mainly attributed to the drop in shipments of solar modules, and the year-over-year decrease was primarily due to the decline in the average selling price of solar modules. Gross margin was 11.9%, compared with 12.5% in the fourth quarter last year. The decreases were mainly due to the decline in the average selling price of modules. Total operating expenses were $426 million, down 18% sequentially. The sequential decrease was mainly due to the drop in shipments of solar modules and lower expenses related to a segment dispute with one of our customers. Total operating expenses accounted for 13% of total revenues compared with 11% in the fourth quarter and 12% in the first quarter of '23. Net income attributed to JinkoSolar Holding ordinary shareholders was about $84.4 million, up nearly 20x sequentially. Excluding the impact from a change in the fair value of the note, a change in the fair value of long-term investments, and share-based compensation expenses, adjusted net income was about $65 million, slightly up sequentially. Moving to the balance sheet. At the end of the first quarter, our cash and cash equivalents were $2.44 billion compared with $2.69 billion in the fourth quarter of '23 and slightly improved from $1.48 billion in the first quarter of '23. Accounts Receivable turnover days were 100 days compared with 76 days in the fourth quarter and 95 days in the first quarter of last year. Inventory turnover days were 89 days compared with 57 days in the fourth quarter and 100 days in the first quarter of last year. At the end of the first quarter, total debt was $3.66 billion compared to $4.38 billion in the fourth quarter of '23. Net debt was $1.22 billion compared to $1.63 billion in the fourth quarter of '23, indicating a continuous improvement in our debt structure. This concludes our prepared remarks. We're now happy to take your questions. Operator, please proceed.

The first question comes from Brian Lee.

I know you guys are not in the practice of providing specific margin and ASP guidance anymore. But just given the fluctuations in the pricing environment, can you give us a sense of pricing? It seems like it's down to the low to mid-teens here, ASP per watt if we exclude the wafer and the cell revenue in the quarter. Should we expect more ASP degradation in modules embedded in the Q2 guide? And then what's the sort of margin cadence you expect off the results here in Q1? Should we expect Q2 to be up, down, or flat? And then maybe back half views as well if there's more of a recovery there?

Yes, back to your questions. The module price is down in the recent three quarters, and that's a fact. We have different ratings, different arrangements, long-term versus short-term. If you are talking about Q2, the ASP on average it's down a little bit. But the most important thing is we are improving the cost and trying our best. At the same time, we are adopting relatively new technology materials. On top of that, we are ramping up our focus on the Shanxi Super factory, which we expect to be fully operational in the second half of the year. And for the gross margin and profitability, we strongly believe that the first half of this year has reached the bottom. For Q2, we expect the gross margin to be relatively stable compared to Q1. In the second half of the year, we expect more shipments, particularly in the United States and Europe, which will help the gross margin. The industry is suffering from competitive pricing pressures, particularly for price, and we expect Tier 2 and Tier 3 capacities which are not technology-competitive will be phased out throughout this year, which may help the overall supply versus demand situation, particularly in the second half of the year.

Okay, that's helpful. So if I summarize, it sounds like ASPs are down a little bit more into Q2, and then margins stable in Q2 compared to Q1. Are you actually seeing quoting activity? Or what's the outlook for pricing? I know you said shipment volumes and mix improved in the back half, but how about like-for-like ASPs? Are you actually seeing that? You mentioned 70% of your 2024 is already covered in the backlog; it sounds like. What's the pricing dynamic you're seeing in the second half versus Q1 and Q2 where pricing is still going down?

Yes, for pricing, we believe it will continue to follow the market, which we believe is already reaching the rock bottom. The industry, especially the leading cost structures, shows that most players are currently facing difficulties. However, once the cost structure starts to improve and align with the ASPs, we believe the company and even the whole industry, especially the leading competitive ones, will keep their margin as healthy as possible. I hope that answers your question.

Yes, absolutely. Very helpful. And last one for me. You also mentioned back half of the year; it sounds like you're positive on U.S. volume trends growing for you? I know this is pretty fresh, the inception of this AD/CVD potential investigation that was petitioned last week by some of the U.S. suppliers. I know last fall, you guys were deemed to not have been one of the companies dumping or countervailing, so you weren't subject to any duties. It sounds like this petition is reopening that case potentially. What are your thoughts on the latest trade policy update here given what happened last week? Do you anticipate any customer feedback suggesting there's more uncertainty for you moving through the next few quarters? How are you navigating it?

It's still early to see the results of this upcoming AD/CVD petitions. But definitely, from Jinko's perspective, we still prefer fair trade policies that can benefit not only Jinko itself but also the whole industry, which has been driving the LCOE of the PV energy more competitive, helping the world become greener and reducing its carbon footprint. Trade tariffs or geopolitical issues pose significant challenges. They have increased costs, but we have no choice but to adapt to market needs. We're working diligently with our lawyers and customers to identify the best solutions for the U.S. market. Right now, I must say it's too early to predict the pros and cons of this situation, and we may need another three to six months to gauge the upside and downside.

Okay, fair enough. Last one housekeeping for Charlie. What was D&A in the quarter? What was CapEx in the quarter? Also, could you let us know what the percent of sales in the U.S. this quarter was and what the U.S. ASP range was, dollar cents per watt in the quarter?

The U.S. shipment represented roughly 80% of total shipments in Q1. The revenue percentage will be higher because the prices were dramatically higher. Last year, we spent roughly $20 billion on capacity expansion, and this year will be 50% lower at about $10 billion. Also, we delivered $25 billion in operating cash flow last year, and this year, we expect our target operating cash flow to exceed $10 billion. For Q1, CapEx was roughly $3 billion, and operating cash was $1.5 billion.

The next question comes from Philip Shen with Roth MKM.

First one is a follow-up on Brian's question regarding Southeast Asia AD/CVD tariffs that could be coming later this year. I was wondering if you could talk about how you plan on managing the retroactive tariff risk. You guys talked about increasing shipments to the U.S. market, more certainly having a high mix to the U.S. through 2024. Can you share how much of your shipment volume in '24 could go to the U.S.? And how do you plan on managing that retroactive risk that could arise as early as May or July?

For volume-wise, we still maintain our previous plan that we are neither intentionally increasing nor decreasing our shipments in the U.S. due to the recent AD/CVD petitions. Our shipment numbers or the ratio of the U.S. market will definitely be higher than last year, and we have security measures in place. However, for the retroactive risk, we currently do not have mature solutions as we continue discussions with our lawyers and customers to find the best paths forward. As of now, I am not aware of any viable solutions.

Got it. How are your contracts structured? I know there are often change of law provisions that put the risk onto the customer, but do they also cover tariffs? Do you have these provisions in all your U.S. contracts so that the risk falls onto the customer? Or do you believe the risk of retroactive tariffs may fall into your camp?

I can't disclose the details of our contracts, but certainly, customers feel the risk as well. Even if there are clauses that pass the cash risk to the customer, the basic economics of project financing means that if costs exceed a certain threshold, projects may not proceed as planned. We need to navigate these details with our customers, their lawyers, and their financing providers to find the best mutual solution.

Okay. One last question on the U.S. market. What do you think is the amount of channel inventory in the U.S.? We've seen a lot of shipments to the tune of about 5 gigawatts a month coming to the U.S. over the past year. Do you think there's as much as 1.5 years of module inventory in the U.S.? Or do you think it's much lower? Can you help us understand what you see?

We have heard reports indicating there is oversupply in the U.S. market. Some players, both downstream and upstream, aimed to secure more modules in anticipation of the AD/CVD situation. We can confirm that many modules or solar products have been shipped to the U.S., but the grid connection numbers may not support that large volume. We have the same concerns you do.

Okay. Last question here for me on the fire that you disclosed over the weekend. Can you talk about the impact on Shanxi? That facility is key part of your margin, right? You mentioned you expect there will be an impact in '24. Can you quantify that in any way? When do you think that facility could come back online? How destructive was the fire?

The impact is still being evaluated, but for the Shanxi Super factory, we have two phases in our plan. Phase I is 14 gigawatts, and Phase II is another 14 gigawatts. The second phase will proceed as planned and is expected to start operations in Q3 and become fully operational in early Q4 of this year. The fire impacted Phase I, which will take longer to regain cell capacity; we initially expected it to be operational by mid-year, but now we anticipate it will be fully functional by year's end. At most, we expect a decline of about 3 to 5 gigawatts, but overall the impact will not be significant. We've adjusted our production across our global facilities to minimize the effect on our customers. As for losses from the fire, we are still assessing, but we have full insurance coverage from major providers in China, and we're addressing that.

Next question comes from Wade Wu with Jefferies.

This is Alan from Jefferies. First, I would like to follow up on Philip's question regarding the percentage of contracts you have signed that include language passing through the potential liability of the delays in AD/CVD. Some peers suffered much last year when they had procured high-priced polysilicon and later failed to deliver and incurred penalties. So I wonder if such protections are already included in your contracts and if you're just looking to work with your clients to resolve issues. Is there any potential liability in meeting your obligations?

I can't disclose those details, but we are working with customers on this AD/CVD risk as we always do, and we appreciate customer support given the market conditions over the last two years. We strive for solutions that don't lead to losses for either party, hence our ongoing discussions.

Understood. I also noted that other income surged quarter-over-quarter. Is that related to a disposal gain from your Xinjiang capacity? How much of that is attributed to that?

In Q1, we completed a transaction to sell 100% of our equity in Xinjiang facilities, which has approximately $800 million to $900 million net income impact.

I recall that part of the transaction includes performance guarantees for the next couple of years. Has that been factored into this $800 million to $900 million figure, or is that completely separate?

We did not record any variable considerations or performance obligations from the sale in our accounting; we only recorded the fixed portion of the transaction.

Understood. I find it impressive that you don't have any impairment on assets. Do you foresee any impairment risks going forward this year, or do your majority capacities being TOPCon mitigate those risks?

Yes, you're right. Our capacity is primarily TOPCon, and we accelerated depreciation over the past two years. Our net book value is not significant, so we don't foresee considerable impairment risks going forward.

I noticed positive cash flow in the first quarter. Has the company taken initiatives to improve cash flow quarter-over-quarter? That's a concern for investors regarding operating cash flow.

Operational efficiency remains our focus. We're minimizing production lead time, logistics delivery time, and cash conversion cycles. The Shanxi Super factory is also central to improving our overall cycle conversion and enhancing cash flow while reducing working capital and logistics costs.

Lastly, regarding the buyback, can you provide guidance on the pace? There have been numerous announcements, but do you anticipate any blackout period for buybacks after the end of the quarter and before announcing results?

Our preliminary plan for shareholder return this year is around $200 million. We released news that we have spent roughly $105 million to repurchase ADS. Additionally, we intend to declare dividends around $70 million to $80 million. Thus, the combined shareholder return for this year is approximately $200 million.

The next question comes from Rajiv Chaudhri with Intrinsic Edge.

Congratulations on a strong performance in a very tough first quarter for the industry. My first question is about the gross margin. It seems your cost per watt for modules dropped roughly 10% from the fourth quarter to the first quarter. Can you give us an idea of how you achieved such a decline in cost per watt given that polysilicon costs were also down but not as significantly? And I have a follow-up on gross margin.

Yes, it's a combination of our supply chain management, R&D efforts, new technologies, and reduced material consumption. We have upgraded our TOPCon capacity and significantly improved our sales efficiencies while cutting material consumption. We focus on clear targets for cost reductions, and we expect improvement to be steady. The current market scenario shows that module prices have dropped substantially, but we anticipate stabilization, though cost reduction rates may take more time.

So, is it fair to think that in the coming quarters, we can expect costs to improve by 1% to 2% every quarter?

It depends; we can control many aspects, but some are outside our influence. The commodity prices have risen significantly in recent months, and we're working to minimize that impact. In general, we believe costs will be lower by year-end compared to now.

So combined with the ASPs, if you are selling more product in the United States by the fourth quarter, we might expect ASPs to be up somewhat sequentially from Q3 to Q4, and your costs are coming down by 2% quarter-over-quarter, leading to a gross margin in the 16% to 17% range. Is that reasonable?

It's difficult to estimate. Various factors, including capacity phase-outs in the second half, will influence market dynamics. While we expect U.S. shipments and premium market sales will support margins, there are too many variables to predict the outcome accurately.

Your market share in 2023 was over 15%, closer to 16%. In the first quarter, it's already about 17%. Do you think that as capacity comes offline for the rest of the year, your market share will continue to increase, especially if you hit that 110-gigawatt target for the year?

We never take market share as our target, which makes it hard to forecast. It's a challenge to define market share consistently. However, we appreciate your calculation and our perception is that our market share is around 17% to 18%. Whether that will change depends on competitive actions and the broader industry dynamics.

Is your market share combined with your brand development providing you with a price premium relative to other brands?

Certainly, we believe our brand strength contributes significantly to market acceptance and recognition. However, any resulting price premium varies depending on the comparisons made. When compared to lesser-known brands, our brand recognition works in our favor. But with top competitors, the perceived differences may not be as pronounced.

Regarding N-type products, what do you think the industry's shipments of N-type products will be in 2024?

We believe the market will transition from P-type to N-type by the end of this year, starting at about 35% to 40% and moving to 90% or even 95% by year-end.

Do you think competitors will also reach a 90% N-type range by the end of the year?

We believe the industry as a whole will reach that, but some may act faster or slower.

Your N-type costs are now comparable to P-type. What kind of margin premium does that give you over Tier 2 and Tier 3 companies who lag behind the cost curve?

Roughly, the gap between P-type and N-type prices is around $1 per watt, which reflects a margin difference of about 9% to 10%. That’s how we assess it.

The last question comes from Leo Ho with Daiwa Capital Markets.

Just a question on the AD/CVD situation. Are we using our solar cells from Southeast Asia for U.S. capacity? We've heard some feedback suggesting there may be a cancellation of the Wafer-Plus-Three rules, meaning we won't be able to use solar cells from Southeast Asia anymore. Do you have any view on that?

I'm not quite sure what policies you are referring to. However, for Jinko, we are fully vertically integrated outside of China, meaning our polysilicon, wafer, cell, and module production are not exclusively from non-China sources. This operational structure gives us a significant advantage and credibility in the U.S. market.

Just one more question if I may. I would like to ask about the EU situation. Aside from the publicly announced challenges regarding Longxi and Shanghai Electric, are we aware of any difficulties faced by Chinese players exporting to Europe? I have heard concerning news suggesting a major module maker with EU headquarters was recently raided. Are you aware of similar issues?

I'm not aware of any such issues currently. If you have details, I'd appreciate knowing more.

This concludes the conference call. Please disconnect your lines.