JinkoSolar Holding Co., Ltd.
Q4 2020 Earnings Call Transcript

Published: 9 Apr 2021

[Operator:]

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 to Ms. Ripple Zhang, JinkoSolar’s Investor Relations Manager. Please proceed, Ripple.

[Ripple Zhang:]

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 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.

[Xiande Li:]

2020 was a very challenging year for the solar industry that has kept its momentum for strong growth despite the year being shrouded in uncertainty as we went through the COVID-19 pandemic globally 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 ones. 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, lead to significant volatility in the industrial value chain in a year full of extreme challenges. We continued relentlessly to optimize cost through technical innovation and improved process. Gross margin 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.

[Gener Miao:]

Thank you, Mr. Li. In the fourth quarter 2020, total shipments of dollar modules reached 5.8 gigawatts. And 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 full year 2020. Our modules were shifted to nearly 160 countries and regions in 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 a 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 help mitigate risks and increase our global market share in 2020. 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 shipment in 2021, which will greatly reduce the LCOE for the customers under same conditions.

[Charlie Cao:]

Thank you, Gener. In the fourth quarter, driving cost 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, in line with our guidance. Our long-term competitive advantage in branding and distribution channels and demand for our high increasing 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 on impairments as a result of 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 fair value convertible senior notes and cost due to the sharp increase in stock price of 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 shipment of solar modules and production volumes of our integrated high increasing capacity as well as cost reduction from 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. 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 fourth quarter, our balance of cash and cash equivalents were $1.2 billion compared to $943 million by the end of 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 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 third quarter and $1 billion by the end of last year. In September 2020, we announced our plan to list our principal operating subsidiaries Jiangxi Jinko, on the STAR Market in China by the end of October 2020. Jiangxi Jinko completed an equity financing of RMB3.1 billion. This process is prosing or progressing smoothly. This concludes our prepared remarks. We are now happy to take your questions. Operator, please proceed.

[Operator:]

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

[Philip Shen:]

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.

[Charlie Cao:]

Hi Philip. The pricing – from the pricing perspective, the input costs continued to be relatively high, given particularly the polysilicon, the supply bottleneck and we are seeing the balance negotiation with our customers. And the module price and global, including China are I think in the trend to go up to absorb, to reflect the input costs, the impact. So we didn’t give the guidance of second quarter. But I think overall, the gross margin to be relatively stable throughout the first half year and we are expecting some positive factors like the solar glasses prices. The market price is down, the RMB, the depreciation looks like it’s positive and to offset some input cost pressure from – specifically the polysilicon impact. But I think it’s a little bit impact on the global demand from the module perspective because of the high input costs. And I think most of the Tier 1 companies like to balance the shipments versus the module shipments versus the high input cost. And so, I think the shipments, we are not expecting the German company for the second quarter. And quarter-by-quarter, shipments will have significant increase.

[Philip Shen:]

Okay. Thanks.

[Gener Miao:]

Philip, this is Gener. So yes, so regarding the shipment, I think you might have noticed our disclosure of the shipment targets includes a total shipment instead of module-only shipment, which reflecting our strategic flexibilities because right now, we see the unbalance the demand supply from upper street to down street right now. So that’s why, like Charlie would charge just saying, we – our shipment target are still in line with what we bet, but we are keeping some flexibilities between wafer cell and modules in order to mitigate the market risk and try to optimize our margins.

[Philip Shen:]

Thanks, Gener. I did notice that in I was wondering if you could share a little bit more on that, Gener and specifically, how much wafer-only sales or sell only sales? Could we see so that we can get to a more accurate module only or module shipments in ‘21? Thanks.

[Gener Miao:]

We don’t have that number yet because we are keeping that flexibilities to make sure that we can adopt our strategy to the current polysilicon price hike. That’s why we keep that as a flexible part. But in general, we are still taking module as our main business, but partially of our shipments will be wafer or cell. It depends on the margin on the spot market.

[Philip Shen:]

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

[Charlie Cao:]

The CapEx in 2021 is in our range of $1 billion to $1.2 billion. Reflecting our investment on the dramatically on the solar sale as well as the wafer stage. And for the strategy of solar sale, it’s reflecting our – in a couple – in recent 2 or 3 years, we didn’t increase our solar sale capacities because we think the technology is not so matured in the last 2 or 3 years. And now the market is shifting the bigger size, high inpatient and N-type solar cell technology, and we believe it’s a time to increase our solar cell capacity and increase our integration levels. And that is why we increased a little bit more on the solar cell capacity in 2021.

[Philip Shen:]

Great. And the 2020 CapEx, Charlie?

[Charlie Cao:]

2020, I didn’t have the exact number, but I think it’s roughly $5 billion. Sorry, it’s $500 million.

[Philip Shen:]

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

[Gener Miao:]

Thank you, Philip.

[Operator:]

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

[Unidentified Analyst:]

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

[Charlie Cao:]

Hello?

[Unidentified Analyst:]

Right. Can you hear me?

[Charlie Cao:]

Yes. Your voice is breaking, right, so…

[Unidentified Analyst:]

Is it better now?

[Charlie Cao:]

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

[Unidentified Analyst:]

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 a flexibility in pricing or were you not able to raise pricing until like the second half of 2021? Thanks.

[Gener Miao:]

Thank you for the question. I think for the module price, one side, we have firm commitment and for the contract we signed. But also, we always keep a portion of our capacities to the spot market to adapt ourselves to the volatile market changes. So for the contract signed part, we are doing our best to respect the contract legal commitment, but we – since we have a long-term partner – partnership with many customers for years. So we are still talking too many of them, try to get their, let’s say, health and flexibilities to work together to face the current challenges in the market. So that’s on progress. Does that answer your question?

[Unidentified Analyst:]

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

[Gener Miao:]

I think the – our order book are more than half booked. But still, we are some of them with a firm commitment some of them are with flexibilities with framework contract only, so yes.

[Unidentified Analyst:]

Okay, great. Thanks for the color. I guess 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 like what could drive upside or downside?

[Gener Miao:]

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

[Unidentified Analyst:]

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

[Gener Miao:]

Okay, yes. So I think right now, in short-term, we did face some challenges because of the balance the growth of the capacities like our pre-market earnings speech. The growth of upper stream capacity is much slower than the expansion of the downstream demand. So, there is – it’s cost short-term turbulence and volatile market situations right now. But in long-term, we are still a believer for the long-term growth of the market, including China market and other markets as well because we see a very ambitious target announced by China government, and we have accept a very clear signal from our downstream customers about the ambitions pipelines in China. So, the current challenge is the short-term market and balance supply and demand happened in upper stream. But we expect that it could be resolved in the next, I’d say, midterm, short-term or midterm because the China let’s say, China grid parity projects always got a long time to – after the PPA signed to get grid connections. So I think, yes, the market will adapt itself based on the market principles. And the China market, together with the global market demand will continue to be very strong and at high-speed growth.

[Unidentified Analyst:]

Okay. Thank for the color. If I can sneak one more, just to, how should we think about like the OpEx in 2021, should we think about like as a percentage of sale, like around 12% to 11% and how should we think about the gross margin in the second half of ‘21 versus the first half?

[Charlie Cao:]

The gross margin, and we are expecting some more competitions among Tier 1 companies. And one of the bottleneck is still material. So we are expecting the second half year with more the debottleneck for the materials and the cost are expecting to be improved compared to the first half year, and we have more possibilities and with the integration level increase with the department of the key materials and to improve our gross margin in the second half year.

[Unidentified Analyst:]

Okay. Thanks. And…

[Operator:]

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

[Unidentified Analyst:]

Yes, yes. Thanks for the color. And the OpEx, how should we think about the OpEx? Is it – do you expect to still around a return to like a normal kind of like normal range like 11% to 12% of the sales that sell?

[Charlie Cao:]

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

[Unidentified Analyst:]

Okay, thanks. I will pass it on.

[Charlie Cao:]

Thank you.

[Operator:]

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

[Philip Shen:]

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

[Gener Miao:]

So Philip, I think from the supply side, we have secured enough polysilicon supply. But the challenge is because of this market situation, also those secured polysilicon supply is always up to the market condition. So that’s a big pressure or is a big challenge for everyone, but currently, it’s extremely – almost, it’s mission impossible to secure a long-term polysilicon pricing. So we secured the volume. I think it’s enough, but from the pricing-wise, it’s still always up to the market.

[Philip Shen:]

And what’s your view, Gener, as to when that pricing can become release. I think has some capacity coming online at the end of this year. Do you think we have to wait until Q4 or is there – and if we get relief before that, what causes that relief?

[Gener Miao:]

We think it will relieve step by step. It won’t change overnight. But gradually, I think that the pressure will be released. The challenge here right now is the demand side is very, very hot right now. So that’s why the upper stream is always holding their expectations that the demand will support the price. So it will – in short-term, we are still expecting a volatile market up and down. But in the long run, like you said, the pressure will release step-by-step and follow the market principles.

[Philip Shen:]

Okay. And then as it relates to Q2 shipments, we talked about this earlier, Gener, but when I look at Q1 relative to what we forecasted, the Q1 levels are what you guided to were lower. For Q2, should we expect something similar, meaning is – if you think back to what you expected to do in Q2, back at the end of last year, is – do you expect the shipments to be lower in Q2 now versus then, because the raw material outlook is so challenging. And as a result, your customers and you are pushing out orders. So are you – do you expect to build less in Q2 than you previously had imagined?

[Gener Miao:]

I think, Phil, the principle we are holding in the company is to keeping the module capacity more flexible than others, right? So our wafer and the cells are in the full for rent. And for the module side, we are holding more flexibilities up to the – what we say, right, the margins and the market conditions. That’s why the shipment contains all three segments we have. So I think that we will hold the same principle for Q2 as well. So number wise, I don’t think it’s the right time to talk about it and maybe we can talk about it next time.

[Philip Shen:]

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 if there is – what’s the potential for the China listing to be in Q3 or 4 this year? Is it meaningful? Or is it more likely in the early part of ‘21 – sorry, ‘22. I know you guys have talked about perhaps taking a 2-year process. But I wanted to see if the others are going this year like Daqo and then I think Canadian Solar is – has a chance of getting out there this year. I’m thinking you guys have a chance to get there this year as well, China listing but wanted to get some color from you guys? Thanks.

[Ripple Zhang:]

Okay. Well, for the China listing, we have a separate team working on this process. It’s more complicated compared to the U.S. listing. And the process is still – is on track, and everything is very smooth. And we’re expecting to reach some significant milestone. And in the next couple of months, and we will keep the market in progress. And in terms of timetable, how long we will get the China listing down. It’s really a lot of process is out of the company’s control. And particularly from the – typically, these couple of rounds of submission and response different comments from the regulators and the regulators they have – we have different tendencies to control the total volume of China listings. So it’s – from a company perspective, we try to drive the process more as quick as possible and the more efficiently. But some of the process it’s depending on the government regulator’s perspective.

[Philip Shen:]

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

[Gener Miao:]

Thank you, Phil.

[Operator:]

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

[Johnny Chen:]

Yes. Hi everyone. Can you hear me?

[Gener Miao:]

Yes.

[Johnny Chen:]

Thank you for taking my questions. And I have two questions for you. So firstly, we know that the company has been developing untapped solar cells technology, especially in TOPCon. So would you please elaborate a little more on the capacity plan and the efficiency and the success rate? And my second question is that is there any possibility that the company develop another N-type technology, we call HJT? Thank you.

[Ripple Zhang:]

Okay. We build up our R&D capabilities in N-type a couple of years. And I think 2019 is starting from 2019, we have built around 800 megawatts TOPCon based capacities. The efficiencies have been reached to roughly 24%. And now this year, we are building more capacity on the solar cell capacities. And the capacity is large size based solar cell capacity as well as we have flexibility to upgrade or to quickly upgrade to the TOPCon-based technology or create. And in terms of HJT, we still believe it’s not cost very effective at this stage. And we have the R&D and the technology available and continue to watch out the maturities, particularly from the equipment perspective or material perspective. So we don’t have a plan to roll out the large-sized capacity on HJT in addition in 1 or 2 years.

[Johnny Chen:]

Thank you. Thank you. As a follow-up, would you please – I want to make sure that you’re right. So what is your capacity expansion plan for TOPCon this year in 2021?

[Ripple Zhang:]

Well, 2021, we didn’t have a plan to increase our TOPCon capacity. But I just emphasize the new capacity, all the capacity very easy and convertible and we have flexibility. And the first is available room to upgrade to the TOPCon immediately.

[Johnny Chen:]

Yes. So, the capacity expansion is based on the par technology, right?

[Ripple Zhang:]

Yes, you are right, yes.

[Johnny Chen:]

Yes. Thank you. Thank you. That’s all for me.

[Ripple Zhang:]

Thank you.

[Operator:]

Thank you. Your next question is from Kim Pao who is from ROCIM. Your line is now open, Kim. Please go ahead.

[Kim Pao:]

Hi. Can you hear me? Hello?

[Gener Miao:]

Yes.

[Kim Pao:]

Hi. Thank you for taking Miao. 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? Like what kind of returns they are willing to accept now? And second, I wanted – my second question, I want to ask a little bit more about your view as to the current supply demand situation of polysilicon materials? And when do we think we would see a return to normal pricing for polysilicon? And also, at what level currently, if you were to maintain a margin from your end of, let’s say, 2020’s normal operating margin. What kind of polysilicon price would you need to actually get there?

[Ripple Zhang:]

Thank you. So regarding your question about Chinese SOEs IRR expectations, actually, I think that there are a lot of Chinese SOE IPP, who has set up a very ambitious renewable targets for this new 5-year plan. And according to what we have heard from the market, I think their IRR expectations has been lowered from previously around 8% to 10% to right now around 6% to 8%. So I think that’s a very big, let’s say, jump or, let’s say, a big decline in order to pump up more renewable projects and in renewable sector, which gives a lot of hopes and ambitious targets for the whole industry, especially in China. Regarding your second question about supply demand relationship, especially for polysilicon, I think I – in the previous question, to Phil, we have provided our views that for the polysilicon is because of the attention of the polysilicon supply is mainly driven by the unbalanced growth or expansions between upstream and downstream because the ramping up phase for the upper stream is much, much lower than downstream. That’s mainly the reason. And for the price range or how much when it will goes back to so called, let’s say, 2020 level, it just depends on the supply and demand relationship as well. So that’s why we see, in short-term, our view is that the volatile upper stream, the volatile market driven by the upper shortage of the polysilicon or the upper stream material will continue in the short-term. But in mid and long-term, we deeply believe the market principles, which will automatically balance between the supply demand across the different sector in this industry. And we believe, in long run, renewable is still a very promising industry. Hopefully, that answers your question.

[Kim Pao:]

Can I have a follow-up?

[Ripple Zhang:]

Sure.

[Kim Pao:]

Hello? Hello?

[Ripple Zhang:]

Yes, go ahead.

[Kim Pao:]

Okay. I am just thinking, so like in terms of time, the – given the fact that there is not that much new supply for polysilicon coming on stream until towards end of the year, do you think we should be able to reach some – when you say mid to long-term, do you think we should be able to reach a more reasonable polysilicon price and margin levels for us as a result towards the end of the year?

[Ripple Zhang:]

Well, first say about the polysilicon, I think there are capacities starting wrapping up and the new capacity start to release the polysilicon materials to the market. It’s just a step-by-step, it won’t be – it won’t happen overnight. So I think you can look into the main polysilicon manufacturers are ramping up plan. I think that there is a lot of public information available. And regarding your margins question, I think the margins will follow the market principle as well, right? So it will go up and down. For example, recently, the solar glass price has dropped significantly, which help the module makers are more or less, let’s say, ease the pressure from the upper stream a little bit. So it happens. It just – we prefer to look into this industry in the mid or long-term instead of 1 month or 2.

[Kim Pao:]

Thank you.

[Ripple Zhang:]

Thank you.

[Operator:]

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 all now disconnect.