JinkoSolar Holding Co., Ltd. (NYSE:JKS) Q2 2023 Earnings Call Transcript

JinkoSolar Holding Co., Ltd. (NYSE:JKS) Q2 2023 Earnings Call Transcript August 14, 2023

Operator: Hello, ladies and gentlemen and thank you for standing by for JinkoSolar Holdings Co. Ltd. Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the meeting over to your host for today’s call, Ms. Sella Wang, JinkoSolar’s Investor Relations.

Stella Wang: Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar’s second quarter 2023 earnings conference call. The company’s results were released early 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. Xiande, Chairman of the Board of Directors and the Chief Executive Officer of JinkoSolar Holding Co. Ltd.; Mr. Gener Miao, Chief Marketing Officer of JinkoSolar Co. Ltd.; Mr. Pan Li, Chief Financial Officer of JinkoSolar Holding Co. Ltd.; and Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Co. Ltd.

Mr. Li will discuss JinkoSolar’s business operations and company’s 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 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. Li Xiande, Chairman and CEO of JinkoSolar Holdings. Mr. Li will speak in Mandarin and I will translate his comments into English. Please go ahead, Mr. Li.

Li Xiande: We are pleased to report solid growth as we overcame volatility in slight in prices and [indiscernible]. Thanks to our excellent market network, the highly quality products and our highly effective supply chain management. Module shipments in the second quarter were approximately 17.8 gigawatts, up 36.2% sequentially. Shipments of the competitive N type module were approximately 10.4 gigawatts, up 74.1% sequentially. We are happy and proud to be the first module manufacturer to reach the milestone of shipping 10 gigawatts of N type modules in a single quarter. Besides, our shipments to the U.S. market increased from the first quarter, largely demurrage charges. Our efforts in site chain management technology advancement and process improvement also improved our profitability.

Net income was $180.1 million in the second quarter, up 65.6% sequentially. Adjusted net income was $196.7 million, up 70.5% sequentially. Diluted earnings per ordinary share were USD 0.77, up 48.5% sequentially. Due to the substantial release of polysilicon production volumes and excessive inventory, polysilicon prices declined sharply in the second quarter which also caused a certain volatility in module prices. Since most customers are sensitive to price, they were cautious and slowed down their orders which, to some extent, affected our module demand. As the lower supply chain prices stabilized in the third quarter, domestic customers started to place orders and major projects were initiated and started construction in China. The lower prices also led to a surge in demand from some overseas markets.

We expect production and sales in the PV market to rebound in the second half. There’s more and more players deploying TOPCon production capacity and tight TOPCon is certain to become the next-gen technology in the industry. However, some of the new entrants experienced product delays and slower-than-expected production and efficiency ramped up due to insufficient technical know-how and differences in technology and the process, keeping competitive N type production in short slide. As of the end of the second quarter, the mass produced efficiency of our 182 N type TOPCon capacity had reached 25.5%. This N type power up to of around 580-watt P [ph] which is about 25 to 30 watt P [ph] more than P type modules of the same variant. The integrated cost of N type module remained competitive compared to P type modules.

Photo by andreas gucklhorn on Unsplash

We are confident we will continue to lead in efficiency and cost through technology integration and process optimization. At the end of May, we announced the construction of a major production base of 56 gigawatts integrated wafer cell module capacity in Shanxi which will become the largest N type-integrated production facility in the industry. Our Shanxi integrated base is another strategic expansion of the production model campaigned by JinkoSolar in the PV industry that will fully demonstrate our advantages in highly efficient technology and products, lower investment costs and greater operational efficiency as well as intelligent and smart manufacturing capabilities. Meanwhile, we proactively responded to shifts in the global PV landscape by expanding our overseas industrial chain.

The 1 gigawatt capacity expansion for N type modules in the U.S. is expected to start production in September this year. So far, we have established an industry-leading overseas industrial chain network with integrated production capabilities from wafer sales to modules with feasibility and excellent product competitiveness. As we continue to invest in N type capacity expansion overseas in the second half, we will reach an integrated capacity of over 12 gigawatts overseas by the end of 2023, with N type accounting for over 75%. We will continuously strengthen and expand our global industrial chain to provide premium and high-quality products and services to our global clients. As one of the largest and the most innovative solar module manufacturers in the world, we have always carried on social responsibility and have taken a continuous improvement of our ESG management.

As a key matter for our sustainable development, in the second quarter, we set up a goal and a road map to net-zero emission based on methods and requirements advised by the science-based targets initiative, SBTI, actively promoting our global carbon emissions reduction and addressing climate change with concrete actions. With outstanding performance in social responsibility fulfillment, we led the mainstream PV industry in the S&P Global Corporate Sustainability Assessment. We improved our feasibility system and independent third-party audit mechanism to enhance other supply chain reliability. Meanwhile, we enhanced our cooperation with leading institutions and professionals in global renewable energy development and joined the International Renewable Energy Agency, IRENA.

So sharing best practice and experience, we are dedicated to making a positive contribution to the sustainable advancement of renewable energy globally. In summary, we are confident in the development of the PV industry. We will continue to enhance our integrated operations and management. We are positive about the long-term prospects of PV plus energy storage model and will continue to grow our competitiveness by actively developing our energy storage business. Before turning over to Gener, I would like to go over our guidance for the third quarter and the full year of 2023. By the end of 2023, we expect to mass produce the N type cell efficiency to reach 25.8%. We are optimistic that demand will grow as industrial chain prices stabilize and reach our full year module shipments to be in the range of 70 to 75 gigawatts, with N type model accounting for approximately 60% of the total module shipments.

As demand for N type products continues to increase in the global market, we will move on to invest the N type capacity which is competitive, both in technology and costs. We expect our annual production capacity for mono wafers, solar cells and solar modules to reach 85, 90 and 110 [ph] gigawatts, respectively, by the end of 2023, with N type capacity accounting for over 75% of the total capacity. We expect module shipments to be in the range of 19 to 21 gigawatts for the third quarter of 2023.

Gener Miao: Thank you, Ms. Li. Total shipments in the second quarter were around 18.6 gigawatts, over 95% of which were module shipments. We are glad that total module shipment in the first half of 2023 exceeds 30 gigawatts, making us the number one in the PV industry for the first half module shipments. In terms of product mix, N type fiber neo accounted for 58% of the module shipment in the second quarter, a steady increase from nearly 50% in the previous quarter, thanks to its high power output, quality and reliability. In terms of geographic mix, China and Europe remained the largest regions in the second quarter accounting for over 50% together. The proportions of other markets remained relatively stable. Most importantly, we are glad and proud to see both the efficiency of customer clearance and the size of our shipment to the U.S. market improved sequentially, benefiting from our dedicated efforts.

As we continue to make effective progress, we expect our shipments to the U.S. market to gradually increase in the second half. For orders and prices, visibility of our order book has reached about 80% for the whole year of 2023, improving compared with the first quarter with overseas orders making the majority. Declines in raw material prices drove module price lower. Recent prices for our new contracts have fluctuated within a reasonable range, in line with market trends. And Tiger Neo retained a competitive premium over P type. With the gradual release of our untapped capacity, we expect the Tiger Neo to accelerate its penetration into China, Europe and emerging markets in the second half. The proportion of Tiger Neo shipment for the full year 2023 to reach around 60% of our total module shipments and its product strength to continue to lead the industry.

Recently, we were awarded the Top Brand PV Europe Cell [ph] 2023 by the EUPD research. This recognition by our downstream partners does not only prove that JinkoSolar is one of the preferred European brand for installers to work with but also reflect our strong reputation and commitment to our customers as a leading supplier and N type TOPCon technology leader. In addition, we are recognized as 2023 Overall Highest Achiever for the first consecutive year in renewable energy testing centers PV module Index report, a reaffirmation of quality, makeability and the reliability of our product. In summary, we are happy to navigate through volatility in supply chain prices and end demand in second quarter, leveraging our advantage in terms of global marketing network, industrial chain layout and product competitiveness.

Meanwhile, we continued to improve our mechanism to cope with risks and enhance our customer relations and marketing network. As supply chain prices stabilized recently, we are optimistic about the return of demand in the global market for the second half in medium and long term as the economy of solar power becomes more and more prominent, the PV market will move forward at a healthy and sustainable growth pace. We expect China, the U.S., Europe and other developed markets to grow at a steady pace and emerging markets to continuously expand insight. We are confident we will provide more economic value to our customers with excellent products and services and continue to grow our market share. With that, I will turn the call to Pan.

Pan Li: Thank you, Gener. We are pleased to report strong financial results in the second quarter, with quarterly total revenues, gross profit, income from operations and net income all reaching historical new high. Recently, our majority-owned principal operating subsidiary, JinkoSolar Co. Ltd., announced its intention to issue ordinary shares for no more than RMB9.7 billion to fund construction of our N type-integrated production facility in Shanxi. This expansion of an advanced integrated production capacity will help us to continuously improve our cost structure and increase in equity capital will also help us improve our capital structure. As we keep enhancing our global industrial chain, marketing network and product competitiveness, we hope to achieve healthy and sustainable profitability.

Let me go into more details now. Total revenue was over $4.2 billion, up 32 percentage sequentially and up 63 percentage year-over-year. Gross margin was 15.6 percentage compared to 14.7% in the second quarter last year. We continue to make good progress in clearing customs in the U.S. market, significantly reducing demurrage charges compared with the first quarter this year. Total operating expenses accounted for 11 percentage of total revenues compared with 12 percentage in the first quarter this year and 16 percentage in the second quarter last year, improving sequentially and year-over-year. Income from operations was RMB212 million compared with income from operations of RMB176 million in the first quarter this year and loss from operations of RMB43 million in the second quarter last year, improving sequentially and year-over-year.

Operating margin was about 5 percentage, flat compared with first quarter this year and loss [ph] margin of 1.5 percentage in the second quarter last year, also improving year-on-year. Net income attributed to JinkoSolar Holdings ordinary shareholders was about $180 million, up 66% sequentially and compared to a net loss attributed to the JinkoSolar Holdings ordinary shareholders of about $93 million, improving year-over-year. Excluding the impact from a change in fair value of notes, a change in fair value of long-term investments and share-based compensation expenses, adjusted net income attributable to the ordinary shareholders was about $197 million, up about 71 percentage sequentially and up 2.9x year-over-year. Diluted earnings per share was $0.77 in the second quarter, up about 49 percentage sequentially and compared to diluted loss per share of $0.47 in the second quarter last year, improving year-over-year.

Moving to the balance sheet. At the end of the second quarter, our cash and cash equivalents were about $2.35 billion, up from $1.48 billion at the end of the first quarter this year, improving sequentially. Accounts receivable turnover days were 79 days compared with 95 days in the first quarter. Inventory turnover days decreased to 17 days in the second quarter from 100 days in the first quarter. Total debt was $4.7 billion at the end of the second quarter compared to $4.4 billion at the end of first quarter. Net debt was $2.4 billion compared to $2.9 billion at the end of the first quarter this year. This concludes our prepared remarks. We’re now happy to take your questions. Operator, please proceed.

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Q&A Session

Operator: [Operator Instructions] The first question today comes from Brian Lee with Goldman Sachs.

Unidentified Analyst: This is Grace [ph] on for Brian. I guess first question around ASP trajectory. Obviously, it’s always [indiscernible] had a big decline in 2Q, though we have stabilized in recent weeks. At the same time, like we are hearing some oversupplied in certain areas of the market. So just wonder if you can talk about the ASP and maybe the margin trajectory moving through the rest of the year and maybe into 2024?

Charlie Cao: This is Charlie speaking. And firstly, I want to talk, this year, it’s a very big solar market and a lot of markets are very strong, including China, United States and European markets and we delivered a very strong performance for the first half year. And in terms of the revenue shipments, the next-generation and in TOPCon, we are leading the industries and take about 50% market share. Now 50% of our portfolio is from N type. And we believe we will continue the momentum throughout the year. And N type, because of the cutting edge and it’s a very strong great fundings for end customers and have advanced more power output for the end customer. And we are seeing the market is accepting the N type. It’s going to dominate the market.

And we’ll continue to supply relatively shortage throughout next year. So back to questions in ASP, It’s no. The first half is pretty relatively stable and starting from June this year because of the polysilicon relatively oversupply situations and make the solar modules have the relatively adjustments. It’s — if you’re looking for the midterm perspective, we think it’s very good for the downstream and accelerate the demand from different markets. And it will also generate solar and storage, the big markets in the future. And for the ASP trains, it’s relatively in line with the industry. The second half year is, for sure, in a downward trend but it has been stabilized. And we believe, thanks to the very, very strong China installations, particularly in Q4 this year, the ASP will may turn and maybe possible relatively in upward trends.

And for the profit margins in preferability and just we were — we strongly believe and we almost closed out the sales order this year and over 80% is boxed. And so we are planning actually for the next year. And for this year, we believe the momentum will continue and year-over-year. It’s a very good year for Jinko in terms of the profitability, even in the second half year. And we — the N type will take the more shipments for Jinko in the second half year, 60% to 65% which is 50% in the first half year. And on top of that, U.S. market is very positive for us for the — starting from the third quarter. And our modules was detained starting from last year. And we have done a lot of work feasibilities, ESDs and communications with relevant address regulators.

And starting from July and our modules speed of the — let’s say, going through the customs has been speed up and we are expecting our shipments to the U.S. market will be accelerated, starting in the third quarter. And we have also get ready for the overseas capacities, 12 gigawatts integrated, starting from wafer to modules and to — for the U.S. market next year. So next year will be a very big marked year for Jinko to have more markets here in the U.S. and as well as we have been in expansion for the U.S. module capacities is in place and we plan to start operations from this end of the third quarter. So Yes, that’s back to your questions, overall.