JinkoSolar Holding Co., Ltd. (NYSE:JKS) Q3 2023 Earnings Call Transcript October 30, 2023
JinkoSolar Holding Co., Ltd. beats earnings expectations. Reported EPS is $3.31, expectations were $1.96.
Operator: Thank you for standing by and welcome to the Third Quarter 2023 JinkoSolar Holding Company Limited Earnings Conference Call. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] Please note this conference is being recorded. I would now like to hand the conference over to Stella Wang of Investor Relations. Please go ahead.
Stella Wang: Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar’s third quarter 2023 earnings conference call. The company’s results were released earlier today and available on the company’s IR website at www. jinkosolar.com, as well as on Newswire Services. We have also provided a supplemental presentation for today’s earnings call which can also be found on the IR website. On the call today from JinkoSolar are Mr. Li Xiande, Chairman of the Board of Directors and CEO of JinkoSolar Holding Company Limited; Mr. Gener Miao, Chief Marketing Officer of JinkoSolar Company Limited; Mr. Pan Li, Chief Financial Officer of JinkoSolar Holding Company Limited; and Mr. Charlie Cao, Chief Financial Officer of JinkoSolar Company Limited.
Mr. Li will discuss the 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. They will all be available to answer your questions during the Q&A session that follows. Please note that today’s discussion will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks is included in JinkoSolar’s public filings with the Securities and Exchange Commission.
JinkoSolar does not assume any obligation to update any forward-looking statements, except as required under the applicable law. It’s now my pleasure to introduce Mr. Li Xiande, Chairman and CEO of JinkoSolar Holding. Mr. Li will speak in Mandarin and I will translate his comments into English. Please go ahead, Mr. Li.
Li Xiande: [Foreign Language] We are pleased that we were able to overcome the challenges we faced due to market volatility and deliver a strong third quarter. We did so by leveraging our advantages in N-type TOPCon technology, extensive global operation network and advanced integrated capacity — capacity structure. And our module shipments, gross margin and net income all increased significantly year-over-year. Total module shipments were up approximately 21.4 gigawatts, an increase of 107.9% year over year. Polysilicon costs decreased sequentially, high efficient N-type products that command a premium account for over 60% of total module shipments. And module shipments to the US markets recorded sequential growth in the third quarter or contributing to improve the profitability.
Year-over-year, our net income increased by the 140.7% to $181.4 million and adjusted net income increased by 215.1% to $184.6 million. Diluted earnings per ordinary share increased by 188.7% to $0.63 and the gross margin increased from 15.7% to 19.3%. [Foreign Language] Since the third quarter, price declines in the supply chain have stimulated end market demand. For the first nine months, newly added installations of PV in the domestic market reached 128.9 gigawatts, nearly 50% more than the full year installations in 2022. As one of the new three products to bolster China’s export, solar has become a new driving force for China’s economy and also contributes to global energy transition. Meanwhile intensified competition brought by changes in supply and demand, accelerated technical iteration, high interest rates in some regions and geopolitical tensions caused some volatility in the global PV market which tested all industry players.
We believe that, we, as the industry leader, will become even stronger as the competition intensifies. At the end of the third quarter, we became the first module manufacturer in the world to have delivered a total of 190 gigawatts solar modules, covering over 190 countries and regions. Our capabilities in globalized sales, operations and management aided by continuous R&D accumulation and innovation, help us build an all-round competition barrier. We are confident in our ability to navigate through the volatility cycle, achieve healthy and sustainable profitability, and increase our shareholders value. [Foreign Language] By the end of the third quarter, the mass-produced efficiency of N-type cell reached 25.6%, and the N-type module power output was 25wp to 30wp higher than similar P-type modules.
Demand for these products continued to increase globally as the LCOE is lower. N-type modules still returned a premium over similar P-type modules, and the premium continued to exceed the market’s average. [Foreign Language] At the end of the third quarter, we already had over 55 gigawatts of N-type cell production capacity. And by the end of this year, N-type cell production capacity is expected to reach about 70 gigawatts, a competitive capacity structure leading the industry. Recently, our integrated projects in Shanxi, China started construction. Phase 1 and Phase 2 for a total of 28 gigawatts wafer cell and module integrated capacity are expected to start production in the first half of 2024. In addition, we are optimistic about the growth potential brought by solar storage parity in the long run and our outer capacity build-up and development of energy storage business are progressing steadily.
[Foreign Language] Recently, our high-efficiency 182 N-type TOPCon cell set a new record with maximum lab conversion efficiency of 26.89%. Again, creating an important milestone in the innovation of our products and solutions. Thanks to our leadership in driving N-type TOPCon technology, N-type TOPCon products is expected to capture market share greater than 70% in the whole industry, achieving absolute dominance. With higher conversion efficiency, lower industrialization costs, and other advantages, we firmly believe TOPCon technology will remain the mainstream technical path for now and in the future three to five years. We are confident to be ahead of the industry dynamically by about half a year in terms of power output, cost and product competitiveness through continuous technology iteration and leveraging our integrated capacity.
[Foreign Language] As a responsible global company, we continue to make progress in sustainable development. This excellent performance incorporates social responsibility. We received a high rating from Ecovadis, outperforming the mainstream PV companies. We are dedicated to providing clean, high-efficiency and reliable solar products and energy storage solutions to more and more countries and regions, making our contribution to global energy transition. [Foreign Language] Before turning over to Gener, I would like to go over our guidance for the fourth quarter and the full year of 2023. By the end of 2023, we expect mass-produced N-type cell efficiency to reach 25.8%. We are confident to exceed the four-year module shipment guidance of 70 to 75 gigawatts, with N-type module accounting for approximately 60% of total module shipments.
We expect our annual production capacity for module wafers, solar cells, and solar modules to reach 85, 90, and 110 gigawatts respectively by the end of this year with N-type capacity accounting for over 75% of the total capacity. We expect the model shipments to be about 23 gigawatts for the fourth quarter of 2023. We are confident we will continue to lead the industry with our advanced technology and premium high-efficient products.
Gener Miao: Thank you, Ms. Li. Total solar shipment were 22.6 gigawatts in the third quarter, with module shipments accounting for 95%. As we continue to improve product quality and further develop our client service network, our brand influence continues to grow. By end of the third quarter, our all-time accumulative global solar module shipments exceeded 190 gigawatts, covering over 190 countries and regions. In response to market volatility, we flexible adjusted the geographic mix of our shipments during the quarter. The domestic market became the dominant area for our shipments accounting to around 40%. Shipments to emerging markets remained stable sequentially while Asia Pacific and North America increased compared to the last quarter.
We are particularly pleased that the shipments of high efficiency Tiger Neo modules exceeded 60% of total module shipment as Tiger Neo accelerated its market penetration, especially in China, Middle East, and North Africa and Asia Pacific. Thanks to higher efficiency and high added value to customers, Tiger Neo products still carry a sustainable — substantial premium compared to similar P-type products and continue to outperform the industry average. In terms of prices, lower upper stream costs have been reflected in module prices which decreased compared to the second quarter. As prices declined, some clients have slowed the pace of new orders and some of the existing orders were delayed. However, lower module prices leading to greater economic benefits also drove plenty of demand which filled the gap [because] (ph) caused by delayed orders.
We adjusted prices and market strategy timely to cope with market shifts and have solicited real-time feedback from clients. Our order signing moves are steady as planned with our globalized sales network and the localized customer service infrastructure, we are committed to maximizing the value of products and services we provide to our clients. Recently, we signed 3.6 gigawatt module supply agreement with N-type Tiger Neo with ACWA Power with industry-leading efficiency, reduced degradation and the temperature coefficient, enhanced bifacial factor, outstanding low light performance, and unparalleled yield per watt to reduce system lifetime energy cost. Tiger Neo delivers at least 3% of power generation gain to clients, particularly under the climate conditions of desert areas in the Middle East.
The excellent temperature coefficients and bifacial factor will significantly raise power generation and the project IRR. As industry chain prices declined and started to stabilize, large-scale utility projects accelerated the connection to the grid, and we expect a new installation record in China this year. Relatively high inventory in Europe is being gradually digested, and demand remains strong in US market under the Inflation Reduction Act. We are also optimistic about growing solar demand in Saudi Arabia and other Middle Eastern countries to support energy transition. With high demand certainty and the help of our high efficient product and services, we are confident that we will expand our market share. With that, I will turn the call over to Pan.
Pan Li: Thank you, Gener. The significant growth in our module shipments, decrease in raw material cost, as well as our continuous cost control helped our key financial metrics including total revenue, gross margin, operating margin and net margin improve year-on-year. At the end of September, we declared a cash dividend of $1.5 per ADS, which is expected to be paid on or around December 6th this year. With the continuous expansion of our global industrial chain, market footprint and the power of our products, we are confident to maintain a healthy and sustainable profitability, meeting our commitment to shareholders. Let me go into more details now. Total revenue was $4.36 billion, flat sequentially and up 63% year-over-year.
Gross margin was 19.3% compared with 15.6% in the second quarter this year and 15.7% in the third quarter last year. The sequential and year-on-year increases were mainly due to the decrease in the cost of raw materials. Total operating expenses are accounted for 9.9% of total revenues, compared with 10.6% in the second quarter this year and 15.4% in the third quarter last year, improving year-over-year. Income from operations was about $410 million compared with income from operations of $212 million in the second quarter this year and $8.8 million in the third quarter last year, improving both sequentially and year-over-year. Operating margin was 9.4% compared with 5% in the second quarter this year and 0.3% in the third quarter last year, improving sequentially and year-on-year.
Net income attributable to JinkoSolar Holdings’ ordinary shareholders was $181.4 million, flat sequentially and compared to $77.3 million in the third quarter last year, improving year-over-year. Excluding the impact of a change in fair value of the notes and long-term investments and share-based compensation expenses, the adjusted net income was $184.6 million, flat sequentially and up two times year-over-year. Let’s move into balance sheet. At the end of the third quarter, our cash and cash equivalents were $1.93 billion compared with $2.35 billion in the second quarter. AR turnover days were 87 days compared with 79 days in the second quarter of 2023. Inventory turnover days decreased to 67 days in the third quarter from 70 days in the second quarter this year.
At the end of the third quarter, total debt was $4.23 billion compared to $4.73 billion in the second quarter this year. Net debt was $2.29 billion compared to $2.38 billion in the second quarter this year. Our debt structure is improving. This concludes our prepared remarks. We are now happy to take your questions. Operator, please proceed.
Operator: [Operator Instructions] Our first question today will come from Philip Shen of ROTH MKM. Please go ahead.
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Q&A Session
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Philip Shen: Hi, everyone. Thanks for taking my questions. You guys had a pretty nice margin in Q3 despite the collapse in module prices. It seems like you’ve been able to match your cost structure with your module pricing. So I was wondering if you could give us your sense of how you expect module pricing to trend in Q4 and then also Q1. And then also in terms of margins, what do you expect? Similar margins in Q4 and Q1 versus Q3, or do you think there could be potential for even margin expansion in Q4 and Q1? Thanks.
Charlie Cao: Hey, Fred, this is Charlie. And we did very good in the first nine months, including the third quarter. And thanks to our strong order of visibility, and we almost finished this year’s target, 70 to 75 gigawatts. And regarding the module price, the trend is in the downward trend. And we are expecting the ASP in Q4 is in a downward trend versus the third quarter. And because we have more exposures to Chinese market in the fourth quarter, we expect the gross margin is possibly slightly down quarter-over-quarter. And next year we believe the module price will be relatively stabilized. And regarding the — it’s very important for us to next year, we look up as quickly as possible the sales orders and we are in a good position.
I think, we have the largest N-type in TOPCon capacities, and we have the most largest integrated capacities out of China for the US market. And we expect to have over 30% shipments to European market and the US market together. And we are aiming to over 85% shipment on TOPCon next year. So we are confident we can deliver relatively better performance compared to our peers next year.
Philip Shen: Got it, okay. So Q4 margin could be down slightly because of the China mix, and then Q1, perhaps you could have some expansion beyond, so growth or expansion of the margin in Q1 and Q2?
Charlie Cao: It’s too early to say, but this year, our performance in the US market is not so good because the module was delayed, detained, and we expect next year everything is getting on the schedule and the margin contribution from the US market will be quite significant starting from next year.
Philip Shen: Great, okay. Thank you. You mentioned, Charlie, just now the US shipments. And so I was wondering, in Q3, was there a large benefit in margin from the healthy amount of US shipments because you’ve been able to be released from detention very quickly? And then also next year, I think in the past you were talking about 10 gigawatts of shipments for the US market in ‘24, but in your PowerPoint today, you highlighted 12-plus gigawatts by year-end ‘23 of integrated capacity. So do you think ‘24 could actually be closer to 12 gigawatts? And we can leave it there. Thank you.
Charlie Cao: Next year, yes, our target is over 10 gigawatts shipment in US market, and that’s our best target. And the contribution — earning contribution from US market in third quarter is not good because we shipped around 1.3 gigawatts, 1.4 gigawatts. But most of the modules were produced six to nine months ago, and it’s a relatively high cost, including the storage cost. So back to your question and it’s improving in a quarter by quarter. I believe from beginning of next year and the earning power from the US will be [indiscernible] for Jinko.
Philip Shen: Got it. So you were able to generate 19% margin in Q3 despite the high storage cost and the high…
Charlie Cao: Right, right, yes.
Philip Shen: That’s very interesting. One last question, and I’ll pass it on. Can you compare the pre-impairment margins in Q3 versus Q4 actuals? In other words, what is the like-to-like margin trajectory?
Charlie Cao: You mean the impairment margin or the margin including impairment?
Philip Shen: Right. The margin — pre-impairment?
