Hello, ladies and gentlemen, thank you for standing by for JinkoSolar Holding Company Limited Second Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would like to now turn the meeting over to your host for today's call to Ms. Stella Wang, JinkoSolar’s Investor relations. Please proceed Stella, over to you.

Thank your, operator. Thank you everyone for joining us today for JinkoSolar’s second quarter 2022 earnings conference call. The company's results were released earlier day and available on the Company's IR website at www.jinkosolar.com, as well as on Newswire Sservices. 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 Chief Executive Officer 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 JinkoSolar's business operations and the 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'll 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 is 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.

[Foreign Language] We had a good quarter and difficult market conditions. Total solar shipments in the second quarter were 10.5 GW, module shipments in the second quarter were 10.2 GW, up roughly 27% sequentially, and the total revenues were USUS$2.81 billion, up 27.6% sequentially. This upstream costs continue to rise, we actively work to control internal costs through technical advancement and the process improvement which partially offset the impact of higher option costs on our profitability. Gross margin was 14.7% relatively flat compared with the first quarter, excluding the impact of the convertible senior notes and the share based compensation expenses. Adjusted net income in our second quarter was USUS$55 million improving sequentially. [Foreign Language] Driven by accelerating energy transition in every countries and business as well as the energy supply crisis caused by the Russia-Ukraine conflict demand for solar products has exploded in many markets. According to the Statistics and Analysis of China's custom’s export data by InfoLinks, China's exports of modules in the first half of the year reached 8.7 gigawatts, a year-over-year increase of well 2%. Exports to Europe reached a total of a 42.4 gigawatts of PV modules, a year-over-year increments of 137%. Demand in the China market was also strong. During the first half solar PV installations in China reached 30.9 gigawatts, a year-over-year increase of 136%. Given this better than expected growth in demand, release of polysilicon production came up short and it was further aggravated by annual maintenance programs and power rationing and anti-epidemic restrictions in certain regions of China. As a result, polysilicon prices rose continuously and reached a recent high of the RMB 310 per kilo gram, sending module prices higher. Regular discussions with other clients indicated that some of them found higher module prices to negatively affect project yields and,…

Thank you, Mr. Li. Total solar shipment in second quarter was 10.5 gigawatts, of which over 97% were module shipments, up nearly 27% quarter-over-quarter and double year-over-year. Since the Russia-Ukraine conflict, global energy transformation accelerated and showed strong growth momentum, especially in Europe. In second quarter, our shipments to European market grew steadily and the proportion of shipments in Europe remains high, reaching 25% to 30% range. In China, the distributed generation business demonstrated strong momentum. Newly added installation in China in the first half grew remarkably by 136% year-over-year. In second quarter, our shipment to the Chinese market grew exceptionally year-over-year, more than doubling sequentially. Our shipments to emerging markets also registered stable sequential growth. While demand was strong, we also noticed some potential challenges. For example, demand in some European countries for the second half is expected to slow down sequentially as a result of the problems affecting the logistics chain. And some of our domestic clients are waiting to fully assess the impact from continuous rise in supply chain costs. In addition, the execution of some large-scale utility projects might be delayed to 2023 due to issues with grid connection and power transmission. Taking these challenges into considerations, we have been adjusting our geographic mix as well as our sales and contract timing strategy while keeping in close communication with our clients. So far, both our contract signing and execution are maintained at satisfactory levels. In U.S. market, tightened supply chain tracking through dampened demand in the short term. In the long run, with the President Biden's ex -- executive order to spur clean energy manufacturing and recently passed Inflation Reduction Act of 2022, which includes booked US$ 369 billion in climate and energy-related funding. We expect the demand remains positive. In order to improve our resilience…

Thank you, Gener. For second quarter of 2022, both solar module shipments and total revenue increased significantly year-over-year. Nevertheless, gross margin relatively flat with first quarter and decreased year-over-year due primarily to an increase in the material cost of solar modules. Due to significant increase in the company's stock price in the second quarter, we recognized a loss from a change in fair value of the convertible senior notes of US$ 80 million in this second quarter. Excluding the impact of the convertible senior notes and the share-based compensation expenses, adjusted net income attributable to the JinkoSolar Holding Co., Ltd. ordinary shareholders in the second quarter was US$ 55 million, improving sequentially. Let me go into more details. Total revenue was US$2.8 billion, up about 27% sequentially and a significant increase of 137% year-on-year. Gross margin was 14.7% compared with 15.1% in the first quarter and 17.1% in the second quarter last year. Total operating expenses were US$457 million, up 40% sequentially. The increase is -- will mainly attribute to an increase in shipping costs for solar modules, an increase in disposal and impairment loss on property, plant and equipment, and an increase in share-based compensation expenses Total operating expenses accounted for about 16% of total revenues in the second quarter, up from about 15% in the first quarter and a 13% in the second quarter last year. EBITDA was US$186 million compared with US$126 million in the first quarter this year. Excluding the impact from a change in fair value of the notes and the share-based compensation expenses, adjusted net income attributed to the JinkoSolar Holding Co., Ltd. ordinary shareholders was US$55 million, improving sequentially. Due to the continued appreciation of the U.S. dollar against RMB, we realized a net foreign exchange gain, including change in fair value of foreign exchange derivatives of approximately US$34 million in the second quarter this year compared with a net gain of US$12 million in the first quarter. Moving on to the balance sheet. At the end of the second quarter, the company had cash and cash equivalents of [US$2.15 net] billion slightly down from US$2.66 billion at the end of the first quarter and up from US$1 billion at the end of the second quarter last year. AR turnover days were 69 days in the second quarter compared with 66 days in the first quarter. Inventory turnover days were 104 days in the second quarter compared with 117 days in the first quarter. Total debt was US$3.8 billion at the end of the second quarter, down sequentially from US$4.3 billion. Net debt was US$1.7 billion compared with US$1.6 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.

[Operator Instructions] First question of today we have from [Lawrence Sun] from ROTH Capital Partners.

This is [Lawrence Sun] on behalf of Philip Shen. I was wondering if we could get some more color on the Sichuan power shutoff. Specifically, from what we gathered, JinkoSolar is about 18 gigawatts of new capacity in Sichuan? It's about like half of your total capacity. So given that you've shut down for about 10 days, would that be an estimated 5% of Q3 in grid capacity offline so far?

Yes. So thinking about the impact from the China’s Sichuan province power cuts, the impact, right, for the full production from our factories in -- for the wafers, and it's a progressive impact, right, for Sichuan province. And we reach it because of the, I think, the drought induced power cuts. And it did have, I think the 10 days to 15 days impact for our wafer capacities and which is roughly 25 gigawatts and -- 25 gigawatts for annual capacities. So converting into monthly production, it's 2 gigawatts a month. So we estimate a rough -- its around 700 megawatts impact and -- for the wafer. But we have global -- let's say, we have full factories for the wafer in different ratings, including 3 factories in China. So we try to maximize the production from other wafer capacities others -- that ratings. So from management teams, we try to minimize the impact and they did have some impact from the production side and our cost side in the third quarter.

Okay. So -- I believe the impact to cost side, would there be any impact from purchase of external wafers in order to meet your shipment guidance? If so, what --

Yes. I think no because if you look at our guidance, which is 9 gigawatts to 10 gigawatts, we have taken into, this situation in consideration. So it's -- we don't have plan to purchase the wafer from third party.

Okay. So would it be safe to say the leading indicator for recovery in Sichuan is the recovery of water levels? You guys are mostly driven by hydro power, right?

Yes. It's already in recovery stage standards. And its getting better, particularly in addition to this. And our capacity are expected to -- basically full capacity in the next -- I think in next couple of days.

Okay. That's really great to hear. I had another set of questions on -- you previously said earlier in the call, you touched on it, tightened supply chain tracing, does that have to do with the US LPA? And if it is related to the U.S. LPA, could you please help us quantify the number of gigawatts that you've maybe shifted from shipping into the U.S. towards you or other countries?

Yes, I think we are preparing this traceability topic not only for U.S. market, but also for other markets as well. We have, in recent months or quarters, we have intensively getting inquiry from different countries or different customer about traceability topics, right? That's why we believe in the future we have to prepare the capability of increasing traceability of the product, including the polysilicon, some other key material as a necessary step for the future, right? I think that includes the U.S. market. For U.S. market itself, we are still working hard together with the CBP and our consultant to make truce, right? So currently, the customer clearance is not that smooth as usual, especially under U.S. LPA. So we have to work on lots of details to make it happen, and we are working hard on it.

Okay. Could I just get a little bit more on the -- you said it's not smooth, right? So for -- what type of modules is it not smooth? Is it German poly, Southeast Asian modules; China poly, Southeast Asian modules; U.S. poly, Southeast Asian modules; or all? Just a little bit more color --

Well let's say, based on what our knowledge, based on our knowledge and awareness, I don't see there's any difference between China polysilicon or European polysilicon or American polysilicon, right? So we have to provide the right documents to meet the requirement from CBP officials.

Okay. One last question before I hand it off. What's the utilization rate of your Southeast Asian facilities? Can you keep it at around the same level by shifting module shipments to other countries? And what's the rough, like, mix, please?

Yes. Obviously, so we have to look into the different part across the whole value chain, right? For the upper stream wise like the wafer and cell, I think, is in short term supply tracing a full off demand, not only for U.S. market, but also for the other market, right? And for the module side, since it's targeting the U.S. market, we have to be very careful to -- about the traceabilities. We won't ship or we won't manufacture the product if we cannot guarantee the traceabilities in the right place.

[Operator Instructions] Next, we have Alan from Jefferies.

So my first question is about -- what is the expectation or the current situation of the TOPCon products? And what is the premium out there like? Is it US$ 0.01 or US$ 0.015 compared to PERC?

Yes Firstly, about the product itself. I think the anti TOPCon product that we call Tiger Neo is highly competitive compared with the standard PERC product, right? I think it's based on the 72 pieces product. Tiger Neo is almost 20-watt peak higher than the standard product, which also take the other features like the degradation and et cetera. So definitely, it's generating extra benefit for the customer end and bring additional value to the project side or to the installations of solar system. That's why we can -- getting the premium from the market. Currently, the premium we are expecting or we are looking at is around US$0.01 to US$0.015 range. Sometimes it's up to US$0.02, but let's say, the broader range, it will be US$0.01 to US$0.015

And so it's actually pretty decent. So when it comes to production cost perspective, so have we already achieved cost parity versus PERC in terms of the production cost of TOPCon? And what is the current yield like right now?

In the second quarter, the TOPCon capacity is in the right hand stage and our R&D and the operational team is working very hard to improve the output efficiencies and -- as well as the cost. And right now, the integrated cost of the TOPCon, the modules, compared to the traditional P-type modules, it's -- the difference is within the range of lower than RMB 0.05. And our plan is we continue to improve the cost structures and we target by the end of this year, and the TOPCon integrated cost could reach the same level of the PERC by the end of this year.

Understood. So that will -- in fact, it means that you will have same cost and then you will make an extra US$0.01 or US$0.015 of net profit on top of PERC, right?

Yes, you're right. We did -- when we see the TOPCon modules, we did have the premium and -- Gener mentioned. And the cost structure, we need to work continuously and to improve, and it's good on the track. And we expect and we -- our target is by the end of this year, it could be reached the same level

Understood. And just another question is about -- what is your view on one of the major polysilicon player who is entering into the module space? So this is one of the hottest topics in the market as of recent. So what is your view on this?

And -- I think there is a very big market. Even for the existing market, the market goes straight in the next decades. And -- if you look at the top 5 companies, module companies, the market share now is 60%, 65%. There are a lot of Tier 2, 3 companies. They are taking 30%, 35% market share. And if you look at the growth rate, we expect 30% in the next couple of years. So we believe this is a lot of potential room for the, let's say, the big players to penetrate the markets. And -- but the module, the business is not purely in production side, and we built this business for over 10 years. It is more likely in a global manufacturing and global marketing, sales, bankability and strong sales relationship with customers. So we -- what we are doing is we continue to solidify our strong branding, marketing and product competitiveness.

So -- also would like to know the management has also mentioned the Inflation Reduction Act in the U.S. And one of the key incentives in the Act is of course the subsidies of the installation. But also there are product subsidies on building factories in the U.S. So would like to know, is JinkoSolar considering further expansion into U.S. in terms of factories?

Yes. I think it's a very hot topic. And the IRA, the -- to be effective in the U.S. starting from next year, and it did provide a lot of subsidies from manufacturing in the U.S. And we already had a very small module capacity, it's 400 megawatts, which will be ineligible for the incentive. And for the expansion topic, and we are in the early stage to further evaluations, but I think it's -- we expect there will be more local U.S.-based local capacities in the next couple of years, given the strong support from the IRA policies. But we at the early stage of evaluations.

Understood. So I think my last question is, what is the -- your outlook on the solar installation in this year and next year, and -- probably in 2022 through 2025, the global installation and a brief breakdown if you may provide.

Yes. We estimate roughly 250 gigawatts installations this year. And next year, given the bottleneck of the polysilicon will be gone, and we expect a strong growth in China, U.S. as well as the European market, and we estimate roughly 25% to 30% the market growth next year.

Understood. So that's more than 300 gigawatts? Probably we are talking about like 300 to 320 gigawatts, right?

Yes. In general, I think we are optimistic, not because the polysilicon is at a very high level. It did delay, particularly the utility scale projects in China and as well as in other regions. So given the next year, more volume input, and we expect the installation will be at a very quick speed.

So which company will benefit from the strong demand and also the upside of the TOPCon product, and I will leave to some of your other investors.

[Operator Instructions] We have question from Rajiv Chaudhri from Sunsara Capital.

Actually, I have a few questions. The first one is just on the model. As I look at the unit shipments that you had in the second quarter and compare them to the unit shipments in the first quarter, it seems that your average price realized per module went down quarter-to-quarter and quite significantly by almost -- by about US$0.01 or maybe more than US$0.01. Can you explain why that would be happening in an environment where prices in general were stable or up?

Sorry, are you asking about the Q1, Q2 ASP changes?

Yes.

I think according to our data, the Q1, Q2 price are pretty close for -- Q2 average prices has a very tiny job compared with Q1 ASPs, mainly its because in some historical orders, we have to execute it, which is lower than market price. The rest are pretty normal. So -- in our view, we believe the quarterly ASP are staying in market condition. There's no big changes on that.

Yes. I mean, just based on the revenues and the unit shipments, it looked like the average selling price in the first quarter was around US$0.284 and the second quarter was around US$0.272. So that looks like a pretty decent drop. But you are saying that some of it was because of legacy shipments at a lower price? Are those legacy items behind you or these -- sorry.

No. Let me correct you on that. The revenues including many factors, right, not only module revenues. Even module revenues are the majority of it, but we're still including other parts included in the revenue. That's why you cannot use the revenue to divide the shipment to have ASPs, that's not accurate enough.

I think an additional factor is maybe the RMB depreciation and you use the U.S. dollar, there's maybe reflecting. As well as second quarter, China is taking more portion. But again, the ASP is stable and the second quarter is slightly a little bit down, very small.

Yes. Okay. Sorry, I understand. So along the same lines, can you give us some feeling for what the ASP will be in the third quarter and the fourth quarter for the year?

Yes. For the third quarter, the ASP will be as stable as the first quarter and second quarter. So the fourth quarter, even it has not been fully closed, we are still closely monitoring the market situation, but we are expecting the market’s prices as well forward. Hope that answered your --

You're expecting fourth quarter to be flat also?

Yes, more or less flat. But since it's still far away from the fourth quarter, so there are still unknown factors to fact in, so we don't have any disclosure on the fourth quarter ASPs. But my personal expectation will be the first quarter -- the fourth quarter ASP, the market price will be more or less stable compared with Q3.

And another question is on the stock-based compensation. Can you quantify roughly how much it is per quarter? And what it was in the second quarter? And how is it expected to trend in the third and fourth quarters?

Okay. The stock-based compensation, we -- the company granted in the first quarter, second quarter. It's a one-off item. And given in the future, we expect the amount will be very small. And for the second quarter, the exact amount, you can calculate because we have disclosed adjusted net income, which is US$55 million. And including the convertible bonds and stock-based compensation, I think it's roughly, I think, US$20 million or US$25 million, but you can do the calculation.

So US$20 million, US$25 million. And you're saying that in the third and fourth quarter, that number is going to go down?

Yes, will -- very small -- will be very small in future. Yes.

Okay. So the shipment costs on a per watt basis, did the shipment costs go up quarter-to-quarter, on a per watt basis?

Yes, shipment cost is at high level. I think it's roughly US$ 0.015 to US$ 0.02 per watt. And quarter-by-quarter, it's relatively stable. And the shipping costs will maintain, I think, we're at a high level, but given more mix to China in the second half of the year, blended will be lower in the second quarter. Next year, we expect given the global economies were weak, and we expect next year, the ships logistics will be -- costs will be in a downward trend.

Okay. And can you also tell us what the depreciation and CapEx numbers were for the second quarter? And what your expectation is for the full year now?

First, for CapEx. And the first -- in the first half of this year, it's reached US$1.4 billion, and -- for the full year, we forecast it still remains on US$ 3 billion.

And depreciation?

Depreciation, I think its roughly basis -- it's roughly -- I think per watt basis is RMB 0.05 to RMB 0.06 per watt. So it's roughly RMB 55 million to RMB 60 million for second quarter.

Okay. And the final question is on the polysilicon business. As you know, the polysilicon gross margins are right now in excess of 70%. And even though they will come down as prices come down, the expectation is that the polysilicon business will maintain gross margins that are maybe 35% or 40%, much higher than the module business. Canadian Solar has expressed an intention to get into the polysilicon business. Do you have any thoughts about getting into the polysilicon business yourselves?

Polysilicon, it's a bottleneck in recent 2 years. But next year, for sure, the supplies were sufficient and it's in a downward trend. So from the polysilicon side, we don't believe it's a bottleneck for our business in the future. And we are -- our supply chain team is doing , it’s a partnership with a leader of the product silicon producers and design the long-term polysilicon supply contract. And as well as we invest as minority investor, we invest to companies as minority interest and to strengthen our relationship for the top polysilicon supplier. So we don't have a plan, let's say, to do the business of the polysilicon so far.

Okay. And my final question is about storage. Can you give us an update on what you are doing in the storage space? What sort of orders and revenues and feedback you are looking from the marketplace?

Well, the storage business is still in the early stage. We believe it's not the right time to talk about it. And we will share our strategy and our plan once it is ready, right? Thank you for your question.

Gary Zhou from Crédit Suisse .

So I have 3 questions. So firstly, on the module shipment. So just wondering if the company has a breakdown for our module shipment for this year for the China market and overseas market. And if possible, can we talk a little bit on the unit profit difference between China domestic sales versus overseas module sales? And second question is on the TOPCon. So I noticed that some of our competitors, they also have some TOPCon capacity coming out in the first quarter this year. So just wondering, do we believe this US$ 0.01 to US$ 0.015 ASP premium can be maintained going forward? And also comparing our TOPCon product versus peers, do we -- so can management talk about what's the advantage of our product? And lastly, a quick question on the polysilicon side. So basically, the near-term polysilicon price is still high, probably supported by the Sichuan supply disruption. But just wondering if the management has a view at what time or which month can we kind of start to see the polysilicon price to drop?

Thank you. There's a lot of questions. I will try to cover it as much as I can, right? So firstly, about geographic mix. For the full year, we are expecting the China and the Europe market are the 2 largest contributors to JinkoSolar's shipment for the full year, and which accounted around 25% to 30%. And followed by the emerging markets, which will be contributing -- we are expecting contributing between 20% to 25%. And the APAC market will be around to 15% to 20% and the rest were followed by other markets, including North America and the Middle East, Africa, et cetera, right? And the second question about the Tiger Neo, N-type product premium. But the way we are pricing the product is to sharing the benefit together with the customer, it’s not a competitive -- competition for, let's say, gaining negotiation, its really a benefit sharing model, which means that approximately, as I say, around -- by using Tiger Neo N-type products, the customers project can get additional benefit of around US$0.025 to US$0.03 per watt. So then we are establishing the business model to share the benefit by approximately half to half with the customer. That's why we believe such business model is sustainable and consistent, and it doesn't have to go to the price competitions. Even with more and more peers joining the TopCon group, we believe join today, leading the technology innovation and create a bigger market for solar industry. We don't have to go to the price competitions. And compared with our followers or our peers talk about technology, we believe at some point near in this area, our cost structure and our efficiency, including our product performance will continue to have a competitive advantage or at least a leading position in this market, and we are still confident on that. Lastly, about the polysilicon prices, we believe in the long run, like Charlie is saying in the previous conversations, we believe the polysilicon will become -- will be debottlenecked in the next coming, let's say, quarters, and -- which will create a bigger market for solar installation in the downstream, especially for the utility project, which has been significantly delayed due to the CapEx a problem. We are having a big hope on that. I hope that answers your question.

Next question coming from Brian Li from Goldman Sachs.

This is Grace on for Brian. Just a quick question on the margin expectations. Just given the elevated poly pricing and also the power control in Sichuan, which may impact your utilization rate, how should we think about your gross margin in 3Q and also for the next couple of quarters?

The gross margin, we expect expanding a little bit expansion in the next quarters. And we did face the elevated price of the polysilicon and as well as the power cuts from Sichuan province to -- our TOPCon module cell capacities is operating in a very good status and will contribute more portions in our revenue and the product mix, which has relatively higher gross margin perfect contribution. So we have the confidence and the margin will be expanded in the second half year compared to the first half year.

Okay. Understood. And then on your OpEx, your OpEx increased pretty significantly in 3Q. I guess that's partially due to TOPCon. I think you mentioned TOPCon will be very minimal in 3Q. So can you talk about your OpEx expectation in the second half?

So we're talking about operating expense, right? Operating expenses, I think -- given we have more shipments in the second half year and for the -- compared to first half year, we expect the operating expenses against the revenue will be slightly lower in the second half year.

At this time, there are no further questions. So that does conclude our second quarter conference call. You may all disconnect now. Thank you so much all