Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Company Limited Fourth Quarter 2022 Earnings Conference Call. At his time all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. 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. Stella Wang, JinkoSolar's Investor Relations. Please go ahead, Ms. Stella.

Thank you, operator. Thank you everyone for joining us today for JinkoSolar's fourth quarter 2022 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 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 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 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 Holdings. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li.

[Foreign Language] We closed a challenging 2022 with satisfactory results as we delivered strong operational and financial performance in the fourth quarter. Leveraging our outstanding global supply chain management and marketing network, our total shipments and total revenue increased significantly year-over-year. At the end of 2022, we became the first in the industry to have delivered a total of 130 gigawatts solar modules. Throughout the year, as raw material costs continued to rise, we continued to optimize our cost structure relentlessly through technical advancement and manufacturing process improvement, which partially relieved the pressure on our profitability. Annual shipments of high-efficiency premium N-type modules exceeded 10 gigawatts, further optimizing our product mix and gradually improving our profitability. Net income was approximately US$102.9million, up 29.1% sequentially, and nearly tripling year-over-year. [Foreign Language] Throughout 2022, the increase in demand for solar products did not slow down despite the compounded challenges such as the surge in raw material costs, pandemic disruption and macroeconomic uncertainties. In particular, the energy crisis caused by the Russia-Ukraine conflict caused prices of traditional energy to rise quickly and PV remained the optimum solution for countries to achieve energy transformation, because of its low-carbon footprint and economic advantages. Global PV demand in 2022 was approximately 320GWdc to 330GWdc, up about 50% year-over-year. Even in the more price-sensitive Chinese market, newly added installations grew 59.3% year-over-year to reach 87.4 GWac, approximately 505 GWdc and distributed installations grew nearly 75% year-over-year. [Foreign Language] At the end of December, because of a seasonal unbalance between polysilicon supply and demand combined with inventory adjustments across the supply chain, prices of polysilicon, wafers, cells and modules were adjusted to varying degrees and this volatility led some downstream customers to pause orders. Since February, polysilicon prices have rebounded and pricing games between the upstream and downstream…

Thank you, Gener. We’re pleased to have achieved the strong fourth quarter results based on our solid operation and management strategy against the backdrop of strong demand in the global market both solar shipments and total revenues increased significantly year-over-year. Shipments of N-type modules, premium and cost advantages more than doubled sequentially in the fourth quarter, partially contributing to our improved profitability. In addition, we continue to enhance control over our operating expenses. Total operating expenses accounted for about 12% of total revenues in the fourth quarter. A significant decrease from over 15% last quarter. Operating margin was more than 9 times higher sequentially increasing to 2.1% from 0.3% in last quarter. As a 35 gigawatt cell capacity put into production in 2022 reaches full production in the coming quarters, our integrated capacity structure is expect to improve further. As shipments of our competitive N-type products increase, we hope to gradually improve our profitability. Let me go into more details now. Total revenues was RMB4.4 billion an increase about 56% sequentially and 85% year-over-year. Gross margin was 14.1% compared with 0.7% in the third quarter this year and 16.1% fourth quarter last year. The sequential and year-over-year decreases were mainly due to an increase in the cost of solar module raw materials. Total operating expenses were RMB526 million, up 21% sequentially and up 68% year-over-year. The increase is attribute to an increase in shipping costs for solar modules and an increase in impairment loss on property plant and equipment. Net income attribute to the JinkoSolar Holding ordinary shareholders was about RMB103 million in the fourth quarter. Excluding the impacts from a change in fair value of the notes long-term investments and the share compensation expenses. Adjusted net income was RMB45 million, up 33% year-over-year. Now, I’ll review on our 2022…

Thank you. [Operator Instructions] The first question will come from Brian Lee with Goldman Sachs and Company. Please go ahead.

Hi everyone. This is Miguel on for Brian. My first question was the capacity expectations for 2023, you’re guiding to the very strong growth in capacity for the year. What are your CapEx requirements for 2023 to support this growth?

Yes. Hey, Miguel. I think we are in the middle of a calculation right now. I think we’ll follow up with you after the call for the further detail of CapEx numbers, right?

Okay, thanks. I appreciate that. And then my follow-up question was just on margins during the fourth quarter. Given the overall decline in the market prices for polysilicon, that that was observed in the fourth quarter. Could you just give more color on what drove the lower quarter-on-quarter gross margins and then what are your expectations for polysilicon prices and then also on margins through the first quarter of 2023 and through the rest of the year? Thanks.

Yes. For the polysilicon, I think overall, we are observing oversupply of polysilicon in the long run. So we believe the reason the turbulence is just the start of the market trend. In general, we believe the polysilicon will go back to the market based pricing. So that’s what we believe in the long-term. In short-term, for sure, because of the different seasonalities and the behavior of, let’s say, top players in the polysilicon industry. We still believe there might be some short-term challenge or turbulence. That’s what we see. For the margin wise, we still believe with more and more capacity online, especially the high end capacity online with the premium and the competitive cost structure we have. The margin will gradually improve a quarter-by-quarter, if there’s no big surprises in the market. Hope, that answer your question?

Yes. If I could just squeeze in a follow-up on that. Just on the 4Q margins. I guess, what if – were you able to realize any of the lower polysilicon – market prices for polysilicon that we saw in the fourth quarter? Or I guess, what drove the – specifically, in the fourth quarter, what drove the lower gross margins? Thanks.

I think if you look into financial figures, the – I see the turbulence happened in the polysilicon prices in early Q1 this year will not be helpful for the Q4 margins. And if you look into the Q1 figures and we have to look into the overall polysilicon cost instead of short-term, let’s say, one week or two weeks low price of polysilicon. So in my opinion, you know for that will not significantly change the margin expectations. Again, we will gradually improve the margins, but most of them is due to our internal, let’s say management improvement and cost structure improvement instead of turbulence. Because, you have to think about the polysilicon inventory numbers, right, that numbers is a very important factor to the cost of the polysilicon.

Okay, understood. Thanks. I’ll pass it on.

No problem.

The next question will come from Philip Shen with ROTH MKM. Please go ahead.

Thanks for taking my questions. First I’d like to address the U.S. market and the UFLPA situation. So I was wondering, if you could share how things are improving, so specifically, you expect to – have you ramped up manufacturing in Southeast Asia for fresh shipments to the U.S. expect those new shipments to reach the U.S. and what is the utilization of the Southeast Asia capacity set aside for the U.S.? Thanks.

Phil. Thanks for the question. For the U.S. market, especially, regarding the UFLPA inspections, we are – let’s say, we have seen the light at the end of the tunnel. And we see the improvement, the efficiencies, the turnover days as I said, gradually improving, while the official – CBP officials are becoming more and more professional in that perspective. We have seen the hopes, but it is still not 100% smooth transactional, let’s say, custom clearance yet. But we are hoping that could happen soon. So regarding the question on the Southeast Asia factories of Jinko, and our factory is at high utilization rates not only because of U.S. market, I think mainly affects the other markets who are also have a strong demand for capacities or productions outside China. So our capacity is up and running almost in the full speed even by end of last year. So we are hoping to allocate more capacity and the shipments to U.S. once all the customer clearance is back to a normal status, which we believe could happen soon.

Thanks, Gener. So when you say soon, are we talking about a couple months or are we talking about maybe six to nine months?

Well, my perspective, I hope it could happen tomorrow, but it’s not something I can handle or I can decide, so in closely with CBP officers to make it happen as soon as possible.

Okay. Thanks. And then you mentioned, you’re at almost 100% utilization in your Southeast Asia facility serving other countries. Can you share which countries those might be and how they might be impacted once the U.S. market opens up for you? Which markets would decline, if you will? Thanks.

One of the important source is – there are many names on the list, but one of the big market is India market. You know that India market has strong demand as well, while they have a high tariff against Chinese products where they have a strong appetite for the Southeast Asia products.

Got it. That makes sense. And then shifting to your comment that the order book visibility in 2023 has already is over 50% in large part from international markets. Can you talk to us about what your current contracting activity looks like for the U.S.? Are you taking new orders yet or do you have to get through? Remind us how much backlog you have to get through before – backlog created by the trade situation before you can maybe take new orders?

Based on that right now, we are not capable to take new orders, because we have lots of backlog, which is big enough for us to – for the factory running under the current status of the CBP approval rates. However, we have a phase that everything will get better because once the approval rates and efficiencies back to normal, I think we are hoping to allocate this to U.S. market, which will help us to solve the backlog pipelines and the commitments to our clients and starting to pick up new orders. So that is – that question is really difficult to give an expectation of timeline, but we are working hard on it. Thank you.

Yes. That all makes sense. One last question on the U.S. As it relates to pricing in the U.S. can you talk about how are you expecting pricing to trend through the – not just this year, but also in the future years? I know you’re not contracting fresh, but I know you guys probably are very much in touch with your customers. With the ramp up of IRA manufacturing capacity in the U.S., how much do you think panel prices decline as we get through 2024, 2025, 2026, 2027? But you also have the other forces of UFLPA and other trade action. So what’s your view on module pricing in the coming years? Thanks – in the U.S.

Well, Phil, you know that we are not picking new deals as of current stage in U.S. market. So I’m not in the right position to discuss fair market numbers. But I can confirm there are many rumors in the market that U.S. market price is big enough, or let’s say high enough, let’s say middle, small size suppliers who has not suffered or experienced the UFLPA inspections. So we believe there are big room to correct the right market price in the future given the UFLPA inspection, complexity of the UFLPA, and also the IRA to bring additional turns to the both investor side and the manufacturer side.

Okay. Thanks for taking all the questions. I’ll pass it on.

No problem. Thank you, Phil.

[Operator Instructions] Our next question will come from Rajiv Chaudhri with Sunsara Capital. Please go ahead, sir.

Yes. Good morning. I have a few questions. The first question is on the cost of polysilicon. You meant that was the primary reason why gross margin went down from Q4 – from Q3 to Q1. I’m wondering if you can give us an idea of what your polysilicon cost was – the cost embedded in the Q4 earnings results versus Q3, either in renminbi or in terms of the percentage increase from Q3 to Q1? That’s my first question – sorry Q3 to Q4.

Thanks, Rajiv. We are talking about the polysilicon appliance cost components, right?

Yes, yes. If you can give us more granularity on the – on how much it went up from Q3 to Q4 and what the gross margin mice have been if the polysilicon costs had been flat, for example. That would give us an idea of how the cost numbers are playing out.

Yes. I think our trend is likely – it’s like the public the polysilicon appliance from the public like the PV InfoLink or other parts available online side. And if you look at the trend of the polysilicon, it’s reached to the peak during – from October to November. And in December because of destock and the China rush and Russia as poly is down dramatically. But because of the production shipments the positive impact is going to be reflected in the first quarter. So it’s really – the part reached the peak from the cost constructive in Q4. And I think it’s roughly I think, 10% to 15% quarter-by-quarter increase if we look at the change.

Okay. So you are saying that – or you’re implying that to ship product modules in November, December, you had to buy poly in October, November, prices were very high. And so the benefit of the lower price of poly in December to the extent that you are going to get a benefit will be felt much more in Q1, because that’s when the – that product gets stripped out. So 10% to 15% increase in the cost of poly from Q3 to Q4 would mean that the gross margin would have gone up from Q3 to Q4 if the cost of poly had stayed flat?

You’re right, you’re right. The polysilicon price assumption is stable. And I think the gross margin is up in Q4 versus Q3. And poly is significant up and drive down the gross margin in Q4. I think the most important for the company business is, we are doing investments in time, starting at the beginning of 2022, and we reached to 35 gigawatts N-type capacity by the end of last year and with more N-type shipments and polysilicon now the supply is sufficient on this downward trend and we have significant sales order pipeline in 2023, and we think we are in a good position to drive the company’s growth including the revenue gross margin net profitability.

So would you say that from here onwards, if the price of polysilicon continues to come down, whether it comes down slowly or rapidly, we don’t know? But if it keeps on coming down every quarter, that we should expect improvement in gross margin on a steady basis quarter-by-quarter?

Yes. It’s a year basis, in this industry, we are optimistic on our profitability and it’s not only the polysilicon. It’s – our competitor is improving a lot. We have good products. We have very strong R&D teams, and we have branding global sales and marketing, and we have a very solid supply chain teams and drive up the overall performance.

Can you also talk about the capacity that you had for wafers, cells and modules at the end of 2022?

It’s – I think we disclosed in the presentations slide, 65, 55, 70 gigawatts by the of last year. And we continue to expand our untapped capacity and total capacity will reach to, I think, 75, 75, 90 gigawatts by the end of this year.

Right. Can you also talk about the trends that we should expect in operating expenses in 2023 versus the fourth quarter of 2022? For example, you should incur less costs or no cost related to the product coming out of Xinjiang. And you should also incur less shipping costs. So should we be expecting a 100 basis point to 200 basis point improvement in operating expense in the – in 2023 versus the fourth quarter?

Hey, Rajiv. Sorry. Rajiv, I think the operating expenses in the U.S. companies composed a lot of key components. One is the most important is the shipping cost, which is going to improve a lot. Global economy is the – impact to the shipping logistics is not so significant. And we expect the shipment costs that will improve a lot. On top of that, our U.S., the U.S. LPA will improve step by step, and we have encouraged significant unexpected stock storage cost for the U.S. market. And that will – we expect significant improvement as well as even in our management teams, internal meetings, we are expecting our overall, let’s say, the labor inefficiencies will expect to increase 20% to 30%. And so that’s going to be, I think, with expansion 60 to 70 gigawatts versus 45 gigawatts, roughly 50% increase on the top line shipment cost improvement and the efficiency continue to be improved. We expect the operating expenses will be in downward trend quarter-over-quarter.

Also can you talk a little bit about what trend you see in the G&A in the general and administrative expenses? They went up a lot in 2022 compared to 2021. What sort of growth do you see in those expenses going forward?

Well, we have some [indiscernible] and for the small size, the equipment to produce small size modules. And we granted stock options. We have one off stock options based compensation expenses. So that is the key reasons for the G&A expenses increase for the year.

Thank you, Charlie.

Welcome. Welcome.

[Operator Instructions] Our next question will come from Alan Lau with Jefferies. Please go ahead.

Hi. Thanks all for taking my question. So I would like to asking about on the 4Q results, because the A share results actually show a very strong quarter-over-quarter earnings growth almost doubled. Whereas at the U.S. level, the adjusted net income actually declined. So how should we reconcile the difference between these two? And is there any further share based expenses in there or yes, just what is the difference between the two levels?

Firstly, the issue is, the account is under the PRC GAAP and the growth is under the U.S. GAAP, and the consolidation base is different. The U.S. entity holds only 58% of the equity of the Asia. Under U.S. GAAP for 2022, we have significant difference on the income tax expenses relating to the deferred tax assets. Because of the U.S. GAAP [indiscernible] we have significant loss in overseas entities. And on the U.S. GAAP which is not recognized the community and losses under the deferred tax assets and under the PRC GAAP from the beginning, we did not recognize. So there is a significant difference on the income tax expenses. And additionally, we have some difference on the accounting for the welfare benefit for the employees based on the different accounting policies. And under U.S. GAAP we have separate items like the change in value, fair value of convertible bonds, and for the long-term equity and debt both for the ecosystem investment, we recorded under the fair value of gains. And adjusted net income excluding amortization [ph] as well. So back to your questions, I think, that it's a one-of income tax accounting difference for the Q4 as well, some employee benefits which are well accounted.

Understood. So there is quite a significant increase in the tax, and also I would like to ask another relative easier question on the average gain because the company has made significant average gain in 3Q and actually RMB has depreciated in 4Q but I think there is a EBIT loss. So is it because of the hedging issue or why is that?

So actually [indiscernible] which line item on the...

Foreign exchange loss.

Okay. For 2022 overall, I think, we did very good on the foreign exchange hedge and on a net basis we reflect, I think the net gain. And there is zero sub divisions quarter-by-quarter and I think Q4, the net gains is relatively smaller, which is Q3 because RMB depreciated a lot in Q3 last year.

Understood, thanks. And switching the topic to this technology, so what would you expect the unit net profit or ASP premium of N-type [ph] versus TOPCon coming into 1Q because the shipment percentage is higher and the N-type shipments should have even higher contribution to the net profit. So can you share with us?

Yes, the premium is roughly US$1.5. And our efficiency is pretty good leading the industries and we provide additional values to our customers. We think the US$1 to US$1.5 premium is agreeable, the price and [indiscernible].

Understood. So is it fair to say the accounting issues will not exceed a point, and we have declining freight costs, polysilicon costs and also the ASP premium is also high, then we should expect a strong first quarter in terms of the gross margin?

We expect the gross margin expansion in the first quarter. And we have more integrated levels and then the impact, the percentages are expected to reach to 50% and the polysilicon is downward trends. And so, it's – you're right, we expect it in the first half of the year, the gross margin is in the expansion stage.

Thank you. And then my last question is what is JinkoSolar's plan in the U.S. because it has 400-megawatt already and some of the Chinese peers have already started construction for expansion in poly capacity. So what are the plans for JinkoSolar for now in the U.S.?

We're doing very solid analysis evaluation for expansion in the U.S. and we're optimistic because the IRA is going to be – I think it's a very attractive scheme. And as well as the U.S. market is expected strong demand, so we are in the final evaluation stage. But we have already 400 megawatts capacity. And we expand – and we will expand very quickly.

Understood. Thanks a lot Charlie for taking my question. I’ll pass it on. Thank you.

The next question will come from Irma [ph] with Citigroup. Please…

Thank you management for taking up my call. So I have two follow-up questions regarding on the N-type product capacity. So my first question is about the current, what is the current unit product cost level of your N-type TOPCon modules compared to the PERC ones? And what is the target level by end of this year? And my second question is about the capacity, so how many new N-type capacity that you would like to build this year? And so adding in addition to the 35 gigawatts by end of 2022. Yes, that's my question.

Thanks. In terms of the N-type modules integrated PERC versus P-type, and we have reached the parity, let's say the same cost for the N-type, P-type by the end of last year. And this year, because of the polysilicon is in a downward trend, which will some have some negative impacts, but we continue to improve the efficiencies and implement new process materials, and we expect we will maintain the same cost structure and by the end of this year for the N-type versus the P-type. Well, the N-type but in the last year, we have 35 N-type right and the sales capacity. And by the end of this year and we will have, I think 55 gigawatts N-type top – capacity. So expenses is roughly [indiscernible] capacity expense.

Great. Thank you.

This concludes our question-and-answer session as well as our conference call for today. Thank you for your participation. You may now disconnect.