JinkoSolar Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 20, 2024

There are 9 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for JinkoSolar Holdings Co. Limited 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session.

Operator

As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, to Ms. Stella Wang, JinkoSolar's Investor Relations. Please proceed, Stella.

Speaker 1

Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's Q4 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 Xingqo Solar are Mr.

Speaker 1

Li Zhende, Chairman and CEO of Xingqo Solar Holding Company Limited Mr. Jena Miao, CMO of JinkoSolar Company Limited Mr. Pan Li, CFO of JinkoSolar Holding Company Limited and Mr. Charlie Cao, CFO of JinkoSolar Company Limited. Mr.

Speaker 1

Li will discuss 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. We will all be available to answer your questions during the Q and A session that follows. Please note that today's discussion will contain forward looking statements made under the Safe Harbor provisions of the U.

Speaker 1

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 Singko Solar's public filings with the Securities and Exchange Commission.

Speaker 1

Singko Solar does not assume any obligation to update any forward looking statements, except as required under applicable law. It's now my pleasure to introduce Mr. Li Zhende, Chairman and CEO of JinkoSolar Holdings. Mr. Li will speak in Mandarin and I will translate his comments into English.

Speaker 1

Please go ahead, Mr. Li. We are pleased to have achieved a very impressive operational and financial results in a challenging year by leveraging our advantages in N type top com technology, globalized operations and integrated capability. Thanks to strong execution by our team, our module shipments for the full year increased 76.4% year over year to 78.5 gigawatts back to the top position in the industry. Benefiting from our efforts in cost optimization, our profitability for the full year improved significantly year over year, with gross margin at 16% compared to 14.8% in 2022.

Speaker 1

Net income was US485.8 million dollars up 4.56x year over year. Adjusted net income was US573.8 million dollars up 1.93 times year over year. Module shipments in the 4th quarter was 26.3 gigawatts exceeding our guidance. As module prices fell more than expected in the 4th quarter and nearly 50% of our modules were sold to the Chinese market at lower prices. Gross margin for the 4th quarter was 12.5%, a significant decline from 19.3 percent in the 3rd

Speaker 2

quarter.

Speaker 1

In China, newly added PV installation reached 216.88 gigawatts in 2023, up 148.1 percent year over year to a historical high. At the same time, excess supply in various links of the industrial chain led to price declines. Tender prices for modules at the year end decreased over 40% to below rmb1 per watt. Compared to the beginning of the year, export volumes of PV products in 2023 increased significantly year over year, whereas export volume fell slightly as a result of a decrease in prices. In January February 2024, seasonality combined with extreme competition from certain manufacturers intensified the market panic and irrational prices.

Speaker 1

We remain cautious and rational in the face of abnormally low tenders. In addition, while some manufacturers without competitive cost or advanced products reduce or suspend the production, we maintained our leading utilization rates in the industry as a result of cost advantage and high order visibility. Into March, as demand picked up and inventory reduced, module prices gradually stabilized and some bidding prices rebounded slightly. In the short to mid term, we expect the decline in module price will significantly improve the economics of solar energy, and we anticipate demand in the global PV market will continue to increase in 2024. Meanwhile, rapid iteration of new technologies and the elimination of obsolete production capacity will also accelerate the consolidation of the industry.

Speaker 1

Market share for the top 10 module manufacturers is expected to increase from 70% in 2023 to over 90% in 2024. We are confident to consistently enhance our competitiveness through cyclical fluctuations and we expect our market share to further increase in

Speaker 3

2024.

Speaker 1

Thanks to our integrated N type top com technology in the early stage, by the end of the 4th quarter, our N type capacity exceeded 70 gigawatts and our cost structure continues to improve. Currently, our mass produced N type cell N type cell efficiency exceeds 26%, while the integrated cost of N type is almost on par with P type. With the continuous introduction of new cell technologies and optimization of cost reducing process, our cost structure is expected to become more competitive. We attach great importance to intellectual property rights and are fully focused on sustaining our technical leadership based on extensive intellectual property rights. By the end of the Q4, we had been granted 330 Topcon patents, one of the largest portfolios of granted Topcon patents in the world.

Speaker 1

With the largest overseas integrated capacity of over 12 gigawatts in the industry and an effective supply chain trip led system, we have become the most reliable module supplier to the U. S. Market, which is expected to generate significant profits in 2024. Furthermore, our investments in innovative production model is expected to generate returns over time. Phase 1 and 2 of our integrated projects in Shanxi will start production in the first half of twenty twenty four as planned and gradually ramp up in the second half.

Speaker 1

The full integration of automation can greatly improve labor efficiency and operation turnover efficiency and is expected to bring a significant reduction in operating costs after reaching

Speaker 4

full production.

Speaker 1

In the mid to long term, the rapid expansion of AI and electrical vehicles may lead to tight power supply in the walls and the demand for clean power generation is expected to further increase. So far, reduced solar cost has significantly increased the competitiveness of solar in the energy sector. In the future, solar as a new quality productive force is set to play an increasingly important role in face of energy crisis and energy transformation. We are bullish about PV market growth in the mid to long term, and we are confident we will continue to lead the industry with advanced technologies and premium high efficiency products. Taking into account supply chain and market conditions, we are reducing investments in capacity expansion in 2024.

Speaker 1

We are focusing on expanding our advanced N type capacity, including 28 gigawatts of integrated capacity in our Xianxia plant and about 4 gigawatts of N type cell and module capacity in Vietnam. We continue to focus on improving working capital efficiency and achieving sustainable growth in operating cash flow. Before turning over to Jenner, I would like to go over our guidance for the Q1 and the full year of 2024. By the end of 2024, we expect mass produced n type cell efficiency to reach 26.5%. We expect our annual production capacity for mono wafers, solar cells and solar modules to reach 120, 110 and 130 gigawatts respectively by the end of 2024, with untied capacity accounting for over 90% of total capacity.

Speaker 1

We expect the module shipments to be in the range of 18 to 20 gigawatts for the Q1 of 2024 and 100 gigawatts to 110 for the full year 2024 with N type accounting for nearly 90% of total module shipments.

Speaker 3

Thank you, Ms. Li. We are pleased to have achieved a historical high in quarterly and annual module shipments, thanks to our excellent global marketing network and the power of our product. Total shipments were 27.9 gigawatt in the 4th quarter with module shipment accounting for approximately 95%. Annual module shipment increased 76.4% year over year to 78.5 gigawatts.

Speaker 3

And both module shipments in the Q4 and the full year 2024 ranked world number 1. We continued to improve product quality and build our customer service network to expand the influence of our brand. By the end of Q1, our accumulated global module shipment exceeded 2 10 gigawatts, covering more than 190 countries and regions. In terms of geographic mix, China and Asia Pacific became our major shipment regions in the 4th quarter, accounting for approximately 70%. For the full year 2023, shipment to Asia Pacific and North America grew significantly, more than doubling year over year.

Speaker 3

As we continue to expand our footprint in overseas markets and build our integrated capacity, we move on to invest in North America and emerging markets. Based on our business conditions and market trends, China and Europe will continue to be the major contributor to the shipment in 2024, with North America, Emerging Markets and Asia Pacific expected flourish. On the product front, the competitive high efficiency type revenue accounted for 70% of the shipment in the 4th quarter with average premium of RMB0.10 per watt versus P type modules. And the Tiger NIO accounted for approximately 60% of annual global shipment, achieving the goal we set at the beginning of the year and accelerated its market penetration globally. Currently, the power output of Tiger Neo modules is more than 30 watt peak higher than that of the similar P type module, providing our customers with higher power generation yield.

Speaker 3

Difference of our Tiger New were expected to account for over 85% in the Q1 of 2024 and its product strengths to continue to lead the industry. We are always committed to bring greater economic value to our customer with high efficiency, highly reliable product and sustainable solutions. Recently, we unveiled the first new green panels produced with renewable energy. These panels were produced in factories that were awarded the 0 Carbon Factory Certification by TUV Rylance. JinkoSolar is also the 1st company in the industry to be awarded with 0 carbon factory certification by TUE for silicon

Speaker 5

in the

Speaker 3

manufacturing, wafer cutting, cell manufacturing and the module manufacturing. We also continue to improve our ESG practices and optimize our traceability system. In the Q1, we were awarded with the ESG Transparency Award from EUPD Research, which recognize our far reaching commitment to sustainability and transparency. Recently, bidding for some domestic projects began to activate it. EU inventories became depleted and we have seen additional demand, especially in DG business, This gradually improved the PV economics and the growing demand for transmission to clean energy globally, EV demand in the global market is expected to further increase in 2024, but at a relatively slower pace than in 2023.

Speaker 3

In longer term, the requirement of AI for computing power will further increase the demand for electricity and electrical equipment, ensuring strong growth potential for PV plus storage. As a responsible global company, we are always committed to providing clients with reliable and highly efficient product and solution, practicing the values we shared with our clients, partners and investors to accelerate to a greener future. With that, I turn the call over to Pat.

Speaker 4

Thanks to solid execution of our operations and management strategies as well as successful efforts in cost optimization. We delivered excellent financial performance. For the full year, key metrics such as total revenues, gross margin, income from operations and net income all significantly increased year over year. We also improved working capital efficiency and optimized operating cash flow. By the end of the Q4, we had cash and cash equivalents of $2,750,000,000 and our net debt decreased by over 20 percentage year over year.

Speaker 4

In December, we announced the extension of our existing share repurchase program. And by the end of February this year, we had repurchased nearly 1,000,000 ADAs in aggregate amount of approximately $28,000,000 With our advantages in N type top comp technology, globalized operations and integrated capacity, We are very confident in our growth prospect, and we'll continue to improve working capital efficiency and achieve sustainable growth in operating cash flow. Let me go into more details now. Total revenue was RMB 4,600,000,000, an increase of 3 percentage sequentially and more than 9 percentage year over year. Gross margin was 12.5 percentage compared with 19 percentage in the 3rd quarter and 14% in the Q4 of 22%.

Speaker 4

The decreases were mainly due to the decrease in average selling prices of solar modules. Total operating expenses were $526,000,000 The increases were mainly attributed to loss of disposal on PPE and expense in relation to settlement of a dispute with customer. Operating margin was 1.1 percentage compared with 2 percent last year. Excluding the impact from a change in fair value of the notes and long term investments and share based compensation expenses, adjusted net income attributable to JinkoSolar Holding Company, ordinary shareholders were $65,000,000 compared with $45,000,000 in the 4th quarter last year. Up 73 percentage year over year.

Speaker 4

Now I'll brief you on our 23 full year financial results. Total motor shipments were 78.5 gigawatts, up 76 percentage year over year and total revenues, up 43 percentage year over year. For the full year 2023, gross profit was about US2.7 billion dollars an increase of 55 percentage year over year. Gross margin was 16 percentage compared to 14.8 percentage. The increase was mainly The increase

Speaker 3

was mainly attributed to the decrease in the material cost of solar modules.

Speaker 4

Total operating expenses were 1 point 8,000,000,000, up 9 percentage over year. The increase was mainly due to an increase in impairment loss on PPE and expense in relation to settlement of dispute with customer and increasing in staff cost. Operating margin for the full year of 2023 was 5 percentage compared to 0.5 percent last year. Excluding the impact from a change in fair value of notes, long term investments and share based compensation expenses, adjusted net income attribute to JinkoSolar Holdings' ordinary shareholders was about $574,000,000 up nearly 2x year over year. Let's move into the balance sheet.

Speaker 4

As mentioned, at the end of the 4th quarter, our cash and cash equivalents were significantly higher at RMB2.75 billion, up from RMB1.93 billion at the end of the 3rd quarter and RMB1.64 billion dollars at the end of the Q4 of 2022. AR turnover days were down to 76 days in the 4th quarter from 87 days in the 3rd quarter. Inventory turnover days were down to 57 days from 67 days in the 3rd quarter. The total debt was $4,380,000,000 at year end compared to $4,000,000,000 last year, And net debt was CNY 1,600,000,000 compared to CNY 2,300,000,000 last year. This concludes our prepared remarks.

Speaker 4

We're now happy to take your questions. Operator, please proceed.

Operator

Thank Your first question comes from Philip Shen with ROTH MKM. Please go ahead.

Speaker 2

Hi, everyone. Thank you for taking my questions. First one is on pricing. I was wondering if you could share with us the Q4 ASP, sorry if I missed it. And then what do you expect that ASP to be in Q1 and Q2 and as we get through the year?

Speaker 2

Thanks.

Speaker 6

Hey, Gener, would you like to answer your question?

Speaker 3

So I'm traveling, so I didn't get all of your question, but I heard it's about pricing, right? So the pricing actually, the pricing significant drop happens across December to January. So that means if we compare the ASP between Q4 and Q1, definitely, there will be a big gap because of the market price changes. So detailed number wise, I don't have that with me, right, sorry about that.

Speaker 2

Okay. Yes. Hey, Gener, thanks for that. So can you share what the ASP was in Q4 for modules? And then can you quantify how much lower Q1 might be?

Speaker 2

Thanks.

Speaker 3

Charlie, can you take that? I don't have the number with me now.

Speaker 6

Yes, yes. Philip, I think the most important thing is we believe it's kind of the panic sales, the module, in recent, let's say, 2 quarters. And we don't believe the price, particularly in China, is sustainable. And we are expecting and as well as the market expecting the module point has been stabilized and maybe up a little bit. And back to the pricing, depending on different markets, the U.

Speaker 6

S. Is pretty significantly price premium and Europe is a little bit better than China and different segments. DG versus utility has different price difference. And but to answer your questions, I think you want to explore is for sure, if Q1, Q2 versus Q4 last year, we think the ASP is still in the downward trend. But it's not dramatically, but slightly.

Speaker 6

And we think it's reaching to the bottom in the first half year of twenty twenty four for the ASP.

Speaker 2

Okay. So but you have the average selling price for all the regions for Q4, right? Can you share that price for Q4?

Speaker 6

No, we don't disclose, but you can calculate the blended if you take the total revenue with this module shift. And typically, we have actually 95% of the revenue is coming from module business.

Speaker 2

Okay. Thank you. So it sounds like the bottom could be Q1 or Q2. And or do you think the bottom is more Q2 or more Q1 in terms of module pricing?

Speaker 6

I think a different company has different mix, but I think it's relatively stable Q2 versus Q1, maybe a little bit lower, but it's not significant. And yes, that's what we are looking at. And the most important thing is we think that China demand is exceeding the expectations. China demand is very, very good. And Europe, the destock has been completed and they are picking up the stock.

Speaker 6

So we think there's kind of improved outlook from the demand side. There's still some oversupply situations. For Jinko, we have more 90% is in type and global sales and manufacturing capabilities. And we think we are relatively better than the other peers. And but it takes time for the low increasing, say, capacity, Tier 2, Tier 3 companies face out, but it takes time.

Speaker 6

But we think is the most important thing we focus on our competitiveness. And throughout the relatively challenging year.

Speaker 2

Okay. Thanks, Charles. Shifting over to margins. So you've given us a little bit of a framework for how to think about pricing trends through the year. How do you expect like what do you expect your margins to be for Q1?

Speaker 2

I know you haven't given official guidance, but just relative to Q4, maybe you can stay a little bit up or down or something. And then as it relates to Q2, do you see like when do you see a bit of a recovery of the margins? Thanks.

Speaker 6

Yes. It's we're estimating the Q1, Q2, the first half year, it's a little bit lower, slightly lower versus Q4 last year. It's not dramatic lower for the Q4 versus Q3 last year. It's slightly, slightly lower throughout the Q1 and Q2. But we believe there's opportunities and for the second half of the year, maybe profitability will to expand.

Speaker 2

Got it. That's very helpful. And then finally, I think in your slides, you talked about 2 gigawatts of integrated U. S. Capacity.

Speaker 2

Again, sorry if I missed this, but did you does that mean you might do wafer, cell and module in the U. S? And can you share, if so, like what the locations are? And then so I'll leave it there and I have one follow-up on that topic.

Speaker 6

Thanks. Yes. The U. S. Capacity, we started the constructions last year and it's getting ready, I think, very quickly in March or April to start the operation.

Speaker 6

It's a 100% module, 2 gigawatts, no wafer sale. And but we have integrated capacity in South East, Vietnam, Malaysia, the capacity is roughly 12 to 14 gigawatts. And in the combinations with the 2 gigawatts, the module capacity in the U. S, we are I think we are in a good position. And on top of that, we have separate independent supply chain from the poly, everything to the module.

Speaker 6

And we have very good traceability systems and proof record, right, in the last year. So we think this year is we can we have more market opportunities and to catch up for the next 2 or 3 years for the U. S. Market.

Speaker 2

Got it. Okay. So it's only 2 gigawatts of module or it is 2 gigawatts of module. The way it was written on the slide, Slide 6, it sounded like 2 gigawatts of integrated capacity could be in the U. S.

Speaker 2

But my follow-up here and then I'll wind it down is, what is and this might be a bit of a tough question, but what is your view of the discussion around the foreign entity of concern language, which a lot of people are talking about could be added to the 45x manufacturing PTC, which might make it more difficult for you guys to add or to receive the PTC. You're ramping up your facility basically now, if not maybe in a month in April. To what degree does that concern you? Are you following that topic at all? Thank you.

Speaker 6

I'm not fast speaking, I'm not familiar with the topics you are talking about, the foreign NDAs, the regulations update, but we will follow-up after the call. But I think I'm not sure you're talking about like the semiconductor, the sensitive technology, but we think solar is more pervasive and very common for each countries to develop. And it's not data sensitive. But anyway, we will follow-up the topic you are talking about, but not familiar with the progress.

Speaker 2

Okay. Thank you, Charlie. I know I asked a lot of questions. Appreciate it. We'll pass it back.

Operator

Thank you. Your next question comes from Alan Law with Jefferies. Please go ahead.

Speaker 5

Thank you for taking my questions. So I would like to know, because there's a very detailed capacity expansion plan and just would like to ask a bit on the details. So by the end of 2024, it would be 120, 110, 130 gigawatt for wafer cell modules. So my question is mainly on the cell. Because the company has 70 gigawatt of popcorn by the end of 203 and then supposedly the remaining 20 gigawatt is PERC.

Speaker 5

So and then by the end of this year, it's 110. So will it be 100 gigawatt of Topcon plus 10 gigawatt of PERC? If that is the case, then do you mean you would impair the 10 gigawatt of PUC this year?

Speaker 6

The answer is we will phase out 20 gigawatts per capacity throughout the year. That's the plan. And we have one everything we have discussed by the end of the year, the capacity is 100% end time. It's not no P type capacity. The sale capacity is 110 and the major part is the 28 gigawatts, the Shaanxi, your Shoper factories plus what we are talking about, the well known 4 gigawatts as well as we have some improvement of production, the volume, existing capacity.

Speaker 6

So total is 1 100 tonne for the entire top capacity. We did have 28 gigawatts per capacity. We don't have time to upgrade and we think it's not economic, makes sense. And the most important thing is we have depreciated the capacity over 5 years. So we don't believe we have significant burden for the 20 gigawatts, the PERC.

Speaker 6

And we focus on the technology and the new technology and new PERC that is, I think, that is the smart decision.

Speaker 5

I see. So just to confirm, basically for the 20 gigawatt of Perk, they are fully depreciated. So basically, they were built in 2019. And then by now, they are fully depreciated. So you do not see major impairment risk this year, right?

Speaker 6

Yes, roughly, yes. And we did have some kind of residual value, but it's not significant. Most of the assets has been depreciated.

Speaker 5

Yes. I guess, I'm impressed because a lot of peers in this industry might have a lot of impairment this year. So my next question is, what is the new signed ASP for the contracts that you are signing in the U. S. Market?

Speaker 5

Because I have been hearing different feedback saying that prices for utility projects in the U. S. Are declining from $0.30 to below $0.30 since 4Q. So I'd like to learn your view on this front.

Speaker 6

Yes. There's a penalty index and for the U. S, the price range is a little bit there. I think it's very little bit big, high 20, low 30, what kind of the in our range. And it looks like it's in the downward trend, but relatively stable.

Speaker 6

And the different customer has different preference. And we think we are in a good position and because we traceability and we have separate partly and through the modules. And we think we can sell relatively the price premium with our peers.

Speaker 5

Thanks. So you have mentioned overseas polysilicon. So we'd like to have an update on the overseas polysilicon price. Is it rebounding or it's still trending down?

Speaker 6

I think in recent 3 months, it's relatively stable because the polysilicon, the out of China is around 100,000 metric tons. It's known new capacity are expected in the next one and half year. The other thing is maybe some China Poly, China Poly, but I think there is a relatively risk. And there's a very complicated compliance. And so we don't see significant downward and the relative stable.

Speaker 5

So switching gear to the European market, because you have mentioned destocking has basically completed. So I would like to follow-up on this slide. Are you having receiving orders in normalized manner? Like what are they how about is it from the residential market or it's mainly from the utilities market in Europe?

Speaker 6

I think both. In the recent quarter, I think the majority is DG and the market, but we're seeing this year both utility and the DG will grow year over year.

Speaker 5

So you don't see inventory as an issue even in the DG market anymore because last year, it was a huge issue?

Speaker 6

Yes, yes. And last year, the first half year is built the stock, right, for the DG distributors and destock. So I think 5 or 6 months is. And it looks like on top of that, even not only in the utility market as well as other markets, the customers, they are waiting to the bottom of the module price. But it looks like stabilized.

Speaker 6

I think the price is not sustainable. A lot of customers accelerate the purchase decisions as well as the destock. The stock level is going back to normalized level in Europe and the past logistic issue plan, that's the issue. So we see the rebound from the European market. And the Q2 pretty sure is a strong quarter for the European market.

Speaker 5

And in your PowerPoint, I think it's the first time that you have officially put ESS into the whole price release. So I would like to know, do you have any quantitative shipment target on ESS? Because I know you have capacity for more than 10 gigawatt hour. So I would like to know on that one.

Speaker 6

Storage. Storage and we build up the capabilities, the teams, products, capacities and majority from last year. And the key focus is we develop our R and D capabilities and products and focus on some key markets. And so far, it's in the relatively early stage, but we are confident and we will disclose maybe the full year, the guidance in later this year, maybe the Q2, Q3. But this year, we think it's a good opportunity to catch up the markets and build a strong foundation for the next few years.

Speaker 6

So that's the key focus not the focus for the shipment of this year.

Speaker 5

Thanks. Thanks a lot for the comprehensive information. So I'll pass on. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Your next question comes from William Griffin with UBS. Please go ahead.

Speaker 7

Excellent. Thank you very much. My first question was just on your 300 plus patent portfolio. I was wondering if you could provide a little color on where those patents are granted? Are any of them international?

Speaker 7

And one of your peers is out there asserting their IP rights related to some top con technologies. Just maybe how are you thinking about that? How do you view that relative to your patent portfolio? Thank you.

Speaker 6

The patents and we put a lot of R and D efforts in recent couple of years and we developed and discussed over 300 Top Gun patents, which we developed by ourselves. On top of that, we have additional more top count patents by acquisition from others. And the patent is our key differentiators and the key strategies and we licensed to one of the top 10 module company and one of the top 5 solar cell companies. And it's an illustration how we're strong and capable our R and D teams on the cutting edge technology.

Speaker 7

Okay. Yes, appreciate that. And then just on the 26% mass production n type cell efficiency that you referenced in the press release, how do you expect that to translate into mass production module efficiency? And when do you think that would ultimately be realized in mass production? Thank you.

Speaker 6

26% sale capacity, we have reached to that level, the mass production. And our target is end of this year, 26.5%.

Speaker 3

All right.

Speaker 7

Appreciate the time. Thank you.

Speaker 6

Sorry. Sorry. I think that for the standard is 182, I think we are charging roughly 600 tons to maybe 6 20 watt for standard 182 modules.

Operator

Thank you. Your next question comes from Rajiv Chaudhry with Intriq Sigg Edge. Please go ahead.

Speaker 8

Yes. Good morning. I have a few questions. First of all, just in terms of housekeeping, can you tell us what the depreciation number was in the 4th quarter and what you expect it to be in 2024?

Speaker 6

So sorry, could you repeat again?

Speaker 8

Yes. The question was about depreciation in the Q4 and what the expectation is for 2024?

Speaker 6

Oh, depreciation. It's roughly, I think, RMB 6,000,000,000 to RMB 7,000,000,000 for 2024. So each quarter, roughly RMB 1,500,000,000 to, I think, RMB 1,800,000,000.

Speaker 8

Sorry, can you repeat that? 1,500,000,000 to 1,800,000,000?

Speaker 6

RMB, yes, depreciations.

Speaker 8

And that's in 2024. What about the 4th quarter?

Speaker 6

Last year, right?

Speaker 8

Yes, 2023, yes, sorry.

Speaker 6

Yes, similar month. It's not significant difference.

Speaker 8

So around RMB1.5 billion in the 4th quarter?

Speaker 6

Yes, roughly.

Speaker 8

Okay. And then what was the total CapEx capital spending in 2023? And what is the expectation for 2024?

Speaker 4

For CapEx, yes. Let me go into some details. And for the 2023, our total CapEx is around RMB 18,000,000,000. And we expect a range in 2024 is from RMB 11,000,000,000 to RMB 15,000,000,000 depends on the market.

Speaker 8

I see. Okay. Out of this $11,000,000,000 to $15,000,000,000 is it almost 100% related to the module business? Or is there anything related to the storage business as well?

Speaker 4

It's related to our integrated solar manufacturing.

Speaker 8

Okay. The next question is about the charges that you had in the operating expenses. You mentioned that the write down of assets as well as the settlement with the customer, if they had not happened, then the total operating expense would have been the same as the 3rd quarter. So by my calculation, that is about the RMB 60,000,000,000 or about $85,000,000 is that sorry, the RMB0.6 billion or about $85,000,000 is that the correct number?

Speaker 6

Hey, so you're right. We did have some kind of special one time items in the Q4 last year. One is, I think, some kind of customer dispute. It's around USD $31,000,000 versus we have some impairment for the equipment around US10 $1,000,000 So we did have US40 $1,000,000 I think the one off items you can exclude, so it's not recurring items.

Speaker 8

Okay. And comparing your cost structure to the Tier 2 manufacturers, can you give us an idea? My calculation is that your cost structure in the Q4 was about 10 percentage points better than the Tier 2 and Tier 3 manufacturers. So for example, if you did 12.5% gross margin, the Tier 2 and Tier 3 were operating at 2% to 3% gross margin. Can you comment on that?

Speaker 6

We're confident that our cost structure is leading and we have advantage. And by the way, we don't comment on detailed numbers and different company has different situations. But you're right, but if we are, let's say, making low profit levels, I think a lot of companies doing a similar business we'll lose the money. That is we're very confident. And but again, I think it takes time the face of the Tier 2, Tier 3 companies and it's after the consolidation and the phase out and we think we can get more market share and make decent profitability, but it takes time.

Speaker 8

Do you think at this point your cost structure is better than other Tier 1 manufacturers?

Speaker 6

I don't do 100% guarantee, but we are confident.

Speaker 8

So you are confident that your cost structure is already equal to or better than other Tier 1 manufacturers?

Speaker 6

Yes. We are confident that our cost structure, capacity, technology is leading.

Speaker 3

Can you elaborate

Speaker 8

on the expected cost improvements that are likely to happen as a result of the integrated production that you're going to roll out next year of the Shanxi plant? How much of a cost advantage are you going to create as a result of the integration and everything happening in one location?

Speaker 6

Yes. That's it's not purely cost advantage. It's the Sanxi Shuho factories. It's digitalized and automated and the ESP traceability is low carbon, everything. And we integrated a lot of advanced equipment and streamlined a lot of even phase out some production phase stage and have significant workforce efficiency and very high turnover ratios and very good position locations to serve the customers in the West China as well as the global market customers.

Speaker 6

So the cost structure is it's reflecting the advantage and it's a big amount, we believe, but we don't disclose. We think it's a big advantage with this existing production structures for the industry.

Speaker 8

And finally, I want to confirm a number that I think Jener gave. The total volume of shipments of N type in the 4th quarter was was it 70% of total shipments?

Speaker 6

That's 17%, yes, 70%.

Speaker 8

And did he say that in the Q1, it will be 85%?

Speaker 6

Full year, let's say, it's full year, it's around 90%. So gradually from 70% to 95% quarter by quarter and this year. So Q1, you see, I think, is roughly 80%.

Speaker 5

Okay. Okay.

Speaker 8

So in terms going back to the gross margin, so you are suggesting that the Q1 gross margin should be slightly lower than the 4th quarter. So are we still looking at number around 12%?

Speaker 6

You mean the absolute number?

Speaker 8

Yes, the actual gross margin?

Speaker 6

Yes. We don't disclose that. But I said, it's very slightly, slightly downwards, but not dramatically. But we think it's a bottom and it's reaching the bottom for the first half year.

Speaker 8

So, if the gross margin is around 12% in the Q1 and the prices stabilize from March, April onwards, is it reasonable to think that gross margin could improve in the second quarter because your costs will keep on coming down? And also your shipments to

Speaker 3

the U. S, which are higher ASP will go up?

Speaker 6

We think we have more likelihood to improve in the second half year. The improved outlook, the demand outlook and you're talking about U. S. Shipments is the second half year loaded. And I think roughly maybe, let's say, 65% shipments in U.

Speaker 6

S. In the second half of the year as well as the Shaanxi Shubo factories is doing the highest productions in the first half year, but we'll be 100% operational by the end of the third quarter. So everything together, we think is the margin expansion is likely to in the second half year.

Speaker 8

And what do you think the impact of you mentioned that in the 4th by the Q4, you expect that Tier 1 companies or top ten manufacturers will have as much as 90% of the market. That basically means Tier 3 will have shut down and Tier 2 will be selling much lower output than they are selling right now. What do you think that does to pricing by the 4th quarter?

Speaker 6

The 4th quarter this year, right?

Speaker 3

Yes.

Speaker 6

Yes. It's difficult to estimate, but I think there should be stabilized. And on top of the most important things, I think, by the end of the Q4, I believe a lot of industry players for Tier 2, Tier 3 and as far as the companies, they never in the solar industry, but entered in addition 1 or 2 years. Those guys are going to the capacity will be phased out 1%. So that's my estimation.

Speaker 4

Okay, great.

Speaker 8

Thank you very much and good luck in 2024.

Operator

Thank you.

Speaker 4

Thank you.

Operator

There are no further questions at this time. And that does conclude our conference for today. Thank you for participating. You may now disconnect.

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Earnings Conference Call
JinkoSolar Q4 2023
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