JinkoSolar Holding Co., Ltd. (JKS) Q4 2018 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to JinkoSolar Quarter Four and Full Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your host today, Ms. Rene Du. Thank you, sir. Please go ahead.

Thank you, operator. Thank you, everyone for joining us today for JinkoSolar's fourth quarter 2018 earnings conference call. The company's results were released earlier today and available on the company's IR Web site at www.jinkosolar.com as well as on the newswire services. We have also provided a supplemental presentation for today's earnings call, which can also be found on IR's Web site. On the call today from JinkoSolar are Mr. Chen Kangping, Chief Executive Officer; Mr. Cao Haiyun, Chief Financial Officer; Mr. Gener Miao, Chief Marketing Officer; and Ms. Rene Du, IR Manager. Mr. Chen will discuss JinkoSolar's business operations and company’s highlights, followed by Mr. Miao who will talk about the sales and marketing, and then Mr. Cao, who will go through the financials. We will all be available to answer your questions during the Q&A session that follows. Please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding these 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 applicable law. It is now my pleasure to introduce Mr. Chen Kangping, CEO of JinkoSolar. Mr. Chen, will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Chen.

[Foreign Language] Thank you, Renee. Good morning and good evening to everyone, and thank you for joining us today. [Foreign Language] Module shipment hits a record high of 3680 megawatts during the quarter and decrease of 22.5% sequentially and an increase of 45.8% year-over-year. Total revenue were $1.12 million an increase of 16.3% sequentially and an increase of 21.5% year-over-year. Gross margin was 14.7% excluding the CVD reversal benefit. Gross margin was 13.8% compared with 12.8% last quarter for full year 2018, we shipped 11.4 gigawatt of solar modules an increase 50% from 2017 which further compounded by our leading position in global market share. Total revenues for the full year 2018 were $3.64, a decrease of 5.4% from 2017 because of the lower ASPs. Gross margin was 40% for the full year 2018 compared with 11.3% of 2017. [Foreign Language] Looking back at 2018, although the Chinese market was affected by policies released on maintenance one, we were able to continue to grow our business with our strong diversified and global distribution and other consolidated our leading vision in terms of market share. Looking out to the [full year] [ph], we expect our module shipment to grow by approximately 30% in 2019. [Foreign Language] On the policy side, NEA has laid-off their pass for our billing system and is expected to begin granting subsidy approval again for utility scale projects. Development of these projects will have to bid for government aid and aid will be based on among other things available from. In addition, there will be a separate subsidy scale for residential solar system and this [indiscernible] project. And more important subsidies will be paid by great risk, which means no more payment delays for new projects and new policy the clear direction for the countries solar cell and were of to greatly improved estimates for the solar system as country tried to smoothly transition towards grid parity and encouraged a more market driven environment rather than policy driven. Based on these expectations domestic installations are expected to exceed last year's DG projects and projects complete at grade parity will to continue to make up a large share of our installation result, NEA is also trying to address the subsidy for existing solar plants. [Foreign Language] Moving over the U.S., the market there is very active, this with introduction of the solar investment tax credit for ITC, where solar developments has began to Rocky Mountain and others. U.S. demands were strong in the second half of the year and this momentum will continue as small companies attempt to benefit from the 30% ITC which will require construction to start before 2020 and commissioning to take place before 2024. For us, we started pilot production at our U.S. manufacturing facility in November 2018. Since then we have been steadily linking up and accept to be fully operational in Q2 of this year. Given the existing opportunities in the U.S. market, we fully intend to expand our presence there by leveraging all our already manufactured capacity including our U.S. facilities as well as our strong brand of recognition, high quality products and the best in class customer service. [Foreign Language] We continue with the strong growth momentum there in Asia Pacific region, this then getting tariff policy has taken shape for 2019 to 2021 and continue to encourage market developments. Malaysia, Thailand and Philippines and other Southeast Asian markets continue to maintain robust demand in 2018. For our business, we will take advantage of our early entry in these markets and consolidate our leading position. [Foreign Language] In Europe after the cancellation of the minimum import price policy demands from solar power purchase agreement include parity projects in European market, [indiscernible] especially in term of the big markets such as Japan, the Netherlands and Germany. Overall, the EU market is expected to hit 15-gigawatt this year. The emerging markets are also booming. Jordan, Kuwait, South Africa and Oman are growing fast and we have seen a continuous string of announcements of gigawatt labor tenders. I'll let Gener go over this more details later. [Foreign Language] On the technology front, we continue to allocate resources towards the suffocation of high efficiency technology while constantly optimizing the cost structure of our products. Our wafer fab, we continuously made progress implementing large scale crystallization furnaces to increase productivity. And we are also working very hard on technologies to reduce both oxygen content and light-induced degradation. At the same time, we led the industry in terms of efficiency improvements of our diamond wide cutting continuously reducing our wire consumption. On the cell side, our large-area N-type mono-crystalline silicon solar cell reached record high efficiency of 24.2% in January. We are now focusing on further improving cell efficiency based carbon type and PERC cell. Our high efficiency capacity were ramping up as we plan to fully switch our existing capacities to high efficiency capacity. On the module side, we just launched our new bifacial Swan module in Japan and it is already attracting a lot of interest, the module is the latest addition to our premium Cheetah range of products and due to its the cutting edge transparent backsheet with DuPont clear Tedlar Technology. Lightweight material solves a lot of problems on the installation side and creates a lower net realized cost of energy to our customers. Content technology development such as this not only enable us to provide our clients with competitive high efficiency products, but also allows us to stay at top. We are confident in our ability to further optimize our cost structure going forward and are fully prepared to enter an era of grid parity in the near future. [Foreign Language] Intellectual property is important in today's competitive business environment. Currently, we have been granted over 570 patents globally many of which left the industry, we will continue to increase investments in scientific research and grow our intellectual property portfolio to maintain our globally proficient in terms of technology. We fully respect intellectual property rights and encourage healthy competition, but we will take legal action to defend ourselves from exhibitions of wrongdoing. We refuse the allegations made by Hanwha and believe that the complaints are without technical or legal merit. We are now working closely with our legal counsel and technical advisors to vigorously defend against the case. And we are confident in the position we are developing. We don't expect any disruption to our normal operations arising from Hanwha team. [Foreign Language] Turning to the manufacturing capacity, our internal wafer sales and margin capacity reached 9.7 gigawatts and 10.8 gigawatts respectively, by the end of fourth quarter. We plan to rapidly increase our capacity to produce high efficiency products by increasing both model wafer capacity and PERC capacity and converting our existing non-PERC capacity to PERC capacity increase output. We expect new capacity to ramp up in the mid of 2019. Once completed the testing of our products in-house and our cost advantages will expand. We expect to reach 15-gigawatt, 10-gigawatt and 15 gigawatt respectively by the end of the year. Of this approximately 11 gigawatts will be mono wafers and approximately 9.2 gigawatts will be crystal. Overall, we believe we are well-positioned given the expected significant demand for high efficiency products and the current structure of our production capacity. [Foreign Language] Going out to 2019, we are confident of our Chinese and global demand next at solar energy becomes more and more competitive. We are excited about these opportunities that lie ahead. And we have confidence in our ability to further expand our market share then our product attrition and raise the industry forward. [Foreign Language] Before turning the call over to Gener. I will quickly go over the guidance based on the current estimate, we expect our total solar module shipments should be in the range of 2.8 to 3 gigawatt for the first quarter and 14 to 15 gigawatts for the full year. [Foreign Language] Thank you, Renee. With that, I will turn it over to Gener.

Thank you, Mr. Chen. I'm happy to report a strong finish to 2018. Jinko shipped a total volume of 3,618 megawatts in the fourth and 11.4 gigawatt for the entire year. We once again ranked first globally in solar module shipment for the third year running with approximate 13% market share according to analysts report. The Chinese May 31st the policy change did not impact our growth momentum our south channels now cover over 100 countries. In terms of the geographic distribution, China has the largest demand and accounted for approximately 38% of the total shipments. In the Asia Pacific region was the second biggest followed by emerging markets North America and Europe. In 2018, we further consolidated our number one position in terms of the shipment by increasing the lead with second place by over 30%. In 2019, we expect the international demand to account for over 80% of our total annual shipments. Geographic mix among Asia-Pacific, Europe and North America is becoming more balanced. Meanwhile shipments to emerging markets are growing and are increasingly becoming more important. Overall, we are very optimistic about continuing global market growth this year. We are confident in our ability to maintain our leading position in this industry and to generate sustainable growth over long-term. In terms of market update, I will first start with China, where recent imbalance in demand supply has supported an increase in ASP especially for premium products. In February, market sentiments improved after the National Energy Administration announced the business friendly policy drops together with industry consultation. According to various industry forecasts, new Chinese installations in 2019 is expected to be in the range of 40 to 45 gigawatts, which is similar to last year. As the industry awaits the finalization of this year's new solar policies, the industry expects a DT projects and a grade parity projects will rise up and have a greater share of annual installations in China. It is the government's aim to help the industry transition from subsidy driven demand to market driven demand. And it's mostly achieved grade parity in the near-term. We are confident that we will be able to take advantage of this expanding opportunities for grid parity projects, while continuing to provide our clients with high efficiency products with lower LCOE. Our strategy is to promote industry leading products and the technologies while expanding our presence and the market share. The U.S. market is strategically important to us. And this year is shaping up to be a very active. Solar developers are rapidly putting together projects in order to benefit from the highest possible investment tax credit. This has created a shortage of high efficiency products and has supported ASP. We anticipated that this policy will stimulate further demand over the next few years. We will leverage our extensive brand recognition, premium quality products and services as well as our dedicated local U.S. capacity to further consolidate our presence in this country. Switching over to Asia Pacific region, we are forecasting good demand in Japanese market. We expect 2019 total installations to be in the range of 6 to 8 gigawatts. Demand is likely to increase in short-term as developers rush to secure the old FIT before it expires. Solar policies now are gradually taking shape which will further boost the sustainability of this market. Demand across the country is growing from both local and international players. We see potentials in other neighboring countries such as Thailand, Malaysia, Indonesia and the Philippines. Our strategy has always been to establish early mover advantage in local markets. We believe we are well positioned to strengthen our leading position across the region. The Indian market is very actively growing. However, the ambitious national targets for the solar products cannot be met by the limited production capacity we have. As a result, the market continues to rely heavily on Chinese and overseas suppliers even after the introduction of import duties. We are optimistic about the long-term prospects of the Indian market. We will focus on our premium clients and promote our high efficiency products there. We are very optimistic about European markets in 2019. The costs of the solar divestments have decreased substantially and many countries have already achieved the grid parity. Both utilities and the distributed segments are [indiscernible] in key markets such as Germany, Italy, Netherlands and the Spain, which are showing great promise. Thanks to 20% renewable energy commitments by EU countries by 2020, many countries are rushing to reach this target before the deadline. Countries that have fallen behind are actively ramping up their efforts to bridge this gap based on this target. Emerging markets such as Latin America and the Middle East are growing importance and accounting for a bigger portion of our shipments. In 2018, we further consolidated our position in Latin America by shipping to 20 countries there. Many Latin American markets are implementing auction mechanisms that will further stimulate demand. In the Middle East, we believe traditional markets such as Egypt, Jordan and the UAE as well as emerging markets such as Kuwait and Oman will continue to show great promise. We expect a 7 to 10 gigawatt of installations in EMEA region in 2019 and the believe demand will continue to grow through 2020. We are very optimistic about our prospects in this region and we will allocate more resources to the market there. Moving to product pricing, our fourth quarter ASP decreased as we expected when compared to the previous quarter. But as Mr. Chen just mentioned with technology improvements and the ramping up of our high efficiency product capacity we are confident that we will be able to generate sustainable profit and growth. As solar module efficiency increases and the costs continue to decrease, solar energy will continue to become more competitive when compared to traditional energy sources, which will help increase the pace towards grid parity. On the marketing side, we have set out to position ourselves as a key opinion leader in the market. One of the ways we can increase demand is by educating the market and expanding the reach of our marketing activities. As part of this effort, we were invited to speak at many world-class conferences, events and the forums such as the IFC 2018 18 Business Forum, which was an event where global business leaders where invited to collaborate on how to tackle climate change. We were also likely to participate in the 2018, B20 summit in Argentina where representatives from top companies and business associations from all G20 countries discussed the influence of grid parity on the global energy market. In terms of the product marketing, we increased our efforts towards the promotion of our premium Cheetah brand and other industry leading products. Over the course of this year, we attended 45 major exhibitions, 207 conferences and hosted a further 170 customer events around the world. This global marketing events strengthen client's trust in our Cheetah series of products and help to further expand the recognition of our premium products in this market. With that, I will turn it over to Charlie.

Thank you, Gener. Firstly, I'd like to welcome to our Q4 results. Total solar module shipments worth 3.6 gigawatts up 23% sequentially and up 46% year-over-year. Total revenue was $1.1 billion up 15% sequentially. The sequential increase was due to the strong solar module shipments. Gross profit was U.S.$165 million compared to U.S.$145 million in Q3. Excluding a CVD reversal benefit gross profit was U.S.$155 million compared to U.S.$125 million in Q3. The sequential increase was due to the increase of shipment of solar modules and the reduction of production costs. Gross margin was 14.7% or 13.8% excluding the CVD reversal benefit compared to 14.9% or 12.8% excluding the CVD reversal benefits in Q3. We achieved a higher gross margin through our combination of our diversified strong global sales and continued property taxes. Operating expenses was U.S.$130 million representing 11.6% of total revenue compared to U.S.$118 million which was 12.1% of total revenue in Q3. Net exchange loss was U.S.$5 million compared to our net exchange gain of U.S.$14 million in Q3 due to the RMB appreciation against U.S. dollars. EBITDA was U.S.$4 million compared to U.S.$24 million in Q3. Net income was U.S.$16.7 million compared to U.S.$27.5 million in Q3. Non-GAAP net income was U.S.$17 million. This translates into non-GAAP diluted earnings per year of $0.40. We will now review our full year 2018 financial results. We concluded our 2018 with total solar module segment of 11.4 gigawatts up 16% year-over-year. Total revenue was U.S.$3.6 billion in 2018 down 5% year-over-year due to the decline of average selling price. Gross margin was 14% or 13.3% excluding the CVDs reversal benefits compared to 11.3% in 2018. We achieved a higher gross margin through a combination of our diversified strong global sales and continued cost reduction. Operating expenses was 11.5% of total revenue compared to 10.1% in 2017. EBITDA was U.S.$220 million compared to U.S.160 million in 2017. Net income was U.S.$59 million compared to U.S.$22 million in 2017. Non-GAAP net income was U.S.$63 million compared to U.S.$32 million in 2017. This translates into a non-GAAP basic and diluted earnings per ADS of $1.64. Moving to the balance sheet. The company had $506 million in cash, cash equivalents and restricted cash compounds to U.S.$442 million by the end of Q3. The accounts receivable were U.S.$ 889 million down from U.S.$955 million by the end of Q3. Inventories were U.S.$835 million compared to U.S.$810 million by the end of Q3. When total debt was U.S.$1.41 billion compared to U.S.$1.38 billion at the end of Q3. The net debt was U.S.$960 million compared to U.S.$936 million at the end of Q3. At this moment, we're happy to take your questions. Operator?

Thank you. [Operator Instructions] Your first question is from Philip from ROTH Capital Partners. Your line is now open. Please go ahead.

Hi everyone. Thank you for my questions. I'd like to talk about your vast expansion to start. Can you help us understand what the CapEx required will be to enable your vast expansion for 2019. Thanks.

Sure. In terms of capacity expansion, I think the fundamental rationale for the company to expand our capacity is the market is shifting to the high increases products. And we have the stronger products in the market like -- we have the forum to watch so many little pieces, Cheetah and we just launched the brand by official product and there was strong attractiveness from our customers. And in terms of estimation of the full year shipments, we guided 14 to 15 gigawatts shipments around 65% is mono PERC. So all the investment -- the high increasing product and which is, if you look our capacity, we plan to do five gigawatts mono wafer capacity. And for the PERC sale prospectively we are doing the converting from lump PERC to PERC and the increase -- the total PERC for capacity is around 9.2 gigawatts. And the purpose is to build our competitiveness of the capacity as well as our cost competitiveness and for the future. And we are talking new processing, so total CapEx, we estimate it's in the range of U.S.$400 million to U.S.$450 million.

Okay, great. Thank you, Charlie. Can you break down the unit CapEx by chance. What's the unit CapEx per watt for wafer, solar module, and then, also for the surplus capacity? Thanks.

Sure. Sure. And for the new capacity, I just give you some the range and for some capacity like the sales we are converting existing sale capacities non-PERC to PERC. So the CapEx should be lower. And therefore, the new capacity like the mono wafer, we estimate per watt basis, it's U.S.$0.03 to U.S.$0.04 per watt basis. For the new PERC capacity per watt basis, it's U.S.$0.06 to U.S.$0.07 and for the module capacity it's around $0.02.

Great. Thank you for the detail there. So given the $450 million that maybe required. Charlie, do you have plans to raise equity? How do you expect to finance the expansion?

It's kind of coming from couple of different resources and we expect that we are able to continue to generate positive and sizable operating cash flows. And secondly, we are working with some industry funds which are an interesting solar energy farms a long-term perspective. And we have roughly 500 megawatts international projects which are in construction. And we estimate in the second quarter or third quarter, we are going to sell around 250 megawatt international projects and we kind of recycle the equity we invest in international projects.

Okay. And is that enough so that …

I think the place we don't like to increase our leverage dramatically and we are going to working with some industry funds from the equity perspective and on the subsidiary level and they can put their money and they're kind of long-term investors.

Okay, great. To what degree do you think you would want to work with local governments to help you also finance some of this expansion? Do you think there's a partnership that you can secure with some local provinces, and then, in turn perhaps shift the CapEx to a partner and then have less requirement in on your own balance sheet. But then as a result, do you expect that to increase your operating expenses from a lease perspective. Can you walk us through how that might work?

I think solar is pretty attractive. And the China economy is also so good. And from many investor perspective and a lot of investor are looking for the industry with long-term sustainable growth. And I think you understand, China -- even China -- China policies positive and providing anticipated transition period helping China market to shift into the market without subsidy. So, why I like to say that because a lot of market driven financial institutions are interested in investing on the solar on the long-term perspective. So that is our direction working with.

Okay. Thank you, Charlie. Shifting over to ASPs, I think Gener you talked about ASPs maybe coming down a little bit in Q1 versus Q4. Roughly, we calculate about $0.31 for watt ASP for Q4, are we -- is that correct to start? And then also, Gener, as you think about it, the Q2, 3 and 4 ASPs that you might see, can you talk about the cadence of those ASPs? Thanks.

Thank you, Phil. I think for ASP side of Q4 numbers -- we are around 30. Very close to 30s or high 20s close to 30s and that's for Q4. And for Q1 for 2019 ASPs, we are observing very strong demand at least for our premium products like our Cheetah series, a small series. So by converting our capacity into more PERC capacity manufacturing this premium series of product. I believe the market -- the market price -- also the premium product will help us to stabilize ASPs and keep this whole year ASPs stable even with some seasonality of certain quarters there I see even goes up somehow.

Okay, great. Do you expect, I think -- any source talking about potential and I've heard from some of our checks that there's potential in Q3 and Q4 for this piece to go higher. Do you see any potential for that as China resolves its policy outlook and some of the demand -- lean demand has gets released I guess in Q3 and four?

For the seasonality, I think the policy is -- mainly for the policy driven market, it will impact the supply and demand curve in some certain period of time that's why it happened in the -- I say in a lot Q3, Q4 maybe it might happen again for 2019 Q4, Q3 as well. Regarding China, I think because of the delay of the announcement of the new policy maybe it will further forecast this demand by the second half from China market due to the rush of short period of time and large volume. The good thing is I think there will be some grace period also and I think of correction. That's why I think the total demand will be become much smoother than last year.

Great. One last question, and then, I'll pass it on. As for the U.S. market, how do you, there is a shortage of high efficiency product in the U.S. markets. My sense is manufacturers don't want initially expand capacity in Southeast Asia to be tariff economic to the U.S. But what are your plans for cell capacity in Southeast Asia. Do you expect to expand that all to serve the U.S. markets or do you think you want to convert some of the U.S. market back to multi. So what are your thoughts overall for capacity? Thanks, for the U.S. market.

Yes. Sure, Phil. I think for U.S. market, we are currently 100% supplying our Cheetah series high-end premium product to U.S. market. So we don't have any plans to ship our poly products because of the expensive labor cost and the tariff cost in U.S. and that's our plan. So I think we will stick to our plan and fully utilize everything we have in Southeast Asia including U.S., Florida sites to finish -- to satisfy our obligation on supply. We have secured I think almost everything we have for the next quite a couple of months for U.S. markets. So we don't have too much capacity to wrap.

Okay. Thank you, Gener. Thank you, Charlie. I'll pass it on.

Thank you.

Thank you. Your next question is from Maheep Mandloi from Credit Suisse. Your line is now open. Please go ahead.

Hi. Thanks for taking the questions. Just heading back to the capacity question, how much capacity do you expect the industry to add in 2019 for either the way for rental capacity? And could you just talk about like the total demand expectations you have for 2019?

So, Maheep, you're talking about industry, right? The capacity expansion, right?

Yes.

Yes. I think from the product perspective most of the -- I think investors are expecting around 88 to 98 gigawatt PERC, cell capacity by the end of the year. But, for the mono wafer, in terms of competitiveness and I think we are one of the three and mono wafer producers and are planning to do the capacity expansion. Depending on how solid is that capacity expansion plan and if you add some company had lost a very big capacity expansion. It's not -- I don't think its executable. So, I think it's on the mono wafer capacity perspective. It's quite in line with the product capacity and around 80 gigawatts.

Got that. And how much is the growth from 2018 to 2019 in that?

Maheep, what Charlie just mentioned is our expectation of the total industry capacity is not the newly added capacity right. Just while clarification on that. So comparative well through ratios personally we believe for the mono wafer capacity is significant. Let's say they have a significant growth is approximate or close to double let's say over 60 -- close to 60%, 70% of growth. For the PERC cell capacity, I think definitely more than double.

Got that. And just on your capacity expansion, look when do you expect those new capacities to come in service. Is it like an early twin -- the first half of 2019 or towards the latter half?

Not so capacity particular on the mono wafer and PERC capacity we plan to ramp up around the middle of the year and the ramp up in capacity and I think by the end of Q3.

It's a different stage. Maheep, this is Gener. For example, for a difficult part like wafer party , the renting cost -- ramp up protest might take longer. But, for the PERC capacity operate and adding some new capacity on, I think that will be faster. So, module part we will be much faster. So the range will be starting from Q2 to end of Q3 to our step by step everything will be ready.

Got it. And just when the -- then thanks for the color on the ASPs earlier. But how do you look, think of gross margins in 2019? Should we expect the same run rate we saw in Q3 and Q4 of 2018 or slightly higher?

From the gross margin perspective in Q4 last year, 2018 and CVD impacts, our gross margin was 13.8% and we expect the gross margin in Q1 is favorable, excluding the CVD impact. And just back Gener said, the marketplace is very strong particularly for the high increases in mono PERC. And from our perspective, if you look at our capacity for the high increasing mono PERC, it's very limited and by the end of last year, we have only 5.7 gigawatts mono wafer and the 4.2 gigawatt and product capacity. So our in-house capacity gross margin actually in Q1 we expect to increase because continue the cost reduction and a very decent price. And however, because of the -- particularly the sub par is the product sale price is pretty high and we need to buy along 30% and to 40% sale from third party. So we get some next year impact from the gross margin perspective in Q1. So all in all, and we expect the Q1 gross margin is stable. However, with more capacity particularly for the PERC cell coming out and the price is a downward trend. And most importantly, we are increasing our capacity on the mono wafer and the PERC sale. And we expect our in-house capacity with this, our total shipments. The percentage in particular for the mono PERC will increase step by step.

I got it. That's helpful color. And the last question for me, then I'll jump back in the queue. Like how do you look at operating expenses for the year especially given you are increasing -- your shipments by more than 30% in 2019.

Yes. You're right. And we estimate that 30% shipments and growth as well as we estimate this throughout the whole year. The ASPs were quite stable particularly on the high efficient products and we have -- very strong competitor mean it's our product and from the revenue of size and we estimate because the shipment is 30% increase. And revenue side, we estimate, I think around 15%, the increase. So, from operating expenses perspective, we estimate in the range of 10% to 10.5%.

Got it. And I appreciate the color, I will jump back in the queue. Thank you.

Thank you.

Thank you. Your next question is from Brian from Goldman Sachs. Your line is now open. Please go to.

Hey guys. Thanks for taking the questions. I might have missed this, but did you mention what your cash flow from operations was in 2018, but with their number one.

The cash flow for 2018, we are still finalizing the numbers, but if you are looking at our the disclose, cash flow in one of the previous quarter, it's quite impressive because particularly we signed a lot of contacts in the international markets and therefore the next two or three years. So we got a lot of advance payments.

Well, maybe put another way. I think you spent five hundred forty five million in CapEx for 2018. That's on Slide 7 of the presentation. How did cash flow from operations compared to that -- it's just directionally I guess.

So you free of our total 2018, right, CapEx.

Yes. I'm just trying to get a sense for what free cash flow was in 2018?

Okay. I think from the free cash flow given reinvest around over U.S.$400 million. I think the free cash flow will be some next year numbers range, I think around U.S.$100 million to U.S.$150 million.

Okay. All right. That's helpful. And you mentioned $400 million right now but on Slide 7 unless I'm interpreting this correctly if you add up the quarterly figures on the CapEx it totals $545 million for 2018. So can you reconcile is it, is that the right CapEx number to be assuming here? And then, related…

Sorry to interrupt. I think I'm talking about from the manufacturing perspective and if you look our number, we have international projects just like that we are going to sell international projects and they run to 250 megawatts a year.

Maybe the question is of the $545 million in aggregate CapEx that you show in Slide 7. How much of that is manufacturing CapEx versus how much of that is project related?

The CapEx for the IPD international projects, it's around U.S.$90 million.

U.S.$90 million, okay. The reason I ask is, I take the $90 million out of the 545 total. You spend around $450 million in manufacturing CapEx for 2018. You're guiding $400 million to $450 million of CapEx, I'm assuming manufacturing CapEx in 2019 based on the question that was asked earlier in the call around your capacity expansion. But the capacity expansion target is much higher for 2019 over '18 versus what you saw in 2018 versus 2017. So I'm just -- you could help reconcile how -- not much higher than that?

Yes. I think I'm [indiscernible] remarks, I think it is not new -- all the things are from the new capacity expansion lines at cell. And capacity, it's mostly coming from the converter, it's existing capacity non-PERC to PERC. At the same time, we increased the output and deposit. And for the module perspective, I think we are going to increase around 4 gigawatts, around 2 gigawatts, it's from debottlebeck. It's is not the new capacity expansion.

Okay. Maybe on that same topic then what about wafer and cell wafer and solar clearly the more capital intensive parts of the CapEx budget. How much of that is debottlenecking to get to the 15 and 10 gigawatts versus greenfield expansion?

You are talking about wafer, right?

Wafer and I think you mentioned, earlier you said the wafer and the cell were higher since the watt CapEx than the module which makes sense.

Yes. You're right. I'm talking about the new capacity CapEx. And it was existing all capacity, converting or upgrade a debottleneck that CapEx for watt basis will be very lower.

Okay. Fair enough. I'll take that offline. Maybe just another question on the capacity expansion and then I'll move on to another topic. Given you're burning some cash here in '18 or you burn some cash in '18. It seems like you'd be on a similar trajectory in 2019 given the gross margin and backs color that you provided and also a similar level of CapEx. How should we be thinking as investors on the ROI or ROIC just the level of returns that you get when you go into your annual planning sessions to figure out how much CapEx -- capital investment to be putting back into the business just -- is there a hurdle rate you look at or how -- you guys just give us a sense of how you think about the targeted returns as you put capital work on the CapEx side?

And Brian, I think we feel that high increase income tax and just like we said, we think that is likely to change. Market is shifting to the high efficient products and we invest a lot on the R&D and on the products. And it's for the high efficient module capacities. The gross margin is quite impressive. Like I think we got from -- we as the leaders and is a mono product module in-house. Gross margins are able to reach 25% even lot higher. That we build the capacity enough for this year and we think it's a strength and we know it could increase our competitiveness on the capacity perspective. And again, for the financing need and to increase the capacity and our goal is to working with some industries equity fund and the two funds are the capacity expansion.

Okay. I mean I know a lot depends on what out year pricing and your costs end up doing. But when we sort of back into the math it seems like on some of this capital investment you're earning less than a 5% ROI, would you agree with that or how would you sort of put us at ease that the returns on this investment are better than what seem to be penciling out on paper?

I think Brian I think our target is at least to be at the same level of the industry leaders are for the high end product margins. So we will -- from the margin wise we are expecting mid 20s which is same as our other peers, right. I think you can take that as a reference.

Okay. Fair enough. Maybe last question and I'll pass it on. I know I've had a few here. Come to light recently that you have some associated debt or liability with the Jinko Power organization that you parted ways with a couple years ago. I think based on your financial statements the agreement or liability or backstop however you characterize it ends in October of 2019. Our understanding is Jinko Power is in the market or has been in the market trying to raise that but in the event that they aren't able to that just maybe can you level set us as to what your exposure is there. And then, given we don't have transparency into watching co-power is doing with it, balance sheet what confidence level there is that that won't be a liability that ultimately stays with you guys at the end of this year.

I think we are seeing a lot of misleading information in some people's report. Back to the histories, in Q4 2016, we spinned-off Jinko Power and before the spin-off, Jinko has further component, they provided guarantees for the projects going on Jinko Power. And in China it's already standard and a common practice for company's to provide guarantees for the project long seen in China. And because all the projects we provide it guarantees back to -- before 2016, our subsidy catalog and they're generating sufficient cash flows. And page down the principles, the total guaranteed amount has dramatically decreased to around U.S.$580 million. And after the spin-off on 2016 Q4, chemical and Jinko Power in different companies, we didn't provide any additional guarantees to Jinko Power. On top of that for the pre-existing guarantee arrangements we're charging the guarantee fees based on the market practice. And I think there are some information we can cover it has Jinko Power in Q4 last year, we have reached another RMB 1 billion equity funds. And in December last year, Jinko Power submitted the IPO applications. And I expect it to continue to go through the IPO process.

I don't understand why you guys keep saying it's not transparent. I think every information is kind of the top. We can find all the information out there. I don't know. Just somebody don't spent any time reading out or what? It's all transparent. Okay.

Yes. I referenced that in your financial statements. There's transparency to that degree the fact that Jinko Power is not a publicly listed entity is what I'm referring to in terms of the lack of transparency as to what's happening at your partner because what's happening there at the partner level with respect to their debt servicing and raising of funds is what potentially a worrisome issue with respect guys. I'll leave it there. If I've raised all the questions, I got guys, thanks.

Thanks.

Thank you. Your next question is from Carl from CICC. Your line is now open. Please go ahead.

Hey, management, thanks for taking my question. My first question is looking at your capacity expansion plan. We have a lot of model, we've come at expansion. And I've got a long question, we are looking at the market and we were seeing some kind of quasi model that is using the traditional party and they make can -- do some mono wafer. So how we look at today's technology are they going to mature this year? And we are seeing some kind of pricing that those kind of closing mono wafer could but just like I am hoping for discovering compounds with a normal mono wafer. And so, I have got on full on cashing on the cost reduction. Yes. That's all the first question is about how we look at this technology the quasi mono.

Thank you. Sorry, this is Gener. I think in terms of technology roadmap, our lot of argument in the market. I think Jinko has it's own roadmap and based on technology together we've done a high piece sort of after our internal analyses, we believe that current roadmap including the wafers, cells and modules is the most promising and a competitive ways we should do. So that's why we choose this way. And regarding our other peers technologies, I think it's a hard to comment on this good or bad or a high or low. But we respect that. Everyone has a different position in terms of the facilities they have in terms of the R&D development they have even their assets qualities et cetera. So everyone comes from different position make different decisions. But at the end of the day, the market will only look into the solar modules in terms of RCOE. I think that China policy decision makers trying to push forward together with other solar markets as well. So, as far as RCOE number makes sense that will become the competitive with that how we make our decision as well.

Okay. Thank you. Yes. My next question comes from cost reduction. So we are seeing some of our peers had margin edging the fourth quarter and this is purchase cost of reduction and RMB decrease will help their margins. But we are seeing quite a stable margin for us. So could you help me to understand that -- I think in the report we are managing that we have exchange loss because of the RMB appreciation in the fourth quarter. So I got a little bit confusing about these terms. So could you please tell me, what way we facing the fourth quarter, are we facing the RMB appreciation in the first quarter. So we will make currency edge loss on that. And so how we look at the cost in the fourth quarter?

I think for the cost reduction deal, our key focus through 2019 and I know we are debottleneck our capacity increase output, reduce cost per provider basis and we are talking about the capacity expansion particularly around the mono wafer PERC sale. And we continue to expect to see the economies of scale. And we are putting technology in place and increasing efficiency enhancements. And then, back to what we are seeing as a gross margin, and I think is a key impact for us is and we have limited cell capacity. We need to buy 40% on third party and due to the capacity constraints, particularly for the mono PERC sale, the price is -- had increased a lot a lot in addition and one quarter for two quarters. And so our gross margin get some impact from that perspective from the near-term the PERC capacity coming out, the price, the market price for solar cell is in a downward trend. And on top of that we are adding our own in-house for a cost competitive capacity and we were expecting to see the positive impact in the second half year okay.

Yes. Okay, I understand. Yes. My last question is about the visibility. So everybody is talking about a very strong demand from the overseas markets. So what sort of order visibility in 2019. We have two of our orders through second quarter to third quarter. And how about the order, are they with the price at field or they are with the price over the [indiscernible]?

Sorry, this is Gener. So I think the visibility that's a number average according to what capacity we are talking to, right. So according to our data, yes, we are happy to say that we are over 60% booked for the whole year of 2019. And we are -- I think the number will change in the next few months as well. But the strong demand is already happening. And even without China debt remember that that number comes out without the China margin start, right. So that's why we are pretty confident this will be a great year for the whole industry I think.

I think the visibility is the strongest in recent years. And just like Gener said it's almost 100% on the international market and China policy -- the installation on strategy second half year 2019, so given our comfort in China orders and I think the key driver is grade parity is coming. And the technology we're seeing is impressive. Like per half sale ten times and official and driving down the solar installation costs and LCOE. And we believe because the cost of the global the key to our market, the penetration is very low compared to the potential growth.

Yes. I got a follow up question on this. So I see that 60% of this whole year is based on the guidance of 40 to 50 gigawatts shipment. Is that -- can I understand that?

Yes. That's approximate. Yes.

Yes. Okay. And so for those orders the pricing of our models is fixed or is it flexible?

We already talked about only when everything is fixed. We would count them as firm dollars, if the price is not fixed, we don't count them. If we count those to rest they are not fixed or the visibility number will be much higher than what we say.

Yes. Yes. So, and I guess, as we previously imagined we got a pre-payment from that, right?

We can't secure it down.

So what percentage of [indiscernible]?

Well, we don't disclose that. But, we have enough confidence on those execution of those contract for sure.

Okay. Thank you. Thank you very much for taking the question. That's all.

Thank you.

Thank you. Due to time constraint, we'll be taking in our last question from Alex who is from UBS. Your line is now open. Please go ahead.

Thank you for taking my last question. My first one is regarding to your wafer capacity expansion plans. You mentioned you have expanded your labor capacity by 6 gigawatt this year. So but considering the other wafer makers like [indiscernible], they are also expanding very quickly or aggressively. So do you think you can get enough wafer equipment from like [indiscernible] in time. I mean are you confident enough to get all your newly wafer capacity online within the year?

I think we are not going to disclose our suppliers. I think we know when we were talking about 5 gigawatts mono wafer capacity, we have almost secured in terms of suppliers. And on top of that, we are selecting the regions in the rest of China, which is very cost competitive and that we build a capacity, it's a brand new 5 gigawatts mono wafer and we believe our -- from those quality and the cost perspective and we have capacity where we were are competitive.

Okay. Then my second question is regarding to the module ASP. You mentioned that you are attacking a lot of the people ASP, I look forward for this year, but considering that we are still have some small distance compared with power instead of using, you still need to push down the ASP a bit to help the industry to grade parity or your maybe that happened next year?

Yes, Alex. This is Gener. I think you just raised a great question. In long-term we do believe only by making solar energy become more competitive compared with other business traditional energy resources, solar industrial will have a bright future that everyone working in this industry believe I think. And in short-term the seasonality of different market segment even the policy changes the deadline changes will naturally change the short-term supply and demand. That's why I say in the long-term, I've seen the whole year of 2018, I see that the market price become more stable. However, if you look into the -- I think into the single quarter or a single month and that will much be more -- much more impacted by the detail of the policies. That's why I think most of the industry players believe in the Q3, Q4 when China market pickup with a strong number, I think the price won't drop too much. I understand talking about China, the projects without subsidy and they look up the global, I think most of countries have reached a grade parity even more competitiveness. And China, I think you understand there is some sizable steepening subsidies. And most of -- if you compare to the top-line one the adjusted levels that are average RMB0.05 and it's going to support a days numbers or installation. So again it's a transition period. And the two years right starting from now and so I think that's pretty much answer your question right.

Yes, okay. That's real helpful. Thank you guys.

Thank you, Alex.

Thank you, ladies and gentlemen, that does conclude our conference for today. Thank you all for your participation. You may all now disconnect.