Ladies and gentlemen, thank you for standing by, and welcome to JinkoSolar First Quarter 2019 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 speaker today, Ms. Ripple Zhang. Thank you. Please go ahead.

Thank you, operator. Thank you, everyone for joining us today for JinkoSolar's first quarter 2019 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. Chen Kangping, Chief Executive Officer; Mr. Charlie Cao, Chief Financial Officer; and Mr. Gener Miao, Chief Marketing Officer. 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. 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 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 the 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, Ripple. Good morning and good evening to everyone and thank you for joining us today. [Foreign Language] Module shipments were 3,037 megawatts during the quarter, an increase of 50.7% year-over-year and a decrease of 19.1% sequentially. Overseas shipments accounted for over 90% of the total shipments during the quarter. Total revenues were 868 million, an increase of 27.5% year-over-year and a decrease of 24.6% sequentially. Gross margin was 16.6%, up from 14.7% sequentially and 14.4% year-over-year, as we increasingly benefit from a higher proportion of sales being generated by our high efficiency mono products and further reductions in production costs. [Foreign Language] As grid parity approaches, global solar demand continues to generate rapid and long term sustainable growth momentum. Growth during the quarter was primarily driven by strong continuous demand from overseas markets and the anticipated kickoff of the domestic market during the second half of the year. [Foreign Language] European markets continue to perform well following the cancellation of the minimum import price policy, and the demand from price sensitive projects in particular has surged. Overall, European markets are expected to install 17 gigawatts this year, exceeding the previous estimate of 15 gigawatts. [Foreign Language] The solar energy market in the US is huge. Recently, policy changes exempting bifacial solar modules from Section 201 tariffs are expected to support medium and long term demand and significantly increase the application of bifacial modules. The market opportunity in the US is massive and we intend to expand our presence there and leveraging our overseas high efficiency capacity in Malaysia and the US, strong brand recognition, high quality products and our best in class customer service. [Foreign Language] On the domestic front, policies recently laid out by China's National Energy Administration are expected to create a surge in…

Thank you, Mr. Chen. The total shipments during this quarter was 3,037 megawatts, exceeding our guidance, and an increase of 50.7% quarter-over-quarter. Demand outside China during the quarter accounted for over 90% of total sales. Particularly, shipment growth of mono PERC products was 2.4 times higher than the same period of last year. In terms of geographic mix, shipments to the Asia Pacific region accounted for the largest portion, followed by European markets and then North America and emerging markets. With over 70% of our order book already filled, we have great visibility for the second half of 2019. Due to later than expected announcement of this year's policy, total PV installations in China were only 5.2 gigawatts in the first quarter. With the new policy’s final release, demand is expected to surge in the second half of the year with poverty alleviation and the residential expected to be proceeded first. For the full year 2019, we expect total solar installation to be around 40 gigawatts. We will further reinforce our position in the largest PV market in the world by promoting our high efficiency premium Cheetah and Swan products and facilitate the market’s transition towards grid parity. The US market has been heating up over the last two years. The ITC played an influential role in stimulating demand. US installation achieved a record high in the first quarter. Due to the trade barriers and supply shortage, we anticipate that the market price will remain stable. Recently, it was announced in US that bifacial solar modules were exempted from the section 201 tariff. The tariff exemption on the bifacial modules will increase the product’s competitiveness and help its pro life reach in the US market. The bifacial solar modules will likely become the mainstream choice in the future. In particular,…

Thank you, Gener. Firstly, I like to walk you through our Q1 results. Total solar module shipments were 3 gigawatts, down 16% sequentially, and up 31% year-over-year. Total revenue was USD868 million, down 23% sequentially, and up 28% year-over-year. The change was due to the decrease of solar module shipments. Gross profit was USD144 million compared to USD165 million in Q4 2018. Excluding the CVD reversal benefit, gross profit in Q4 2018 was USD155 million. The change was due to the decrease in the shipment of solar modules. Gross margin improved to 16.6% compared to 14.7% in Q4 2018. The sequential increase was attributable to higher proportion of self-produced high efficiency mono products and further reductions of our production costs. Operating expenses was USD109 million, representing 0.5% of total revenue compared to USD130 million, which was 11.6% of total revenue in Q4 2018. The increase of operating expenses as a percentage of revenue is due to the increase of shipping costs as a percentage of revenue associated with a significant higher percentage of shipments to overseas market. EBITDA was USD49 million, compared to USD54 million in Q4 2018. Net income was USD6 million, compared to USD16.7 million in Q4 2018. Non-GAAP net income was USD5 million. This translates into non-GAAP diluted earnings per ADS of $0.12. Moving on to the balance sheet, the company had USD650 million in cash, cash equivalents and restricted cash compared to USD506 million at the end of Q4 2018. The accounts receivable were USD872 million, down from USD889 million at the end of Q4 2018. Inventories were USD966 million, compared to USD835 million at the end of Q4 2018. The increase of inventory is for the continued strong demand from international markets in the second quarter. The total debt was USD1.8 billion, compared to USD1.4 billion at the end of Q4 2018. The net debt was USD1.1 billion, compared to USD0.9 billion at the end of Q4 2018. The increase was due to the short term borrowings for the working capital purposes and long term borrowings for the capital expenditure. At this moment, we're happy to take your questions. Operator?

[Operator Instructions] Your first question is from Philip Shen from ROTH Capital Partners.

In terms of the Q1 shipments, I was wondering if you could break that down into multi modules, mono modules and mono PERC modules, similar to what you do annually. And also, can you share what the in-house vertical costs were in Q1. I think in Q4, you guys talked about $0.193, but if you could share that for Q1 as well, that'd be great. And then how do you expect your overall cost structure to trend by the end of this year and also the end of 2020?

It's a long one. So, let me take the first half first. For the mix of different technology, I think our -- in Q1, our shipment for the poly products are below 50% and the rest will be the high efficiency – the high efficient products. For the detailed numbers, we don't plan to disclose that and what's the other part of the question about the shipments. Can you repeat?

I think that for shipments, I mean, can you share how much was mono PERC. I think you guys do it annually. So, if you can do it for the quarters, that would be helpful.

Philip, I think in our prepared remarks by our CEO and our planning for the shipment of mono high efficiency products is roughly 70%. This is for the full year 2019. But on a quarter by quarter basis, the percentage is increased quarter by quarter throughout the year.

Good. And then in terms of the in-house vertical cost structure for Q1 and then expectations by year end and year end ’20.

Sure, sure. And I just can give you some highlights, but we are not in position to disclose the detailed numbers, given the consideration of competitiveness, and, this year, and we're doing a lot of things to help to drive our costs, but given the strong demand throughout the international markets anticipated in China kick off in the second half here. And I think, the material costs, we’re speaking, right, [indiscernible]. So we were targeting the branded, branded in house, production costs is 5% to 8% improvement this year. And on top of that, I just want to highlight our -- the new capacity. This is the key profitability driver for Jinko, because this year, it's a transition year for Jinko, transforming to mono based high increasing capacity and our new mono wafer capacity in Sichuan, we just started the small scale trial production, which will be very cost competitive and build out strong foundation for Jinko to get very strong advantage in future years.

Okay, thanks, Charlie. Can you talk about, I think the CapEx for the quarter was 60 million. How do you expect the CapEx to trend by quarter for the rest of the year?

The total budget in CapEx throughout this year is roughly USD450 million. And the key investment this year is the mono wafer as well as the PERC cell capacity. And we are almost doubling our high increasing capacity and focus on the mono wafer and PERC cell. If you look at our capacity, Q1, mono wafer, roughly 6.5 gigawatts and PERC is 5.4 gigawatts. It's almost doubled by the end of this year, reaching to 11.5 gigawatts mono wafer and 9.2 gigawatts PERC cell. So, you can think about from, I just highlight the mono wafer and PERC cell integration capacity is a key driver for our profitability. And now, we roughly have 5 gigawatts integration capacity slots in mono wafer, PERC cell and module, and by the end of this year, we are going to reach to roughly 10 gigawatts.

Just another quick one here for me, Q2 is almost over. As you look to Q3, how much of Q3 shipments have been booked? And, are you starting to see bookings from China with the policy now in place, when we met in SNEC, the demand had not yet -- improved yet in China. I know, the outlook for Q4 is better. But are you actually getting bookings for China now? And then another one, can you talk about the margin profile for Q2 and the margin profile for Q3? Thanks.

Hi, Phil. This is Gener. Let me take your China demand question. So firstly about second half, I think in my remarks, I already disclosed that, I think, we have approximately 70% booked by the second half that covered both Q3 and Q4. I think Q3 book level is higher, slightly higher than Q4. And regarding the demand from China, we see strong demand from China or from Chinese customers. So, but for sure, the total number is not comparable, compared with last Q4 because the late announcement of the policy in China. Personally, I expect the demand from China in Q4 will be stronger than Q3. I think you have another question about market, right?

That’s right.

Yes. And just settlement, I think China demand, Q3, we are seeing more activities from the residential markets, as well as projects without subsidies. And, we are expecting China is going to release them, the last for the projects with subsidy by the end of July and maybe early August and attracting very strong installations in Q4 this year. In terms of gross margin, in general, I'm very optimistic for the second half year, because what I emphasize as key demand driver for Jinko is integrated mono based capacity. We are going to almost double quarter by quarter, starting from Q3 and Q4. And for the Q2, the gross margin is at the mid range of 14% to 15%, it’s relatively lower than Q1. And Q1, the gross margin is pretty good and exceeding our guidance. And for the Q2, it's basically because our new capacity is still in the construction stage and will not have contributing to the profitability in second quarter. Second one is the total shipments increased quarter by quarter and as well as core -- shipment percentage is shifting very quickly to mono PERC shipments So, if you look at, calculate the in-house self produced mono PERC versus total shipments, it’s a little bit lower in second quarter as well as PERC cell price is relatively higher throughout the second quarter. So, the blended gross margin is relatively lower quarter by quarter in the second quarter. But I just said, I'm very optimistic in the second half year. And, we have almost blocked over 70% in second half year, fixed price, international markets, transit, anticipated strong China demands, and the new capacity coming in.

Your next question is from Maheep from Credit Suisse.

Just one CapEx, so you said it’s $450 million of CapEx for the full year. It’s in line with your prior comment. But when looking at capacity structure, you said in the press release, one gigawatt of extra module capacity this year. So, you increased it from 15 to 16 gigawatts. Is that part of the CapEx and also wanted to see if any bifacial capacity expansion is part of the CapEx as well?

Okay. So, in general, total CapEx, including everything, including wafer, cell and module, but in terms of allocating the key investment allocation is in mono wafer and PERC cell. For the module capacity, we increased from 10.8 gigawatts to 16 gigawatts, but the majority of our 80% incremental power is from the increased output is not new capacity. We just add very small scale, roughly, 1.2 gigawatts new capacities for the module, the CapEx is very small, but for the remaining parts, roughly 4 gigawatts is throughout our upgrades increment, increased output, decreasing bottleneck on production. And for the bifacial capacity, in general, our existing PERC cell capacity, we can do the bifacial, and in, for some facilities, we just need to do a very small, small, minor agreement, minor upgrades to make sure the capacity can do this bifacial products. So, it's, it's, I think it's very, very small, even though the CapEx.

And then just on, sticking with bifacial, so our understanding is that the exemption is only for bifacial cells and not mono facial cells with transparent backsheet. Can you confirm if that's in line with your understanding? And then also on bifacial, just wanted to understand what would be the incremental cost for bifacial mono PERC solar module for the US market?

So I think for us, when we read all these descriptions across the exemption files, we don't see any special things throughout the transparent backsheet. For sure, lawyers will be in a better position to confirm that. And for us, our understanding is that the module can generate a power, both from front side and rear side, it could be exempted from 201.

So just for your regular transfer in backsheet, mono facial, all right. And just in terms cost light, how much extra cost -- production cost do you anticipate for a transparent backsheet?

No, of costs, there are supposed to be additional production costs, but because of additional outputs, the bifacial product we think is mainstream, providing more benefits to our developers. And what I can give you, is the bifacial, one way of promoting bifacial transparent backsheet is very comparative compared to the traditional bifacial double glass as well as, because the module we are promoting is lighter, and easy to install, so we think we can very -- easy to increase our penetration in bifacial in the US market, given the favorable policy.

And just regarding your order book, have you -- or apart from the 70% of the second half, are you seeing any orders for the next year, for Q1 or for 2020?

You mean the order book for 2020?

Yeah.

I think, right now, I don't have exact figures, but we do have build up a pretty solid, fundamental part of the order book in 2020. I think, for sure, it depends on our shipment targets. But I think a several gigawatt order book has been viewed for sure.

[Operator Instructions] Your next question is from Brian from Goldman Sachs.

A couple of modeling ones for you. Charlie, I guess, first on the OpEx, up almost 30% year-on-year. I know, you mentioned the shipping charges and overseas demand. But just wondering how we should think about that line item as you move through the year, because it sounds like 2Q is also going to be pretty heavy, non-China demand and then based on your comments, it sounds like you really see a pickup in 4Q, even relative to 3Q, so just generally speaking, how should we be thinking about the OpEx line, given the pretty meaningful uptake year-on-year you saw here in Q1?

Operating expenses will continue to be 11% to 12% in the second quarter, because it's still significant international markets. Looking for the Q3, Q4, given more shipments to China and as well as more total shipments, the percentage will be decreased a little bit quarter by quarter, starting from Q3.

Okay, so for 2Q, 11% to 12% is the way to think about it. So you're running roughly 100 to 150 basis points higher on that metric year-on-year through the first half of the year. Is that fair? Okay. Second question, just on inventory. I know there's an anticipation of a big second half field here. That was also up 30% year-on-year and volume shipments for 2Q are being guided up only slightly sequentially. So I guess two questions related to that. First, will inventory be up again in 2Q versus 1Q? And then secondly, did the higher factory loading flow through the benefit gross margins this quarter?

In terms of inventory in general is stable quarter-over-quarter. But, because of our international markets, we’re shipping over 100 countries, like US, taking out bigger and bigger proportions. And given the longer delivery time, particularly the shipping time, so if you look at inventory, Q1, end of Q1 versus last year, and it's increased a little bit, but will be more stable. And we -- internally, we manage the inventory very carefully and we produce the inventories based on from orders. So we don't see any risk.

Okay. And just secondly on the inventory build, I would imagine it would have benefited the factory loading throughout the quarter. Maybe that's not a benefit in 2Q since the inventory is going to be stable, but can you give us some sense, whether qualitatively or quantitatively what kind of positive impact it had on your gross margins in the quarter?

You mean the second quarter or…

1Q, you're at 16.6, you're saying it's going to be 14 to 15 for 2Q and I know there's some mix issues and what have you, capacity ramp that you mentioned. But again, I'm assuming that the better factory loading from the inventory build probably benefited you in 1Q, just trying to get a sense for what that might have been?

Yes. In general, I think you need to think about from this perspective is the ASPs were stable, both for the mono PERC, high efficiency products as well as the multi products. And starting from a production perspective, and we have more capacity, when we have more capacity and we have more integrated products, mono wafer and produced by ourselves, our blended costs will be dropped a lot, because we will rely on the external PERC cell and lower and lower and so we can deliver very decent gross margin, if we produce everything by ourselves. So I don't think the inventory will be a big non pain point for quarter over quarter, gross margin fluctuations.

And then last one for me, I'll pass it on. I’m not sure if you can say anything new on this, but the Hanwha lawsuit, can you give us some updates on where that stands and what your positioning is?

It's very standard and [indiscernible] by taking one half year, and we’re taking the same positions and we think the Hanwha, the litigation for patent, they don't have on legal and technical basis. And we defend the litigation came very recently, if you look at the news and we found the application to challenge the Hanwha patent itself. So we are confident and we will continue to expand our market share in the US market.

If for some unexpected reason -- it sounds like from your end, this would be a surprise, but if for some unexpected reason, it did come back as an unfavorable ruling for you, do you have any mitigation plans that you're starting to contemplate?

It's a very common practice for any company facing the patent issues. And, we have basically -- have the plan B, but I cannot dig into the details.

[Operator Instructions] As there are no more questions in queue, I'd like to turn the call back to Ms. Zhang for closing remarks. Please go ahead, Ms. Zhang.

On behalf of the entire JinkoSolar's management team, I want to thank you for your interest and participation on this call. If you have any further questions or concerns, please feel free to contact us. Have a good day and a good evening. Thank you and good bye.

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