Ladies and gentlemen welcome to the Quarter Two of 2019 JinkoSolar 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 second 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 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's 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.

Thank you, Ripple. Good morning and good evening to everyone and thank you for joining us today. We continued our strong start to the year with a robust quarter of growth, module shipments during the second quarter were 3,386 megawatt, an increase of 12% sequentially and 21% year-over-year, as with last quarter, overseas shipments accounted for over 90% of total shipments. Total revenues came in at $1 billion, an increase of 19% sequentially and 14% year-over-year, while gross margins roughly flat sequentially at 16.5% and up substantially from 12% during the same quarter last year. Non-GAAP net income surge to $29.6 million, a significant increase from $5 million last quarter and $16.1 million during the same period last year with our mono wafer production capacity growing and optimization of cost structure, we are confident in the overall profitability of the second half of the year. Demand for overseas markets was strong during the first half of 2019 where total export volumes and value of modules from China jumped significantly year-over-year. China is expected to drive global demand following the July announcement of the National Development and Reform Commission and the National Energy Administration of a list of approved solar projects that secured government subsidies for 2019. This was a follow up to their May announcement of the first batch of wind power and PV grid parity projects. China is expected to install 40 gigawatts this year bid for UHV supported PV projects have already begun as domestic markets regains growth momentum. We are rapidly approaching grid parity with bid results for projects such [indiscernible] project in Neiman [ph] province coming in on par with local traditional energy. Based on this, we expected China's demand will continue to grow steadily in 2020. 2019 is a milestone for the global solar industry…

Thank you, Mr. Chen. Total shipments in the second quarter were 3,386 megawatts, an increase of 21.2% from the same period last year and exceeding our previous guidance. The increase was driven by non-China demand, which remains strong during the quarter, in particular mono PERC products as a percentage of total shipments continue to grow steadily and are expected to reach 70% for the full year of 2019. In terms of geographic mix, overseas shipments accounted for over 90% of our order book this quarter. With China's latest subsidy policy announcement in July, the Chinese market is expected to regain considerable installation demand starting in late third quarter. The Chinese government's July release of a list of approved solar projects that secured government subsidy for 2019 has helped to kick start these for a number of projects that are expected to simultaneously drive domestic demand and the growth in our shipments in China starting in September. China is expected to install around 40 gigawatts this year. We also expect that the Chinese market to retain its robust performance well into 2020 due as a number of cross year projects, and competitiveness of photovaltaic power generation price. The U.S. market remains very strong. Prices have risen in the past quarter, which has resulted in our modules almost selling out. In addition, our order book for 2020 is rapidly filling up. We have already received the massive inquiries for 2020 and 2021 deliveries from U.S. market. Furthermore, Section 201’s tariff exemptions on bifacial solar modules has created a lot of discussions in the market. Based on the current policy, we expect demand in the U.S. market start to shift towards bifacial modules steadily, where utility sector will be penetrated first. Turning to Asia Pacific market, in reaction to the cost of the…

Thank you, Gener. Q2 overall results beat our expectations. We achieved better than expected shipments and gross margin. Our improved profitability resulted from lower production costs, slightly higher ASPs and a net foreign exchange gain. Total solar module shipments head 3.4 gigawatts, up 12% sequentially and total revenue was US$1 billion, up 19% sequentially. The solar market continued the strong momentum and we are on the tract to achieve our full year shipment guidance. Q2 gross margin was stable at 16.5% compared to 16.6% in Q1. Our investment on the mono based high-efficient capacity is expected to generate higher gross margin in the second half year. Starting from this quarter, we begin to provide additional guidance, including quarterly revenue and the gross margin range. With our view on future performance, we believe this will provide a more transparent and comprehensive picture of our operations and future growth expectations. For the third quarter we estimate total revenue to be in the range of US$980 million to US$1.07 billion and gross margin in the range of 18% to 20%. Q2 operating expenses accounted for 12.8% of total revenue compared to 12.5% in Q1. The percentage is relatively higher given our high shipping costs -- relatively higher shipping costs from overseas markets. We benefited from RMB depreciating against the U.S. dollar in the second quarter. Net foreign exchange gain was US$7 million, compared to a net foreign exchange loss of US$9 million in Q1. EBITDA was US$56 million, compared to US$49 million in Q1. Non-GAAP net income was US$29.6 million. This translates into non-GAAP diluted earnings per ADS of $0.71. Moving to the balance sheet, at the end of Q2 we increased our balance of cash, cash equivalents to US$543 million, compared to US$486 million at the end of Q1. The restricted cash balance was US$158 million at the end of Q2, compared to US$164 million at the end of Q1. We continue to improve our operating efficiency, accounts receivable was US$809 million, down from US$872 million at the end of Q1. AR turnover days improved to 76 days in Q2, compared to 94 days in Q1. Inventory balance was flat at US$966 million quarter-over-quarter. Inventory turnover days reduced to 104 days in the second quarter, compared to 120 days in Q1. Total debt was US$1.9 billion, compared to US$1.8 billion at the end of Q1, in which US$310 million was related to international solar project. Net debt was US$1.2 billion, compared to US$1.1 billion at the end of Q1. The increase was due to the issuance of convertible senior notes in the second quarter. This concludes our prepared remarks. We are now happy to take your questions. Operator? Operator, we're ready to take questions.

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. [Operator Instructions] First question is from Phillip Shen from ROTH Capital Partners. Please go ahead.

Hi, this is [indiscernible] on for Phil today. Hope you guys are doing well. My first question is from Q1 you thought that 60% of your Q1 shipments were for non-subsidized project, and as much as 50% in 2019 shipments could be for non-subsidized demand. How much of your Q2 shipments do you believe served unsubsidized market? And what's your latest view for second half 2019 and possibly 2020?

I think you're talking about the market without subsidies right grid parity. I think the trend is there. The solar is becoming more and more competitive, and the most of the regions are reaching to the grid parity markets. And back to your specific question, if you take China and the Japan as subsidy supported market this year, and we think our shipments, quarter-by-quarter the shipment to the regions without subsidy increased step-by-step and second quarter, roughly 70% to 80%. And looking to next year, China will be the biggest region and to reaching grid parity. And this year, we estimate China roughly 10% is projects without subsidy, and next year -- and with the government policy supported and lower system costs. And we believe it will be a huge lift next year in China for the projects without subsidy.

Okay, thank you. My next question is what is your latest view of China demand in Q1 and Q2 for 2020? Have you heard of when the government may release its next subsidy regime? And what do you think it will look like?

Yes, for China market, as we said just now, China market will continue to be strong not only in the second half 2019, but also into 2020. So one part is, there will be a lot of projects naturally, continue to construct and try to get a grid connection in the first half of 2020. Meanwhile, there will -- there are a lot of, let's say, projects in the plan, which is grid parity projects. And should be expected to be constructed by the year 2020. Regarding the rumors of the new schemes, we have heard of several versions of it. But I think that we should wait for the official announcement.

Okay, fair enough. And then my last question, I'll pass it on. Last quarter, you mentioned CapEx throughout the year was going to be about $450 million. We calculate about $212 million for the back half of 2019. Can you give me some more color on the CapEx for Q3, and Q4? Thank you.

The total CapEx this year, you're right, roughly $450 million. And we have spent, I think roughly 50% of the total CapEx and the remaining part 50% will be spread, over third quarter and fourth quarter. And our capacity actually for both mono wafer capacity and PERC capacity are in the ramping up stage during the third quarter and expect to generate -- reach to full operational output in the fourth quarter.

Okay. Great, thank you.

Thank you.

Thank you. Your next question is from Brian Lee from Goldman Sachs. Please go ahead.

Hey, guys, thanks for taking the questions. Maybe just another CapEx one on the back of that last one. So the $450 million of CapEx for 2019, it seems like that's intact. Can you give us some sense of -- because I think in the prepared remarks, you mentioned the 5 gigawatt Leshan facility going up to 16.5. What's the incremental CapEx for that? What's the expected timeline is that a first half 2020 capital expenditures plan? And then, how much of the capital funding is being subsidized versus is coming off of your balance sheet?

So, Brian, you're talking about the second phase 5 gigawatts, our new capacity, right? And we are doing the kickoff the progression stage. It's another 5 gigawatts, and mono wafer capacity and making us to reach 16.5 gigawatts mono wafer capacities in the first half year of next year. And which will help us to support our growth next year. And back to the CapEx for this part, I think it's roughly US$150 million. And the funding is from the China based renewable energy equity funds and we are working on.

Okay. But what percent of that fully being funded by that fund that you mentioned? Or that US$150 million portion? I guess, maybe just to clarify the US$150 million is the growth CapEx, and it's being fully covered by this third-party or maybe you could give us the split?

Okay. It's roughly 70%, 80% covered by the equity part, and the remaining part 20% to 30% from the long-term project loan.

Okay, fair enough. I'll take the rest offline. Maybe shifting gears, couple of housekeeping questions for you Charlie. Was there any AD or CVD or other benefits in the second quarter reported gross margin or the 18% to 20% guided gross margin for 3Q?

Okay, as I described, compared to our peers Canadian Solar [ph] second quarter they recorded some AD, CVD reversal subsidies and we didn't have any in second quarter. And we estimated we are going to have some number in the third quarter for the AD, CVD. But when we give the guidance the 18% to 20% we didn’t comply to this part.

Okay, so that's x any benefits, okay. And then any -- were there any project sales in the second quarter reported result or any embedded in the third quarter guidance, revenue guidance?

So far no, and for international projects and you remind we are working very hard, we won’t -- we are in the process to monetize the international projects. As we discussed in my remarks, the total debt included roughly US$310 million. The project debt for the four projects, which have -- we have connected, and we plan to sell two of the four projects in the fourth quarter. And after the completion of sale of the two projects in the fourth quarter, roughly US$170 million debt will be get out of the balance sheet, for the remaining two projects we plan to sell down next year.

What's the two projects for this year? What's the capacity and expected, if you can?

The two projects roughly the capacity is 150 megawatts. The two projects in Mexico.

Okay, great. And then maybe just last one for me, and I'll pass it on. Just the -- I was surprised the operating income increased like 8% versus Q1 sequentially, despite the much higher shipments in revenue. So, I know you had a big increase in EPS this quarter, but it seems a lot had to do with the ForEx gain and the income tax benefit and other below the line items. Is that fair? And then what should the income tax be going forward?

You mean, the tax benefit, right?

Yes, the tax benefit. I know you can’t forecast ForEx gain the tax line.

Sure, yes. For second quarter I think it's good and beating our estimates. And if you look at some one-off items, we also get hedged from the international projects interest rate swap. It's kind of accounting matters, because we didn't use the hedge accounting. So, for the interest rate swap. And for the tax, the benefit is one-off item. It is related to the last year 2018 the R&D additional, income tax the deductions for our company as a whole. And so, we didn't expect the continued tax benefit in the second half year.

Okay, fair enough. Last one, and I'm promise to pass it on. The pricing in China, I know you're -- you've been saying all year long, like a lot of your peers have that China is going to be back half weighted. And it clearly looks like it's going to weigh out that way. We noticed that your pricing in China was something in the low $0.20 per watt for mono PERC volume in one of the recent China auctions, I think it was SBIC. So it seems pretty low, not representing the pricing stability or strength into year-end in China, which I think was your original view. You had talked about maybe even having the ability to raise prices modules moving through the back half. Can you talk why you bid so aggressively? And what that might mean for future years in 3Q and 4Q pricing wise in China?

Okay, firstly, China is -- the developer is very lucky and because after the third quarter because of some kind of more capacity for the PERC cell, the PERC cell price is down a lot quarter-over-quarter. But, in the first half of the year the price is too high. The PERC producers they generate a huge gross profitability. And this build a foundation for a little bit lower the module price in China market. And second one is, if you are talking about the specific one project the price. And if you look at the SOE, they are doing the bidding process. Some of the projects they are planning for the next year. So this product is not purely the...

Let me take that one. This is Gener, Brian. So for the pricing in China, in general, we believe that Q4 will become a stronger than Q3. Q3, I think will be the low point for the whole year. In the second half for the market price that's about market price. And, of course, SBIC other spot marketplace, I have to say every player has its unique understanding and tactic about different customer approach. And they have a different understanding about the project pipeline, construction timelines, together with all the project size and details. I think that's kind of a commercial confidential, so we cannot disclose too much. But for us, we do not see such price is only for 2019, but it will continue as a very big fundamental pipeline for 2020 as well.

Okay, I appreciate the additional color. Thanks, guys.

Thank you. [Operator Instructions]Your next question is from Maheep from Credit Suisse. Please go ahead.

Hey, thanks for letting ask questions. Just one on the polysilicon cost structure, could you just talk about like what was the polysilicon costs in the quarter and what the expectations for Q3 and Q4? Just trying to triangulate like seeing latest news in China that the polysilicon can cost might go up. So trying to see like what are you seeing at your end for that cost structure?

Polysilicon spot price reached to the lowest level in the second quarter, and covered a little bit. And now we believe it is roughly for the mono based polysilicon, the price is $9.5 per kilogram. And we expect the price will be stable throughout the year. And the thing is, a lot of producers we have new capacity being out in the second quarter, but the needs more time to produce high quality mono based polysilicon. And so far we think that their production process is on the track. And so in general, we don't believe a big risk for the polysilicon the price going down dramatically.

Got it. And just on guidance, definitely a Q4 weighted shipment guidance, a lot of it is probably because of China demand, but are you seeing any higher demand from any other regions apart from China in Q4 like demand pulling in U.S. due to the tax credits or in Europe or other markets?

Yes, so I think Maheep definitely the Q4 demand will be stronger than Q3, not only China demand is kicking in, but also like you mentioned U.S. demand definitely is there. But there is a problem short of supply. And also as other markets such as Japan, India, the market demand is still there.

Okay. And so how do you see the demand shaping up in say the first half of 2020 or 20 -- or the full year of next year? Just trying to understand your visibility for demand into the next year, especially given your wafer capacity expansion plans?

For the market demand side we believe that the year of 2020 will continue to grow compared with 2019 and is still a healthy global demand. If we look into the, let’s say, the key markets such as China, U.S., Europe, India and Japan, the market demand is -- all of their market demand in 2020 will be higher than 2019. So, I think that's the fundamental growth for the whole industry and a very important reason why we are so confident about our expansion plan. Meanwhile, the customer inside we continue to be sold out for several months to now. So, we believe, we have a very good market demand for the future.

Got it. And just on the -- all the new technologies, which you have spoken about on the call on the thin films, swan bifacial larger mono wafers sizes. So apart from the wafer capacity expansion, can you talk about which of these technologies would you be replicating across your capacity across your supply? And just trying to understand like, how should we think about the CapEx for say going to bifacial or other technologies in 2020?

So, I think from the market demand point-of-view. We -- like a marketing strategy point, we will continue to promote and launch our next generation of the products, which should be very attractive and very competitive in the market. I think we are planning to launch it soon. Meanwhile, overall all the products from JinkoSolar, even for the whole industry, we believe the efficiency will continue to increase. The cost structure side will decrease, even diluted by the higher efficiency of the products. I think that's a roadmap followed by the whole industry. We will continue to contribute to the grid parity with more and more competitive LCOE cost all over the world.

All right. Those are the most questions from me. Thanks for taking the questions.

Thank you.

Thank you.

Thank you. [Operator Instructions] Ladies and gentlemen, that does conclude our conference for today. Thank you all for your participation. You may all now disconnect.