Sebastian Liu - IR Director Chen Kangping - CEO Cao Haiyun - CFO Gener Miao - VP Global Sales and Marketing.

Justin Clare - Roth Capital Partners Maheep Mandloi - Credit Suisse Scott Chui - Citigroup Gordon Johnson - Axiom Capital..

Good day and welcome to the Q2 2017 JinkoSolar Earnings Conference Call. [Operator Instructions]. At this time, I would now like to turn the conference over to Sebastian Liu. Please go ahead..

Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's Second Quarter 2017 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 supplemental presentation for today's earnings call, which can also be found on IR’s website. On the call, today from JinkoSolar are Mr. Chen Kangping, Chief Executive Officer; Mr. Cao Haiyun, Chief Financial Officer; Gener Miao, VP Global Sales; and Mr. Sebastian Liu, IR Director. Mr.

Chen will discuss JinkoSolar's business operations and company's highlights, followed by Gener 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 provision of the U.S. Private Security 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 filing with the Securities and Exchange Commission. JinkoSolar does not assume any obligation to update any forward-looking statements except as required under applicable law. Now it is my pleasure to introduce Mr. Chen Kangping, CEO of JinkoSolar. Mr.

Chen will speak in Mandarin and I will translate his comment into English. Please go-ahead Mr. Chen..

[Foreign Language] Thank you, Sebastian. Good morning and good evening to everyone and thank you for joining us today. [Foreign Language] Second quarter margin shipment went for gaining reached a record high increasing 39.5% sequentially to 2,884 megawatts. Total revenue hit $1.17 billion, an increase of 37.2% from the first quarter.

Gross margin dropped slightly to 10.5% from 11.2% in the first quarter of 2017.

[Foreign Language] We are pleased with our overall performance but a little bit disappointed about the gross margins, while ASP declined during the quarter, prices along our supply chain remained relatively high resulting in the decreasing of blended cost lower than the decreasing of ASPs.

With the deliberate pressure, we had also to allocate more manufacturing to our OEM partners than expected which also averaged down on our margins, we are currently reviewing some of our market strategies and plan to further cut down the use of OEM in order to improve our profitability going forward.

Our efforts will also be focused on strengthening inventory management and controlling operating expenses. I believe that those adjustments in conjunction with our mono wafer and the PERC cell capacity ramping up, where resulting margin improvement during the second half of the year.

[Foreign Language] Demand in China was well strong during the quarter boosted by the rush orders before the June 30 feed-in-tariff cost. This momentum carried on into the third quarter as well, besides the Top Runner project and the PV Poverty Alleviation project, DG project will also generate stable demand during the second half of 2017.

This year hit [indiscernible] plus gigawatts in installations with long term demand being supported by upwards revision of five-year target set by the NEA which Gener will talk about later. [Foreign Language] Turning to the U.S.

the Section 201 petition continues to create market uncertainties, where this create a rush of demand we can benefit much from this, because we target long term clients in the U.S. with a big portion of our orders both for mid or long-term contract with lock-in prices. We’ll then continue to monitor the situation and adjust our strategy accordingly.

Overall, we believe that the U.S. solar sector’s long-term gross momentum will not change and we will continue to strengthen our leading position in the market there. [Foreign Language] Demand in emerging market continued to grow accounting for a larger portion of our shipment during the quarter.

Despite the initiation of the anti-dumping investigation in some geopolitical risks in India, we believe that Indian government’s 100 gigawatts target at 2022 is solid and we are continuing to create strong demand going forward.

Mexico, Argentina and Brazil in Latin American are good gearing up with Egypt and Jordan in the Middle East have the potential to become gigawatt level market next year.

Jinko’s leading brands and products have helped us differentiate our sales and demonstrate to our customer that we are not only high-quality product provider but invest in developing and supporting long-term relationship with them. We expect demand in emerging market to continue to grow in 2018.

[Foreign Language] We already have strong visibility in our order books through the rest of the year and have already begun to take orders for next year. We expect ASP to remain stable during the second half of the year. [Foreign Language] On technology front, we are still raising up our mono wafer PERC cell capacity.

Our diamond-wire cutting multi wafers are now in mass production combined with our black silicon cells technology. We expect to see demand balance and more rationale for multi and mono product going forward especially after the release of the new criteria of Chinese top rounded projects. The key of this competition is still efficiency and cost.

Meanwhile our supply change has also made good progress in developing half-cell technology and bifacial N-type cells technology with solid progress being made in our new technology development, all other continue to maintain flexible and dynamic production capacity in order to meet demand from the rapidly changing market.

[Foreign Language] Turning to manufacturing capacity, our internal wafer cell and market capacity reached 6 gigawatts, 4.5 gigawatts and 7.5 gigawatts accordingly by the end of second quarter and the we expect internal capacity reached 7.5 gigawatts, 4.5 gigawatts and 8 gigawatts accordingly by the end of the year, of which approximately 3.5 gigawatt were the mono wafer and approximately 2.5 gigawatts were the PERC Cells.

We remain cautious about expanding our manufacturing capacity and we have mentioned our flexibility. [Foreign Language] Before turning the call over to Gener, I will quickly go over the guidance.

Based on the current estimates total solar market shipment will be in the range of 2.1 to 2.3 gigawatts for the second quarter, for the third quarter and 8.5 to 9 gigawatts for the full year 2017. [Foreign Language] Thank you, Sebastian. With that, I will turn the call over to Gener..

Thank you, Mr. Chen. During the quarter, we shipped a record high of 2,884 megawatt of solar modules, demand remains quite strong even after the IT cut in China. As Mr. Chen just mentioned, we are adjusting our business strategy towards focusing more on profitability.

We plan to reduce OEM volume and a strengthened inventory management, which may require shipment growth to slow down during the second half of the year. We shipped to approximately 77 countries during this quarter. 21% went to China, 19% to emerging markets, 11% to Asia Pacific, 10% to North America and the 9% to Europe.

Market demand for our new technology products continues to be robust with wider adjustment. China retail is positioned as our largest market due to a surge in rush orders before the June [indiscernible] FiT cut. Demand after the June [indiscernible] cut-off remains strong which was demonstrated by the 10-gigawatt installation during the last.

Orders from Top Runner projects and the DG projects keeps coming in and we expect to see ASP stabilize and more customers stay off the sidelines and place orders during the fourth quarter. China’s long-term demand is also supported by the upwards revision of five-year target set by the NEA.

The new 86.5 gigawatts utility scale installation target set at the provincial level doesn’t including Poverty Alleviation Project and the DG projects. We expected utility projects, PV Poverty Alleviation Projects and the DG projects to create a 30 gigawatt plus market annually in China for the next four years. Market demand in the U.S.

is expected to increase during the second half of 2017 as utility scale developers stock up on the inventory ahead of the Section 201 decision.

While we are prepared for the worse, we believe that any potential remedy recommendation could well be nigh as the commission appears to have taken note of the impact potential tariff could have on the downstream sector and the solar industry as a whole in the U.S. Although we don’t expect the U.S.

market to grow significantly in 2018, with some pipeline made early release in the second half of 2017 the U.S. remains an important strategic market for us in long term. Rush orders in the U.S. have also created a shortage in some overseas market and have pushed the prices upwards in Europe.

In Europe region, the demand turned out to be stronger than expected due to the rush orders from Turkey in Q2. It is expected that the EU demand continued to be inspiring in Germany, Netherland, France especially after the new base in France which inspires a new business model of a great parity market.

In Asia Pacific region, shipments into large key accounts have grown significantly. For Australia market, 2017 has been a transformational year for its utility solar PV investment with the financial close of key projects with over 1 gigawatt solar pipeline.

Demand in Japan weaker than last quarter due to the seasonality following the end of their fiscal year. We however expect the future demand in Japan to be stable and remain one of our top markets. India launched the anti-dumping investigation against imported solar cells and panels in July which so far has limited impact to market demand.

The primary the growth driver in the market is the 100-gigawatt installation target by 2020 set by the Indian government which should help maintain the strong growth momentum. We also expect to see a more hospital business environment after China and India reached an agreement to ease the changes. Demand in emerging markets continues to grow.

In NESCO, we started to deliver our high-quality products of around one projects totaling over 1 gigawatt. At the end of June, we have reached the total shipments at 1.8 gigawatt in LATAM region and again more than 40% of market share as the market leader.

We expect the emerging markets to be an explosion of demand in 2018 in Egypt, Jordan and in Middle East and Mexico, Argentina, Brazil in Latin America. ASPs during the quarter came in at US$0.377 a slight decrease from $0.395 in the last quarter. We expect the module prices to remain stable in the second half of 2017.

In terms of or geographic mix, we expect a more balanced shipment portfolio during the second half. The presentation of the shipment to China may drop to 35 to 40% with the presentation gap filled by the US and emerging markets. We continue to promote JinkoSolar’s brand by attending various marketing and industry conferences.

In May, we were invited to co-chair the B20 ECRE Taskforce in Berlin. As the Taskforce co-chair and the only Chinese enterprise invited to speak at the summit, will let drafting of the climate change policy recommendations that were personally handed to German Chancellor Angela Merkel, who is this year’s B20 summit chairwoman.

All in all, during Q2 we attended 13 tradeshows and participated in 14 conferences. We also hosted 20 customer events, 15 customer trainings, nine roadshows and 24 co-marketing activities with key partners across the globe.

All those activities further strengthened our leading position at one of the strongest and the most recognized solar brands worldwide. Now I would like to turn the call over to Charlie, who will go over our financial results of the second quarter year 2017. .

Thank you Gener. I’d like to walk you through our Q2 results. Total solar module shipments were 2.9 gigawatts, up 40% sequentially and up 68% year-over-year. Total revenue was $1.2 billion, up 37% sequentially and up 40% year-over-year. Gross margin was 10.5% compared to 11.2% in Q1 and 18.1% in Q2 2016.

We continue to cut our blended cost to $0.34 per watt from $0.35 in the first quarter. The operating expenses represented 9.5% of total revenue compared to 10.3% in Q1 and 12.7% in Q2 2016. EBITDA from continuing operation was $27 million compared to $37 million in Q1 and $99 million in Q2 2016. Net income was $7 million.

This translates into basic and diluted earnings per ADS of $0.20. Non-GAAP net income was $9 million. This translates into non-GAAP basic and diluted earnings per ADS of $0.28. Now let’s move to the balance sheet. By the end of second quarter, cash, cash equivalents and restricted cash were $280 million compared to $249 million at the end of Q1.

Inventories were $758 million compared to $780 million at the end of Q1. The total debt was $1.1 billion, compared to $886 million at the end of Q1 and net debt was $786 million compared to $627 million at the end of Q1.

The company’s working capital was $57 million compared to $117 million at the end of Q1, reducing its working capital is mainly due to the CapEx. At this moment, we are happy to take your questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from the line of Philip Shen of Roth Capital Partners. Please go ahead..

Hi, everyone. This is Justin Clare, I am on for Phil today. Thanks for taking our question. So, first I wanted to talk about your guidance, we’re calculating implied Q4 guidance as about 1,350 to 1,850 megawatts. That suggests volumes could be down 27% quarter-over-quarter, just wondering if you can talk about what you expect to see from the U.S.

in the China market in Q4 and how that is impacting your Q4 outlook?.

Yeah, this is Gener. Regarding the shipment target we are -- we are for sure the high end after the previous guidance which is 9 gigawatts annually. Meanwhile if the market demand is strong we sure give you more color by the next quarter earnings..

Okay. Thanks. And then if we could shift to ASPs, can you share what your ASPs were by region for Q2 and then if you could talk about what the outlook is for ASPs by region in Q3, that will be helpful..

So, for Q2, the ASPs let me illustrate some key markets. For China, the market price is around $0.36 to $0.37 and for Japan the price is at the high 30s let’s say $0.38 to $0.40. US market is on average low 40s, let’s say $0.40 to $0.43 and the Indian market is relatively lower is in mid-30s range, $0.33 to $0.35.

And Europe is high 30s and similar to Japan market is let’s say $0.38 to $0.40. And we are expecting a kind of a stable ASPs between Q2 and Q3..

Okay, that’s helpful.

And then finally can you share how much you paid in tariffs in Q2? And then is the cost of the tariff included in your blended cost that you provide?.

This is [Tony]. I think you are talking about the tariff pay for the US shipments..

Yeah, exactly. .

I think in the second quarter this tariff could be very small and we did include the tariff cost as the cost of goods sold..

Okay..

The backlog is -- you know for the US shipments we have allocated the non-China capacity to the US markets. That is why you know we don’t pay any, I think that’s very small in the tariff for the US shipments. .

Our next question comes from the line of Maheep Mandloi of Credit Suisse. Please go ahead. .

Hi, thanks for taking my question.

Could you just talk more about the strategic review, you spoke about in the prepared remarks? What steps do you plan to take to influence the business and how should we look at your gross margins and operating expense in the second half because of that?.

We are shifting the strategies to the profitabilities and if you look at our shipments in the second quarter its around 2.8 gigawatt and we have annual capacity for the module only 7 gigawatts.

So that means we need to OEM module around 30% and which created the lower gross margin in the second quarter and we committed to focus the balance of shipments, profitabilities and gross margins in second half of the year and we have cut dramatically the OEM capacities in the second half year and below I think its below 10% for the OEM capacities.

So, from the cost perspective you know for the multi-wafer we are incrementing the diamond-wire technology and which will improve the cutting cost for the wafer. And for the mono product which is in supply shortage and we are ramping up very quickly and we are able to ship around 20% mono product shipments, 20 to 25% in the second half year.

And regarding the operating expenses that is the area we are working on and if you like some kind of indications with the gross margin, I would like to see its going to be stable in the third quarter and to improve in the fourth quarter and for the operating expenses we are looking for a range of around I think 9.5% to 9.8%..

And that’s helpful and just on the downstream business, could you talk about how would you exit that business and would you be selling that business to someone and what happens to the existing projects and does the exit impact your gross margin to OpEx again?.

Sure, sure.

I think you know we have decided to continue to focus on the solar module business and solidifying our leading position in our solar module globally and for the existing downstream international projects, we have I think sizable late stage projects which was around 580 megawatts and for the existing projects we’ll continue to develop and construct and connect to the grid.

The [indiscernible] depending on different projects will be from Q4 2018 to the first half year 2019 and after the connection at this stage we are open to the monetization models, but after connection of the projects we are open to monetize the projects and we have decided starting from third quarter we will not develop any new international projects..

And Gener, given your focus on your model manufacturing business, could you just talk about your capacity expansion plans beyond 2017, some of your competitors in China have said that they’re accelerating capacity additions.

Do you plan to add more capacity and as a follow-up could you just talk about CapEx into the second half?.

In second half of ’17 or next year?.

This year..

Next year, right. .

In Q3 and Q4 of this year. .

Okay and by the end of this year we’ll have 7.5 gigawatts wafer, 4.5 gigawatts cell and 8 gigawatts and solar modules. And including model wafer capacity, I think 3.5 gigawatts and per capacity 2.5 gigawatts.

And we are doing the planning for the 2018, the capacity expansion is under discussion, but its depending on how we look at the 2018 we will continue to adjust the discipline capacity output which means we will continue to return lower level of wafer and still capacity and relatively higher module capacities.

If you’re talking about the CapEx for 2018, I think in general I will in fact you know the 2018 CapEx should be lower than 2017..

Thank you. Our next question comes from the line of Scott Chui of Citigroup. Please go ahead. .

Hello thanks for taking my questions. My first question is regarding the downstream project that you just mentioned. Can I know that your project corporate down of those international projects and also in terms of the CapEx in the second quarter how much is attributable to downstream and how much is on for mainstream? This is my first question..

Sure. And for the geographical mix for the downstream projects, we have around 508 megawatts in the projects and I think we have three projects in Mexico which is around I think 250 megawatts and one project in Abu Dhabi we hold 20% equity. So, it’s around 240 megawatts something like that and we have another one project in Argentina.

And then regarding the Q2 CapEx, the total amount is roughly $160 million and because you know the international projects we are going to start constructions in later 2018 and early 2019. So, the CapEx for the downstream projects in Q2 is very small..

Okay, thank you. And my second question is about OEM.

You just mentioned that you reduced the OEM in Q3, but given that we know that the Chinese shipment in July and August was actually quite robust so I would like to know how much OEM have you used for July and August alone?.

Yes, this is Gener speaking. In general, if you look in the Q2 total shipments minus our internal capacities that should be Q2 range between let’s say 25 to 30% of total capacity is using the OEM, I mean mainly from the module end.

And for the Q3 we have significantly reduced such amount if you look into the guidance we’ve provided shipment guidance provided to the Q3 and minus our internal module capacity which should be around 7 gigawatts annually. That should be the OEM we are trying to use right now. .

Okay, thank you. And my last question is about on the cost reduction and I know that currently we spend $0.34 in Q2, to what extent do we see the cost reduction could be for Q3 and Q4.

Do we target at like maybe like $0.30 or $0.31 by the end of this year?.

For the cost reductions given the high polysilicon price in the third quarter and we are expecting from the blended cost perspective, we are targeting to achieve $0.31 to $0.32 by the end of the year. For the in-house manufacturing costs for both multi and mono products we are targeting in-house production cost below $0.30..

Okay, okay. Thank you. That’s helpful. Sir, I have one more question is about on the R&D tax reduction that you mentioned in the announcement.

Can I know how much is the tax reduction?.

It’s roughly I think US$5 million and for the R&D reductions just to clarify its kind of -- for the PERC companies and each year for the high technology companies they are subject to 50% additional tax reductions, but it will be approved from the next year.

So, we got the approval for the last year’s R&D 50% investments and recorded in second quarter..

Okay. So, it’s like a reversal from previous tax [preparations]..

It’s not a reversal. It’s kind of to true up the tax benefit and we are able to enjoy in last years but its subject to the approval and this year by tax authority and it typically happening in the second quarter, because that’s a tax finding [indiscernible] for Chinese companies..

Our next question comes from the line of Gordon Johnson of Axiom Capital..

Thank you for taking my question. With respect to the gross margin, just focusing on that a little bit, seems like the gross margin this quarter was a little below expected. With polysilicon and wafer prices doing what they are doing, up in both significantly today on PVinsights and [indiscernible] appearing flattish.

Can you give us some guidance with respect to kind of how we should expect your gross margin to trend and can you tell us what the ASP was in the second quarter as well as what you expect the ASP to be in the third and fourth quarter and then I have a follow-up..

Gordon, I think I just answered the question in terms of gross margin and we are looking to improve in second half year and you are right and now the polysilicon price and even I think the wafer price increased a little bit and particular for the poly increased 25% in the third quarter, from our perspective we are counting the OEMs volume so which means we are counting the blended cost for the second half year so which will offset again some kind of negative impact and the high poly price.

And regarding the poly price, we expect to continue to be strong the end of the September and may come down a little bit in the fourth quarter. And in addition, we are ramping up mono product capacity, so that is why I’m saying the gross margin to be stable in the third quarter and to improve in the fourth quarter, that’s our expectations. .

This is Sebastian, for ASP I think Gener has just said in his speech, our ASP during the second quarter is $0.277. .

Okay, I’m sorry the ASP was $0.375, is that correct?.

$0.377 for Q2 and I am expecting the number will be very stable from Q2 even until the year end..

That’s helpful. And I guess lastly as we spoke to in China has a bit, they have limited visibility into the fourth quarter with respect to installations and kind of how things are going to trend, it seems like you guys are saying you have more visibility.

Number one, is that correct and number two why do you think maybe some of your peers are saying they have less visibility at the Q4 in China?.

Firstly, my comments regarding China demand for Q4, actually is China market is kind of the total installation number is very large in 2017 and the demand in second half is much stronger than people expected compared with what’s happening, what has happened in 2016.

So that’s why the poly price is stable, even goes up sometimes recently and together with this visibility of the installation because according to our market intelligence, the installation there should be some more clarities now even that in the recent two or three weeks’ time compared with when our peers announced their earnings I think almost one month ago because the China policy has more clarity and people had hold their pipelines for long enough.

So, it will be very limited time left for the year to finish the installations before year-end.

So, in general my comments for China market demand for Q4, the visibility are much better in general and for Jinko specifically, because we are trying to maximize our probability by reducing our OEM volumes, that means our total availability of the capacity will be less than previously planned and the visibility of the total order book very high level.

That’s why we are seeing the ASPs and also the orders books are very let’s say reasonable. .

Actually, just one last one if I could. I thought last quarter you guys said you expected the gross margin improvement with respect to product helping, your product and technology helping gross margin and you also said that you expected the ASP improvement I believe last quarter.

So are we just seeing a delay in that or its somewhat volatile and those benefits coming in. Again, thanks for the questions. .

Yeah, let me answer your question regarding ASPs. If you look into the PERC products alone, definitely you will see the ASPs are better in Q2 even in Q3 compared what we have in Q1. But the total ASP or weighted average ASPs not only depends on the PERC itself, it’s also have other products jump in, so that will impact the total ASP.

I will leave the gross margins to Charlie..

Yeah, I think the high material supply cost base is exceeding our expectations and like the poly itself and due to the strong, I think most of the people don’t anticipated such strong shipments in China and push material cost higher than our expectations. So that is another area which has an impact on gross margin..

Yes, Gordon, let me explain in more detail, because when we announced the Q1 results, in fact we already have very good visibility about Q2 shipments and also the ASPs. But our cost is based on our expectation of Q2.

But like Charlie just said, the value chain price, in our supply chain is above our expectations, especially the price of polysilicon and cells. So, in fact the problem lies in the cost not lies in the work on the shipments or the ASPs..

[Operator Instructions] Our next question comes from the line of John [Indiscernible]. Please go ahead..

Hi, guys. I just wanted to understand one thing about the OEM business.

Is the OEM business that you’re doing actually gross margin positive or was it possibly even gross margin negative during the quarter and that’s why you feel better about the margin going forward?.

The OEM gross margin is positive, but it’s already low I think, I don’t have exact number, it’s roughly 5%..

That depends, some of them are very low, but on average it’s way below our average gross margin..

Okay, great. Thanks..

This is Chen, I want to add more color on your question regarding OEM, I think everyone’s asking about it.

So, in the market OEM is definitely positive to the company’s shipment numbers and also the gross margins, but as the peak time especially during the Q2 rush hour especially in China everyone is the short of supply, the market is short of supply.

So, we are looking for support of the OEM you have to share that margins I think part of the reason why the margins are comparatively low..

Thank you. As there are no further questions in the queue, that will conclude today’s question-and-answer session. I would now – I’d like to turn the call back to Sebastian Liu for any additional or closing remarks..

At this moment, on behalf of entire JinkoSolar’s management team, I’d like 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 good evening. Thank you and good bye..

Thank you. That will conclude today’s conference call. Thank you for your participation ladies and gentlemen, you may now disconnect..