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JinkoSolar Holding Co., Ltd. Message Board

  • abcdefgjoho abcdefgjoho Mar 8, 2012 4:09 PM Flag

    some takeaways from jks conf call

    1)2012 opex to be in the range of 10-12% of revenue
    if you take 90 cents x 1 GW = that is 900 million ->90 mil opex
    that looks tough to make.
    they say q4 would have been 29 million without one-timers - > that leads you to 120 million opex.
    but revenue might be higher with 150 MW project business at $1.80.
    that is the price they gave.
    basically $1.80 per watt.

    2) gross margin very low (I think very conservative) for module sales in 2012.
    project business gross margin 20-25% is what they say. from all they say they will stick to china for project business. maybe good.

    3) their market outlook of 24-28 GW is far more conservative compared to tsl notes of 30-35 GW.

    4) buying poly today around $25, projecting poly to stay around this in 2012. with some up and downs of course.

    5) year-end non poly costs 57-58 US$ cents. total costs is then around 70US$ cents.

    6) it is very obvious that every 5 US$ cents more on ASPs has a huge impact if jks makes profit.
    My personal view is that not many companies will be able to produce at 70US$ cents for a long-time. for now - you are the safest if you have your own projects and someone who finances it.
    what will happen in H2/2012 is up in the air. many companies will be gone by then so normally asps could rise with rising demand, if no new entries emerge.
    many if's-not is all is bad IMO. there is quite some hope but uncertainty will continue to be there for the time being.

    7) 1.5 billion US$ banking facilities available to them and used 550 million of that so still around $1 billion available to them.

    8) said clearly at the end of the call that they dont believe what csiq said on their year-end costs...funny. i never bought csiq mainly because i never liked their management so I tend to trust jks more. and also would be surprised if csiq is smarter than yge, tsl on overall costs.

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    • Thank you, I made the mistake by writing cash flows have to be less then 800M, they have to be less than 1080M, which is the carrying value of the asset at the time in my example. The first question is why you would write asset down? the impact on the bottom line is really the depreciation, which makes your income to be higher and then it makes you to pay more taxes. Depreciation, whatever people say here is non cash expense, which comes back to you in cash flow. Write down is not a benefit to show operational dynamic improvement it makes you pay taxes instead of making deductions on something which does create profit in eyes of regulators. This is why corporations do not write down their assets, and accounting rules do.
      Calculation of future cash flows for impairment purposes takes the undiscounted cash flow. The cash flow for FS had to be seen as negative to take the value down, and yes that is easy if cost is $45 and poly costs $25

    • Thanks for helping explaining how impairment works and that opex and interest has nothing to do with it. I don't know why snake keeps posting these types of faulty ldk analysis. Seems like a credibility devaluating waste of time.

      It should be noted that estimation of future cash flow 10 years out is very hard to do, so it has to be quite obvious like for FS.

    • depreciation is put back to a cash flow. It is a non cash expense which lowers your income. How is that a cause for alarm? Inability of paying the debt is and issue as much as inability to produce revenue.

    • Snake in order to execute impairment there are precise rules about in US GAAP, using triggering events. For it to work the asset's book value (carrying amount) which is the original cost minus the depreciation is greater than the combined future undiscounted cash flows.
      So say they have 1.5B equipment with residual value of $100M and the 20 years straight line depreciation, something they bought in 2005, the carrying value is 1,080M today.
      if the useful life is worth 5 more years, and they can produce a cash flow which is less than $800M, then they can execute the writedown to a fair market value for the asset, this will impact future depreciation expense as new deprecation schedule is calculated (5 years). Clearly this has nothing to do with ability of paying a debt out of the asset produced cash flows.
      writing down inventory against the market fair value happens quarterly. Goodwill will go down first if it was through prior purchase.

    • You are completely mixing things up again. You cannot take group total opex and interest and assign it to module business unit.

      Depreciation is like this
      Poly 4 cents
      Wafer 3.8 cents
      Cell&module 2 cents

      Csiq should compare to last one.

    • Gaap profits has nothing to do with it. With loss i refer to gross loss of course. The opex and interest does not change because you retire/replace a furnace. As long as that furnace does not do gross cash loss you keep it, since it contribute to operating cash flow.

      A write down does not change cash flow. It's just a front loading of depreciations. A non-cash adjustment to make bs and p&l better reflect state of business.

    • ///will never be able to operate without loss///

      Is what I am stating. They can not make GAAP profits and will may likely lose the entire Depreciation per watt of $0.094 per watt sold. The money is likely consumed in the interest payments sent to China banks and Opex that will baloonatlease 2x if not 3x in total value with the expansions to 5GW and the ASP declines.

      That is why I am pointing out the cash costs need to be ASP- Opex/watt-Depreciaiton/watt - interest/watt. This looks like the optimistic of $0.24 and the more likely $0.32 lower than ASP for LDK to recoup their depreciation. That means an average ASP of $0.75 LDK needs a cash cost of $0.43. It looks at most like a cash cost of $0.49 can be reached. That puts a loss of $0.06/watt long term for my more likely costs or basically they fail to make 2/3rds the depreciation per watt back even while diluting with newer low cost equipments.

      By comparison TSL today at 2GW runs around $0.06+$0.03+$0.05=$0.14 in total costs per watt. Even having a poly cost at $10 above LDK cash cost, they still are at $0.19/watt and able to sell at $0.12 less than LDK or generate that much more cash generation as similar ASP.

      CSIQ just as good if not better than TSL.

      LDK has 3.9Billion in plants and equipment today. $390M in depreciation on 2GW of shipments is absolutely horidat $0.19/watt

      At 5GW they will have another $800M in equipment. That puts property plants and equipment at $4.7B and depreciation of $470M. The depreciations per watt drops to $0.094 better but still not good compared to peers.

      If you look at their claims

      3.4GW at $0.30 = $1B
      Current market or $0.20-$0.25 pegs that around $300M lower or $700-$750M

      Cells = 2.4GW at $0.25 = $600M all recent and now markdowns

      That puts the Poly plant at $2.3-$2.4 Billion today ont he books with some more going into the upgrades.

      That is why I state full production of the Poly plant they have $9.4 in depreciation and $13 in costs or $22.4/kg. This could actually be $18-$18.40 with subsidies.

      Look to better balance sheet companies and stop looking at the size and verticalizations. There is a lot more than just the claims that they get X amount of cashflow from depreciaitons. Because LDK may not get that depreciation recouped at the levels you think.

    • But snake it does not work that way. Everybody has equipment that was purchased at higher price than todays price. This does not mean you take impairment charge. You do that only if it is concluded that the equipment will never be able to operate (not meeting regulatory requirements) or will never be able to operate without loss. If it is concluded that it will never be able to operate without cash loss a complete write down to 0 is warranted, if operating between loss and cash loss level is expected a complete write down is not necessary.

      Why do you always want special rules to apply to LDK? I know you burned yourself on them, but the healthy thing is to forget that and try to be objective in your analysis.

    • I am talking about the bigger picture for LDK as you suggest earnings power will be great fully loaded. I say it will not

      The bottom line as presented is that when they get to fully loaded as you suggest, the bloated debts and OPEX plus the $50/kg more in capex for the Poly plants and the $0.10 more in Capex on the wafer cuts steeply into the profits they hope to make.

      This basically points to the being very suspect to the fact that they will not generate the operational cash flow required to recoup their operating expenses interest and what they put into Capex.

      That means they do not have the cash generating capability to justify the costs caried on the books vs the current cost for the same capacity.

      That would imply that they will need to write down the assets to a value they may be able to either be profitable and pay down the debts.

      As noted, the plants were built at a value of near $50/kg more than todays costs as was the wafer facilities. That is about $1.25Billion in potential writedowns. These costs differences are likely not able to be recouped.

      Thus the reason that they need to write down the assets.

      P.S. They produce at well over $35/ and $209/kg depreciation this quarter g fubased on 3,000MT prodcued. That puts every ton generated at a cost of close to $15 to $18 over market rates. That is $60M a quarter right now in cost overruns vs market for there poly production.

      You writed down to $30/kg and suddenly they are at market rate costs

    • What are you talking about now? Opex and interest has nothing to do with equipment impairment charges. Ldk has 25 $/kg poly cost and $0.18 wafer processing cost. This is not in inferiority land like YGE's Fine Silicon, which was shut down for being useless or not meeti g PRC requirments for operations. If LDK has a few inferior and unupgradable old wafer equipment that is what I can see taking a charge, but LDK has strategically chosen state of the art upgradable stuff from AMAT,GTAT and Centrotherm and other tier one equipment makers. Charges if any will be on inventory and AR.

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