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Edited Transcript of JKS earnings conference call or presentation 27-Feb-17 1:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 JinkoSolar Holding Co Ltd Earnings Call

Shanghai Feb 28, 2017 (Thomson StreetEvents) -- Edited Transcript of JinkoSolar Holding Co Ltd earnings conference call or presentation Monday, February 27, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Sebastian Liu

JinkoSolar Holding Co - Investor Relations Director

* Kangping Chen

JinkoSolar Holding Co - CEO

* Charlie Cao

JinkoSolar Holding Co - CFO

* Gener Miao

JinkoSolar Holding Co - VP Global Sales and Marketing

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Conference Call Participants

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* Philip Shen

Roth Capital Partners - Analyst

* Brad Meikle

Craig-Hallum Capital - Analyst

* Yang Yang

Goldman Sachs - Analyst

* Paul Strigler

Esplanade - Analyst

* Mandeep Mandola

Credit Suisse - Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the JinkoSolar fourth quarter and full-year 2016 earnings conference call. (Operator instructions). I must advise you that this conference is being recorded today, Tuesday, February, 27 2017.

I would now like to hand the conference over to your first speaker today, Mr. Sebastian Liu, Investor Relations Director. Please go ahead.

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Sebastian Liu, JinkoSolar Holding Co - Investor Relations Director [2]

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Thank you, operator. Thank you, everyone, for joining us today for today's JinkoSolar fourth-quarter 2016 earnings conference call. The Company's results were released earlier today, and are available on the Company's IR website 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 been found on the IR website.

On the call today from JinkoSolar are Mr. Kangping Chen, Chief Executive Officer; Mr. Cao Charlie, Chief Financial Officer; Mr. Gener Miao, VP Global Sales and Marketing; and Mr. Sebastian Liu, IR Director.

Mr. Chen will discuss JinkoSolar's business, operations and the Company's highlights, followed by Mr. Gener Miao who will talk about sales and marketing, and 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 today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our financial results may be materially different from the views expressed today.

Further information regarding this 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 statement, except as required under applicable law.

It is now my pleasure to introduce Mr. Kangping Chen, CEO of JinkoSolar. Mr. Chen will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Chen.

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Kangping Chen, JinkoSolar Holding Co - CEO [3]

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(Interpreted) Thank you, Sebastian. Good morning and good evening to everyone, and thank you for joining us today.

I am pleased to announce another strong quarter to finish out the year. Total revenue in Q4 hit $737.6 million and $3.08 billion for the whole year.

Module shipments were 1,733 megawatts in the fourth quarter and 6,656 megawatts for the full year, which puts us firmly in the position as the largest module supplier globally.

Gross margin was 14.3% compared with 19.2% from manufacturing of last quarter, despite the sharp decline in ASPs in Q4.

We successfully completed the spin off purchases of Jinko Power's project business which generated $145 million in investment gain for JinkoSolar, and strengthened our balance sheet by cutting debt to $892 million from about $2.1 billion.

During this month, we further cut our debt by repurchasing almost all of our convertible notes due in 2019 at holders' put option.

Like [Jinko], the market situation is further deteriorated. There are a few things that I would like to highlight. Demand in China was strong during the quarter with growth momentum expected to continue during the first half of 2017 due to rush orders coming in before the FIT cut in June and additional quota for utility projects announced in the year-end of 2016.

We expect to see demand during the later part of the year to decline, but will not nosedive as many have expressed concerns about. Distributed generation and the Top Runner project will provide strong support for the market demand in the second half of the year.

We now say China this year will remain a 30-plus gigawatt market. Looking at the year, we're seeing ASPs begin to stabilize after the sharp decline in Q4.

Although political factors may create some uncertainties for the future prospects of renewable energy in the US, we don't believe it will significantly alter the growth trajectory of the US market, especially with ITC still valid.

Demand from India continues to beat our expectations. Adequate sunlight and strong demand for power continued to create ideal market conditions for the rapid growth in India. We're optimistic about its great potential, and have been expanding our team.

We also reinforce our leading position in Latin America and the Middle East, two markets full of opportunities.

Demand for our high-efficiency products, especially our PERC products, continues to be strong. With this in mind, we have begun to adjust our production capacity to accommodate market trends since the first half of 2016.

We now have 1 gigawatt in wafer capacity and about 1.4 gigawatts of PERC cell capacity and intend to increase our mono wafer capacity to 3 gigawatts, and the PERC cell capacity to 2 gigawatts by the end of the year.

Our total capacity as of December 31, 2016, we have 5 gigawatts for silicon inverters and wafers, 4 gigawatts for solar cells, and 6.5 gigawatts for solar modules. And it is scheduled to reach 7 gigawatts, 4.5 gigawatts and 8 gigawatts respectively by the end of the year.

On the technology front, we remain focused on high-efficiency technologies and quality control. In addition to our PERC product, as I mentioned before, our MCT for black silicon sales also began mass production.

As the global leader in the industry, we have always placed quality above quantity, with the implantation of the industry's most stringent production standards, and we will continue to provide our customer the highest quality, most reliable and high-efficiency products.

In conclusion, I am proud of what we have achieved this quarter and the year. Though the market is facing headwinds, we expect global demand into 2017 will be stronger than in 2016. Competition will intensify, and will be comprehensive in the future. But with our strategy focusing on technology, brand equity, cost structure and financial strengths, I am confident that we will maintain our leading position and further drive shareholders' value.

Before I turn the call over to Gener, I will quickly go over the guidance. The Company estimates total solar module shipments to be in the range of 1.9 gigawatts to 2 gigawatts for the first quarter, and 8.5 gigawatts to 9 gigawatts for the full year of 2017.

With that, I will turn the call over to Gener.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [4]

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Thank you, Mr. Chen. I am happy to report a strong finish to the year in which we shipped a total of 1,733 megawatts of modules during the fourth quarter and 6,656 megawatts for the entire year.

During the year, we retained our leading position as the largest solar module supplier worldwide, and increased our market share in several key solar markets.

During the quarter, we continued to balance our geographic distribution, which is composed of 40% shipments to China, 24% to Asia Pacific, 19% to North America, 10% to emerging markets and 7% to Europe.

Looking at the full year, we shipped to 1,040 customers in 78 countries. Total module shipments for the year increased 47.5% over 2015. This includes 2,580 megawatts to China, 1,982 megawatts in North America, 769 megawatts in the Asia-Pacific region, 582 megawatts to emerging markets, and 374 megawatts to Europe.

We are optimistic about the global market demand in 2017, and expect to further increase shipments and our market share in key markets.

Q4 demand in China was strong, retaining its position as our largest market. We expect this momentum will continue as a result of extra project quotas, and the rush orders coming in before the FIT cut in June 2017.

While demand may begin to decrease after that, we expect it to be a lot better than current market sentiment given that many distributed generation projects and most of the Top Runner programs should begin to kick in and make up for the demand during the second half of the year.

As Mr. Chen just said, China could be a 30 gigawatt solar powered market again this year. And we anticipate demand from about two initiatives in the second half alone will account for about 8 gigawatts.

In the US market, while there was a relatively sharp decline in ASPs in the fourth quarter, it is now currently stabilizing, and we expect demand to pick up again in the second half.

While political uncertainties have created some clouds to the direction of the US renewable energy market, but we believe that solar growth momentum in the US is irreversible, and the impact will be limited. We are also further diversifying our presence there as we shift more towards the distribution segment.

The Asia Pacific region. Aside from the traditional markets such as Japan, our utility scale market shows a great growth potential and is expected to reach a gigawatt level in the coming years.

India has become one of the biggest solar markets in the world with demand exceeding market expectations. Strong power demand and the decline in solar cost are the two main drivers here.

We are optimistic about the great potential of the Indian market, and implemented a long-term strategy there along with expanding local teams to capture those opportunities.

Turning to the emerging markets, we maintain and will expand our leading market share in South America's key markets such as Mexico, Brazil and Chile with our partners.

The Middle East market has begun to develop growth opportunities since last year, especially the UAE.

Our team is also well prepared to increase our brand recognition on the African continent, with the strong support from the President of South Africa. It is still the largest market across the continent.

Meanwhile, Egypt is also showing great potential. ASPs during the quarter came in at $0.41 compared with $0.49 in the third quarter. Full-year ASP came in around $0.50. We expect ASP to decline in a small range in the first quarter of 2017.

Moving to marketing and branding. We attended 50 exhibitions worldwide during the quarter. A number of them were in Latin America, which demonstrates our market leadership in the region. In October, we participated in All-Energy Exhibition in Melbourne, Australia, which is the largest solar trade show in the region.

In addition, we sponsored nearly 20 conferences where our local teams gave a presentation, organized two customer events, 15 customer trainings, 13 roadshows and 45 co-marketing activities with key distributors or partners across the world.

We hosted a global technical symposium in Shanghai, inviting 1,250 industry professionals and scientists from leading global PV institutions, organizations and universities, and showcased the three newly launched products.

We further strengthened our leading position and the brand value and recognition worldwide by participating in those events.

On the PR side, we have published over 6,000 articles online. In addition, major industry media have published exclusive interviews with our senior management.

Also, are honored to be appointed as a co-chair of the B20 ECRE, which indicates Energy, Climate and the Research Efficiency Taskforce.

In addition, we have been ranked the number 16 in the world's 100 fast growing companies by Fortune magazine.

Now, I would like to turn the call over to Charlie, who will go over our financial results of the quarter.

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Charlie Cao, JinkoSolar Holding Co - CFO [5]

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Thank you, Gener. I would like to walk you through our Q4 2016 and annual results. Let me draw your attention to our financial statements.

Because of the sale of Jinko Power, its financial results are recorded in discontinued operations according to accounting standards. So all the numbers I will share with you are based on ongoing operation basis, including the comparatives unless indicated otherwise.

In the fourth quarter, total solar module shipments were 1.7 gigawatts, up 8% sequentially, and up 1% year over year.

Total revenue was $738 million, down 4% sequentially and down 14% year over year.

Gross margin was 14.3% compared to 19.2% in Q3 and 19% in Q4 2015. The sequential decrease was due to the decline of module price.

We are on track to cut the production cost. The blended cost reached to $0.35 per watt in the fourth quarter. The operating expense represented 12.7% of total revenue compared to 11.1% in Q3 and 11.2% in Q4 2015.

EBITDA from continuing operations was $44 million compared to $89 million in Q3, and $111 million in Q4 2015.

Net income from continuing operations was $21 million. This translates into basic and diluted earnings per ADS of $0.68 and $0.64 respectively.

Non-GAAP net income from continuing operations was $33 million. This translates into non-GAAP basic and diluted earnings per ADS of $1.04.

Now, I'll briefly give you our full-year 2016 financial results. We concluded our 2016 with total solar module shipments of 6.7 gigawatts, up 48% year over year.

Total revenue was $3.1 billion, up 39% year-over-year.

Gross margin was 18.1% compared to 19% in 2015.

Operating expense was 11.8% of total revenue compared to 11.7% in 2015.

EBITDA from continuing operations was $331 million compared to $239 million in 2015.

Net income from continuing operations was $143 million, compared to $180 million in 2015. This translates into basic and diluted earnings per ADS of $4.52 and $4.20 respectively.

Non-GAAP net income from continuing operation was $179 million compared to $163 million in 2015. This translates into non-GAAP basic and diluted earnings per ADS of $5.72 and $5.24 respectively.

Now, let's move to the balance sheet. By the end of Q4, cash, cash equivalents and restricted cash were $406 million. The total debt was reduced to $892 million, and the net debt was $486 million.

The Company's working capital improved to $192 million.

At this moment, we're happy to take your questions.

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Questions and Answers

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Sebastian Liu, JinkoSolar Holding Co - Investor Relations Director [1]

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Operator?

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Operator [2]

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(Operator instructions). We will now take our first question from Mandeep [Mandola] from Credit Suisse. Please go ahead.

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Mandeep Mandola, Credit Suisse - Analyst [3]

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Hi. Mandeep Mandola from Credit Suisse. Thanks for taking my question. Just looking at the capacity guidance of 8 gigawatt and shipment guidance of 8.5 gigawatts and 9 gigawatts, would you be buying panels from the spot market, or have you already contracted it to any panel OEM manufacturer and would it be mono or multi? Any color would be appreciated.

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Charlie Cao, JinkoSolar Holding Co - CFO [4]

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In terms of the capacity expansion, the -- now, we have planned to invest on the high-efficiency capacity, particularly for the mono-wafer capacity. The key investments in 2017 include 2 gigawatts mono wafer capacity, and 600 megawatts module -- sorry, cell -- PERC capacities.

We think, you know, the high-efficiency modules have seen surprise shortages, and the markets for the high-efficiency products are expected to increase step by step in the next year. So that is why we made the strategic decision to invest on the mono PERC capacities.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [5]

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Yes, Mandeep, this is Gener. Just one more comment from me. Actually, if you're looking for the capacity expansion, we have more wafer compared with cell, and actually the cell, we are making -- we find the OEMs to help us to convert our wafer into cell, and manufacture into modules.

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Mandeep Mandola, Credit Suisse - Analyst [6]

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Thanks. And as you look at the 2017 guidance, how much of it has already booked, and how much of it includes shipments to Mexico, or your international projects in the year?

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [7]

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Okay, so for the order book, actually we are happy to see for the first half we are almost fully booked, and for the second half we are around let's say one-third of the order book has been occupied.

Regarding your question regarding the shipments to our international investments, I think that the total number compared with our total shipments will be pretty small. I think it will be around -- let's say less than 10%, maybe single digits. Around 5% of the total shipment.

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Mandeep Mandola, Credit Suisse - Analyst [8]

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Got that. That's helpful. Last question from me, and I'll jump back into the queue around your expectations for ASP and cost reductions for the year. Any color would be appreciated.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [9]

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I will answer your question regarding ASPs, and for the ASPs we are seeing the market becoming a stabilizing aspect given the strong push -- strong pull in demand in the first half of China which impact the global market quite a lot.

So for the first half we see only a small -- let's say change compared with the AS market price, compared about what we have in the Q4. For the second half, people are expecting the market price declined sharply. That's what happened in last year.

However, personally, I still take a conservative approach on that, because lots of Top Runner program and also this DG project in China will happen in the second half. Demand will not be as weak as people are expecting, so I still think it will be around a 10% to 15% job quota in the second half, not as big as what happened last year.

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Charlie Cao, JinkoSolar Holding Co - CFO [10]

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On the cost side, we are going to keep our leading cost positions, and we tried to cut our [blended] cost by 8% to 10%. We estimate the total blended cost will reach to $0.30 to $0.31 by the end of 2016 compared to the $0.35 -- the blended cost by the end of last year.

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Mandeep Mandola, Credit Suisse - Analyst [11]

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Thank you.

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Sebastian Liu, JinkoSolar Holding Co - Investor Relations Director [12]

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Thank you, Mandeep.

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Operator [13]

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We will now take our next question from Philip Shen from Roth Capital Partners. Please go ahead.

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Philip Shen, Roth Capital Partners - Analyst [14]

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Hi everyone. Thank you for the questions. I'd like to explore the ASPs a little bit more. I just want to confirm that you said Q1 ASP should be similar to Q4, and if so can you put a number on that on a blended basis?

And then, as a follow-up to ASPs, is it true that, based on some of the checks that we're doing, we're seeing ASPs in China between $0.36 and $0.38 for plain multi. That compares to global ASPs between $0.32 and $0.35. Are you starting to see a disparity in global pricing where Chinese ASP pricing could be actually higher than the rest of world?

This is probably the first time I've seen this in my time following the industry, but that's an interesting dynamic, to say the least.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [15]

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Hi Philip, it's Gener. So, thanks for your input. Actually, we have seen a similar thing. However, from our order book, we have seen a pretty, actually, aligned market price what we have for the first half ASP. So the first half, we -- the number we got and it's pretty aligned with what you've got from the market, which would be around let's say $0.37 to $0.39. That's the high-$0.30 range. I say, between $0.37 and $0.39.

For the market price, your observations are pretty sharp. Actually, China market prices are slightly higher than some. It's a highly competitive market. However, if you take the overall global price, I think it's pretty aligned. The China market price payment terms are slightly different from what we may have from other markets.

So if we combine all those factors together, the market price is pretty aligned from the orders and the contracts we have. No matter if it's Chinese or non-Chinese, the numbers are kind of close to each other.

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Sebastian Liu, JinkoSolar Holding Co - Investor Relations Director [16]

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Phil, this is Sebastian. I just have one point to add. So the ASP we just mentioned, we just talk about it, we just -- you know, probably average multi high-efficiency product. But remember that we have more and more shipments of the mono PERC, which definitely will help increase our ASP as well.

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Philip Shen, Roth Capital Partners - Analyst [17]

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Okay. That's definitely helpful. So, as we think about margins, can you share what your expectations might be for Q1 and Q2?

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Charlie Cao, JinkoSolar Holding Co - CFO [18]

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In terms of gross margins, we estimate the gross margin is relatively stable, and in a range of 12% to 15%. The high polysilicon price did put some pressures on the gross margin, but we are taking out efforts to cut the loss making cost.

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Philip Shen, Roth Capital Partners - Analyst [19]

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Okay, great. I believe in your prepared remarks you talked about China, overall demand being around 30 gigawatts. Can you confirm that? And also, in the back half, the demand would be closer to 8. Can you talk about what Q3 demand might be, if you have that?

I think you mentioned that ASPs might drop about 10% sequentially between the back half and the first half. So, just talk about China in general, and thank you.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [20]

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Okay, for China, as Mr. Chen just said, we are pretty -- in the Company internally, we are pretty aligned for the China demand, and we will continue to be strong in 2017.

So first half is mainly driven by all these last minute rushing orders for all the permits which got the quote from the previous year and have not finished the construction yet. Meanwhile, it will pull in all these guys for the DG project who needs this 100% selling their electricity to the grid. Such demand adding up together, we believe, will be more than 20 gigawatts only in the first half.

For the second half, China demand is mainly driven by this Top Runner program. Meanwhile, the cell consumption, the DG projects. Given people are expecting a price for the job after this rushing hour, and if the FIT jobs and [they help] the self-consumption DG projects IR will be very attractive. So it will accelerate more and more demand from that part.

Meanwhile, the Top Runner program is a fixed number we can see around 5 gigawatts. If you -- from the central government to the provincial level, adding up together, it will be around 5.5 gigawatts to 6 gigawatts total. So adding up all this demand together it comes to our number. We believe second half demand will be more than 8 gigawatts. Plus the first half 20 gigawatts, the total number will be more than 30 gigawatts.

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Philip Shen, Roth Capital Partners - Analyst [21]

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Okay. Well, one last question here and then I'll pass it on. A week and a half, or two weeks, ago, the NEA announced that they see only about 18 gigawatts of interconnections in 2017 in China. And I think they talked about 20 gigawatts as a number for construction. So how does that fit relative to your expectations of closer to 30 gigawatts? Does that number not include the Top Runner program, or the Poverty Alleviation program, or does it actually include it?

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [22]

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Yes, the poverty is something not included into NEA's announcement. Actually, if you look into all the wording into detail, you will see they add additional centers after they're talking about this 20 gigawatt. There will be additional amounts for this poverty program. That's one thing.

Another thing is an NEA announcement, the number is their plan for 2016 plus 2016 permitted -- newly permitted projects. Actually, historically speaking, there are still lots of, let's say, projects which have not finished their construction due to different kinds of reasons such as limited of the land, availability of the grid connection etc. after several years, and also because of such a huge cut for the feed-in tariff. It will pull them in, in the first half. So adding in all the things together, it will go to beyond 30 gigawatts, we believe.

Actually, that's pretty aligned from what happened in 2016, if you compare what is the announcement at the beginning of the year from the NEA, and what is the final number announced by year-end from the NEA.

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Philip Shen, Roth Capital Partners - Analyst [23]

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Great, okay. Thank you Gener, thank you Charlie, and Sebastian.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [24]

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Thank you.

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Charlie Cao, JinkoSolar Holding Co - CFO [25]

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Thanks.

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Sebastian Liu, JinkoSolar Holding Co - Investor Relations Director [26]

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Thank you.

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Operator [27]

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We will now take our next question from Brad Meikle from Craig-Hallum Capital. Please go ahead.

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Brad Meikle, Craig-Hallum Capital - Analyst [28]

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Good morning. So, for OpEx, how much do you think the total will decline following the sale of the Jinko Power business?

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Charlie Cao, JinkoSolar Holding Co - CFO [29]

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Sorry, so you are talking about operating expenses, right?

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Brad Meikle, Craig-Hallum Capital - Analyst [30]

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Yes.

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Charlie Cao, JinkoSolar Holding Co - CFO [31]

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Operating expenses, we look into 2017, we still are seeing operating leverage and we estimate it in the range of 10% to 11% of total revenue.

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Brad Meikle, Craig-Hallum Capital - Analyst [32]

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Right. Can you add more color in terms of your top line guidance for 8.5 gigawatts to 9 gigawatts? That's a big number. Can you talk more about what type of geographies you see being strong in the second half this year?

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [33]

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Well, the first half -- yes, for the first half, all we are saying is the demand in revenue, the global demand, is being driven by China. Meanwhile, we have seen -- for the second half, we have seen this US demand that will kick in after this development cycle has finished. More and more project demand will happen starting from the second half in the North American market.

Meanwhile, the Japan market still has some pretty obvious demand. There's another new emerging market coming up as a 5 gigawatt plus market, which will be the Indian market. And also there are some new countries which is not as a tech core strong demand countries which will kick in for the second half such as some Middle East countries, African countries, and even Australia.

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Brad Meikle, Craig-Hallum Capital - Analyst [34]

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Thanks. What do you think your depreciation CapEx will be this year?

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [35]

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For the total CapEx, we estimate it in a range of $400 million to $500 million. We discussed a capacity expansion plan. The key investment is on the mono wafer, PERC and module capacities.

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Charlie Cao, JinkoSolar Holding Co - CFO [36]

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So, for depreciation, I think it will be similar to 2016. Not a big change. I think compared to fourth quarter, 2017 should be a little bit higher because we invest $400 million to $500 million CapEx this year.

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Brad Meikle, Craig-Hallum Capital - Analyst [37]

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Great. Thanks. Just a last question. It seems like there's a bit of a standoff in terms of some orders not having been placed for the second half yet, and some customers thinking the pricing would come down to the low $0.30s, and obviously you seem to be seeing a little more strength than that. Can you just speak to what the order dynamic is out there? I think customers always seem to think that prices will go down forever. Do you think that, in general, the lack of expansion of polysilicon across the industry going forward is going to lead to a more rational pricing environment? Thank you.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [38]

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Yes, thank you. I will give a response on that. So for the global demand work in the pipeline, I think for certain markets people are always saying up and down, on and off. That's pretty the nature of the business.

However, if we are looking into the mid-term, in 6 months' or 10 months' time, we see more and more reasonable investors and customers kicking in to the industry. Because if we look into all these investors, it's really IRR-based and IR-based investors who need stable supply, and a commitment for their investment in the next coming 8 or even 10 months' time.

In that case, as long as the Company can provide such, let's say, share cost velocity, and provide such commitment to such investors and customers, I think everyone will join such partnerships to make the business more strategic in the long-term.

That's why we have seen lots of orders have come in not only for the second half but even for 2018, because we have the confidence to fulfil such contracts together. Meanwhile, the customers and the investor side, they can't reach their IRR expectations based on such financial models, so we are working to the win-win solution, thus, given us this partnership we have together with our partners.

Meanwhile, for the whole industry, we are sharing the same philosophy with our suppliers, no matter if it's polysilicon or other suppliers as well, to make sure we can join a win-win solution instead of cutting throat competition, price wars, or number games.

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Brad Meikle, Craig-Hallum Capital - Analyst [39]

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Thank you. Yes, thanks very much.

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Operator [40]

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We will now take our next question from Yang Yang from Goldman Sachs. Please go ahead.

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Yang Yang, Goldman Sachs - Analyst [41]

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Hi, management team. I have two questions first. So, for the tax benefit booked in the fourth quarter, so what's the nature on this?

The second question is due to the fast decline in module pricings third quarter last year, has the Company seen any supply side consolidation recently?

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Charlie Cao, JinkoSolar Holding Co - CFO [42]

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Regarding your first question, tax benefits, we did recognize some benefit in the fourth quarter because while our significant subsidiary in China successfully renewed the high technology certificates, which will enjoy 15% upper income tax compared to 25%. So we did some kind of true-up adjustment in the fourth quarter.

In terms of supply consolidations, you know, we're thinking of tier 2 or 3 companies are under pressure to deliver the qualities to meet customer demand. And so far, because China demand is pretty strong so we didn't see significant pressures for the tier 2, tier 3 companies to consolidate with the top -- the tier 1 companies.

But no, because of the -- most of the tier 2, tier 3 companies, they are working under the OEM capacities -- under OEM capacities for the tier 1 companies so we are saying they are very cautious expanding the capacity.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [43]

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Yes, and Yang, there's a progression and also we can say that to be honest, especially in the past year, the technology is developing very fast. Now it's very hard for the tier 2 and tier 3 players to catch up with the R&D investments, and also the latest technology that tier 1 has.

So with the limited opportunities of consolidation so far, especially with our current -- our leading technology. But, as Charlie said, and now I have seen a lot of tier 2 and tier 3 players working as the OEM, if we can have very stringent quality control.

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Yang Yang, Goldman Sachs - Analyst [44]

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Okay. Thank you. So I have two follow-up questions. So you just mentioned that for the total blended cost it would be reduced to $0.30 to $0.31. So what's the driver for this cost reduction? And in addition, so what's the margin difference between mono- and multi-wafers, and also by applying the PERC technology?

So, that's it.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [45]

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First, I just have one point to add, and Charlie will go to detail. So, certainly one, it's our estimation, but a very conservative estimation. So I think, definitely, we'll have -- we'll comfortably achieve that at year-end.

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Charlie Cao, JinkoSolar Holding Co - CFO [46]

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I think it's a couple of different initiatives from the Company side. We are working with our suppliers to lower the material input cost, and we invest a lot of efforts and energy on R&D and technology improvements, and efficiency improvements is one of the key areas and fast production, efficiency and the improvement of automatic production levels.

Regarding the margin difference between the multi and mono, currently the prices for the mono PERC modules, the price is 10% to 13% higher than the multi, and the cost is only about 8% to 10% higher than the multi. So we estimate the mono PERC, the module gross margin, is higher than the multi.

Again, we are investing a lot of money in the mono wafers, and we will ramp our mono PERC module capacity step by step to see which will help us to improve our gross margin.

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Sebastian Liu, JinkoSolar Holding Co - Investor Relations Director [47]

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Yes, and this question is a little bit misleading because you said we are comparing mono PERC to multi, not just mono to multi. I just want to point that.

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Yang Yang, Goldman Sachs - Analyst [48]

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Okay. Thank you management. That's all my questions, thank you.

(Over speaking)

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Operator [49]

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We will now take our next question from Paul Strigler from Esplanade. Please go ahead.

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Paul Strigler, Esplanade - Analyst [50]

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Good evening guys. A question on your guidance. So it look like for Q1, you're guiding up about 20% year over year plus or minus, but for the full year you're guiding up closer to 30%. How do you expect the trajectory of shipments to shift over the year? And the reason I ask that is, you guys specifically didn't fall off a cliff in Q3 of last year. It looks like shipments were down about 5% or 10% sequentially from Q2. So I guess how do you build to that 8.5-ish gigawatt number when Q1 is growing, but not, clearly, at the run rate you would need to hit that year-end target?

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [51]

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Yes, this is Gener. So if you take the first quarter as 2 gigawatts, you need to think 2 gigawatt a round number. That means you have to take into consideration -- you have to take the Chinese holiday as a consideration, because the China demand, together with this production, the workers, laborers, they are in long vacations like what's happening in Christmas, so very few people work. So that will occupy even more than half a month in the factory.

I believe, with the strong demand in China, I think we would like to see a much stronger demand, not only for Jinko but for the whole industry, from the Q2 until the end of the first half. That will, let's say, that will help the Company to finish the annual target.

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Paul Strigler, Esplanade - Analyst [52]

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Okay. And then, just in terms of the Chinese market specifically. So, I don't know if it's the NEA or what organization in China, announced a pilot program for renewable energy credits in 2017, but that in 2018 we may move to a full renewable energy credit program. How do you think that impacts demand, specifically for larger projects for 2018, and do you think that could cause a rush in the back half of the year as folks try to lock in a feed-in tariff for their projects? Even if they won't get paid any time soon, at least they can lock in that guarantee. Do you think that would cause a negative impact for 2018?

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Charlie Cao, JinkoSolar Holding Co - CFO [53]

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I think you are talking about the green certificates, right? China is --

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Paul Strigler, Esplanade - Analyst [54]

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Yes, certificates.

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Charlie Cao, JinkoSolar Holding Co - CFO [55]

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China is aiming to launch the program in the second half of the year in 2017. It's still -- the detailed implementation guidance is still in the early stage, but we believe it's positive for the industry, as well as for the path it will take.

After the implementation of the green certificates, we expect it's going to be -- it's going to improve the operating cash flows for the China projects. But again, I think the detailed implementation is still in the early stage and we are going to see how the government is to implement the policies, particularly at this stage for the green certificate. It's not mandatory, and a lot of experts are in discussion with government on how to implement the mandatory systems for China in the future.

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Paul Strigler, Esplanade - Analyst [56]

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And then one, just housekeeping question. So I looked at a couple of surveys last week, and it looked like polysilicon prices actually ticked down, or certainly stopped going up for the first time in a while last week. Are you guys seeing any sort of flattening or softening in the poly market which actually would benefit you?

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [57]

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I think the poly price now is $17, $18. It's stable, and we estimate it's going to downward maybe in the middle of the next -- of the second quarter. Again, we are seeing a lot of room for poly producers to cut their price, and their barrier cost is below $10 per kilowatt and now the market price is $16, $17.

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Paul Strigler, Esplanade - Analyst [58]

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Great. Thanks so much, guys.

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Charlie Cao, JinkoSolar Holding Co - CFO [59]

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Thank you.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [60]

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You're welcome.

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Operator [61]

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(Operator instructions). We will now take a follow-up question from Brad Meikle from Craig-Hallum Capital, please.

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Brad Meikle, Craig-Hallum Capital - Analyst [62]

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Hey guys. So, what's your estimate of global demand for 2017 and 2018?

And I guess, with your $400 million, $500 million of CapEx, that's a lot of investment for following years. So can you add some more color in terms of your feel on 2018 demand, and the balance of supply/demand, and whether there's going to be pricing leverage, and how you see the overall margins trending for the industry. Obviously, it's been a challenging few years. Thanks.

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Gener Miao, JinkoSolar Holding Co - VP Global Sales and Marketing [63]

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Yes. So from the global demand side, we believe 2017, compared -- let's say, compared with 2016, 2017 will definitely be another strong year. For 2018, from what we have seen, the demand will continue to be strong.

Maybe the increase will not be as big as what is happening between 2016 and 2017, but still we believe the market demand will continue to go up. In that case -- meanwhile, actually, there's another expectation from the industry that the gap between tier 1 and tier 2 will become bigger, so it means that for the top supplier or top player in this industry will increase their market share across this two to three years' time. Meanwhile, the smaller guys will suffer even further.

For the ASP side, actually we see the solar industry, actually the demand needs from the PPA of the global market that we have seen, the request to keep this module price, even the system costs, continue to decrease is a trend which cannot change. Actually, that's the nature of the solar industry.

However, we have seen -- in the short term we have seen, because of the -- let's say, policy-driven short-term rationale, we have seen the ASPs become kind of stable in the short-term. That's my view.

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Charlie Cao, JinkoSolar Holding Co - CFO [64]

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In terms of gross margin, you're right. I think the share of our Company is under pressure at this stage because of the high polysilicon price, and we believe the overall supply chain will back to normal standards second half-year. We continue to invest in the high-tech knowledge and to lower the module costs, and we are comfortable and we can deliver very healthy profitabilities and operating cash flows.

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Brad Meikle, Craig-Hallum Capital - Analyst [65]

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Thank you.

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Operator [66]

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As there are no further questions in the queue, I would now like to turn the call back to Sebastian for any additional or closing remarks.

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Sebastian Liu, JinkoSolar Holding Co - Investor Relations Director [67]

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Thank you, operator. So on behalf of the entire JinkoSolar's management team I want to thank you for your interest and participation on the 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 goodbye.

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Operator [68]

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That will conclude today's JinkoSolar fourth quarter and full-year 2016 earnings conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.

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Editor [69]

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Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.