JinkoSolar Holding Co Ltd DR

Hello, ladies and gentlemen, and thank you for standing by for JNCO Solar Holdings Call, Limited Second Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After management prepares remarks, there will be a question and answer section. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Ripple Chang, JNCO Solar Investor Relations Manager. Please proceed, Ripple.

Thank you, operator. Thank you, everyone, for joining us today for Ginkgo Solar's second quarter 2020 earnings conference call. The company's results were released earlier today and are available on the company's IR website at www.ginkgosolar.com, as well as on Newswire's 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 Jinko Solar are Mr. Chen Kamping, Chief Executive Officer, Mr. Charlie Cao, Chief Financial Officer, and Mr. Jenna Miao, Chief Marketing Officer. Mr. Chen will discuss Jinko Solar'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 this and other risks is included in Junko Sola's public filings. With the Securities and Exchange Commission, Jinko Solar 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 Jinko Solar. Mr. Chen will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Chen.

Thank you, Li Bao. Good morning, everyone. Thank you for attending today's telephone meeting.

Thank you, Ripple. Good morning and good evening to everyone, and thank you for joining us today. During the second quarter, our total solar module shipments reached 4,469 MW. Total revenues were US$1.2 billion and growth margin was 17.9%. Demand in the overseas markets was negatively impacted due to the COVID-19 pandemic. Neversness, our high-quality products, well-developed global marketing network, and premium customer service stood out among the competition and helped maintain the growth momentum in shipment volume. Most of our orders were executed on time, and we were able to increase our market share.

In the second quarter, the price of overseas markets dropped sharply. In order to reduce risk, the price of raw materials decreased. In the industry chain, companies with limited competitiveness and cost control capabilities have to adjust their use rate or exit the market. In the second quarter, due to China's forced pull and demand, as well as the easing of the overseas epidemic, the price of the industrial chain has risen, and the cost of supply and supply of short-term materials has risen. The profit space of non-unified infrastructure enterprises has been further compressed. The production structure of unified infrastructure enterprises has produced good risk-detecting capabilities in the wave of the industry. The epidemic has accelerated the rise and fall of industrial chains. The competition of industrial chains has been further improved, and the advantages of unified infrastructure enterprises have been expanded.

At the start of the second quarter, weak demand from the overseas market led to a drop in module prices. Many upstream manufacturing companies control inventory in order to reduce risks, leading to a decline in raw material prices. As a result, stiff competition in the solar supply chain made it tough for companies with limited product competitiveness and cost control capabilities to remain competitive. These smaller companies have had to successively reduce their capacity utilization or withdraw from the market completely. Costs in the solar supply chain increased in the latter part of the second quarter, in part due to the rush in installations in China driving up demand, and the overseas market showing positive signs of improvement from the peak of the health outbreaks. The recent increase in costs were also influenced by the supply shortage of polysilicon, which further squeezed profit margins for non-integrated solar module manufacturers, whereas the production capacity and infrastructure of integrated manufacturers demonstrated strong resilience to risks and price fluctuations. The epidemic has accelerated the survival of fittest and forced further improvements throughout the industry supply chain, substantially increasing the leverage of integrated module manufacturers. The combined shipment volumes of the top five solar module manufacturers are expected to account for 65 to 70 percent of the industry's total shipments this year. 明年,前五大组件企业的市场风格将进一步上升,

When a small number of companies occupy a large part of the global market, the competitiveness of technology will become more important. In the future, there will be less and less profit space brought by unbalanced company relations. The competition and difference brought by technology will become more and more obvious. Recently, our large-scale N-type battery conversion efficiency reached 24.79% and broke the previous world record. We believe that in the next two or three years, the battery solution will be able to compete with medium-sized products have the greatest contribution. We take a good look at the technical direction of N-type batteries. While maintaining the lead in battery technology, we will continue to invest the power of R&D in equipment and components that are compatible with each other. This year, large-sized double-sided component products have been promoted beyond expectations. Not only does it reduce the application cost, but it is also the core of the competitiveness of light and dark continuous improvement. Jinko Energy and several leading companies have jointly advocated the establishment of 182-size equipment standards. We expect the market share of the top five module manufacturers to increase next year.

When the global market share is dominated by a handful of top solar firms, excellence in technology will stand out even more in this landscape. In the future, profit margins resulting from imbalances between supply and demand are going to be less. Barriers brought by advanced technology and product differentiation will become more significant. Recently, our large area and type Solar cell reached a conversation efficiency of 24.79% and set a new world record for the industry. We believe in the next two or three years, advanced cell technology will make the greatest contribution to the competitiveness of end products. We are optimistic about the direction of our end type cell technology, while we currently have the leading edge in the market in terms of cell technology. We will continue to invest heavily in our R&D to ensure the matching competence for silicon weavers and modules. In 2020, the popularity of large-size and bifacial modules exceeded our expectations and demonstrated that further reduction in levelized cost of energy remains the core distinction among clean energies. Together with several leading PV companies, we were working to establish a new standard for 182 mm wafers in order to reduce the industry's upstream and downstream coordination problems caused by size diversification and the increase in costs, and promote the efficient and standardized development of the industry. We were currently increasing all R&D resources into technological research related to high-power output 182-millimeter modules with the aim of promoting these modules as our main product for next year.

The supply and demand of the Chinese market leads to a rise in industrial chain prices. At present, the price has reached a new balance. The rapid demand will continue to the end of the year to restore the development of the industry. This year, due to the change of the epidemic and the economic environment, there is a certain resistance, but the speed of progress is surprising. We are determined to look forward to restoring the future of the new industry. In the short term, this year is the last year that the Chinese market has a supply and demand, and we are more prepared for the future. With a stronger comprehensive strength, the participation of state-owned enterprises and central enterprises will increase. The year-to-year completion and pace of the pre-primary project are better than that of 2019. The overseas market has a good overall recovery. In some areas, there has been a growth beyond the expected. In the medium term, looking back at China's past two five-year plans, the actual completion of the official business has shown more than expected. With the exit of the market cap, the industry drive has changed fundamentally. China's official business has entered a stable growth period. In the next five years, Accelerated development is a big risk factor. In the global scope, light and power is one of the lowest cost-effectiveness sources. Power will rely on high-speed development. Light and power are gradually opening up new growth platforms. In short, the cost of light and power is decreasing rapidly. From the perspective of technology improvement and reduced space, it is extremely competitive. From the perspective of clear energy structure transformation and rich application scenarios, it is full of possibilities.

Since the second quarter, the global pandemic has experienced gradual recovery in between epidemic waves, causing restrictions to come back into play in certain markets. As a result, global demand for PV installations has gone through extreme lows and then rapid recovery, which have then influenced the annual installation capacity in many regions. The coronavirus pandemic has affected demand to a certain extent. However, the decline in prices has also revived demand. As the epidemic situation continues to ease, we believe demand will eventually accelerate. The shortage of supply in China market has driven up prices along the supply chain. At the moment, prices have stabilized and we expect strong market demand to continue until the end of 2020. Due to the recent economic environment and the pandemic situation, the growth of the PV industry has slowed down, but the rate of the progress in the industry has actually beaten expectations. We remain firmly confident about the future of the solar as a new energy source. In the short term, 2020 is the last year for subsidies in China market. Thanks to adequate preliminary preparations, and the increased participation of more powerful state-owned and central enterprises. The pace and completion progress of bidding projects in 2020 are expected to be better than in 2019. The overall recovery in the overseas markets remains supportive, with some regions experiencing surprising growth in the mid- and long-term, looking back to the last two phases of China's five-year plans. The actual completion rate of PV projects have significantly exceeded expectations. With the withdrawal of market subsidies, industry drivers have undergone fundamental changes. China's PV installation capacity has entered into a period of steady growth momentum, which increases the probability of accelerated growth over the next five years. Solar energy has become one of the most cost-efficient power sources around the world. and we expect new technology in energy storage to usher in a new era of rapid development for the sector and new growth to be the PV energy storage industry. In short, PV has already been extremely competitive in terms of technology improvements and cost reduction capabilities, as well as potentials resulted from accelerated transformation in the energy sector and diversified application scenarios in the downstream market. Jenner will address more on markets later.

截至二季度末,我们的单金硅片电池组件产能分别为20,11和25GW。 由于三季度有5GW的组件产能投产, 2020年底,我们的单金硅片电池和组件的产能预计将达到20,11和30GW。 同时,为了应对广阔的市场空间和明年出货链的增长, At the end of the second quarter, our in-house production capacities for monosilicum

wafers, sail, and high-efficiency solar modules has reached 20, 11, and 25 gigawatts, respectively, with 5 gigawatts of module capacity ramped up in the third quarter. Our in-house production capacities for monosilicum wafers, sails, and high-efficiency solar modules are expected to be reached 20, 11, and 30 gigawatts, respectively, by the end of 2020. In order to benefit from the high growth in the broader market space, and total shipments for next year. We are now considering further increases in production capacity for each segment and will increase the proportion of integrated level accordingly. The PV industry is facing rapid changes and that's why we have to maintain a certain level of flexibility in our production capacity. This will give our business the advantage to respond to any change in a timely manner while sustaining the reliable operations and remaining fully focused on the evolving market demand.

and provide more support for our future growth.

This week, we announced our plan to list our principal operating subsidiary, Jiangxi Jinko, on the Shanghai Stock Exchange Centex Innovation Board, or the Star Market. We believe the listing of Jinko Solar on the New York Stock Exchange and Jiangxi Jinko on the Star Market will raise our profile with investors, both in China and globally, and provide us with additional opportunities to grow in the future.

Before we move on to the topic, I would like to introduce the performance of the company. According to the current forecast, in the third quarter of 2020, the company's total output will be between 5 to 5.3 gigawatts, and the operating revenue will be between 12.2 billion to 13 billion US dollars, and the profit will be between 17 to 19 percent. The total output of the company in 2020 is expected to remain the same, between 18 to 20 gigawatts.

Before turning over to Jenner, I would like to quickly go over our guidance for the third quarter of 2020. We expect total solar module shipment to be in the range of 5 to 5.3 gigawatts for the third quarter of 2020. Total revenues for the third quarter is expected to be in the range of $1.22 billion to $1.3 billion. Growth margin for the third quarter is expected to be in the range of 17 to 19%. We will iterate our guidance for the full year 2020 shipments to be in the range of 18 to 20 gigawatts. Thank you, Ms.

Chen. During the second quarter, total shipments of solar modules reached 4,469 megawatts, covering 91 countries worldwide. Asia Pacific, North America, China, and Europe contributed the largest portions of the total shipment and are expected to continue to contribute substantial volumes in our total shipment for the third and the fourth quarters. In terms of the market demand, a rush in installations in the domestic market drove significant growth in China at the end of second quarter. As more and more countries return to normalcy, and the health crisis continues to improve overseas, we have seen a notable recovery in global sales. Strong market demand in the third quarter have driven prices up sharply throughout the supply chain, forcing some installation demand to be delayed until 2021. At present, supply and demand have re-stabilized, which will keep sales forwarding until the fourth quarter. We expect the total global installations to be close to 120 gigawatts in 2020. Overseas demand in 2021 is likely to boom with attractive active transactions in Asia Pacific, Middle East, North America, and Europe. There are also a large number of installation projects planned in China in 2021. given that the original target of 15% of non-fossil energy consumption in 2020 has already been exceeded. The Chinese government is currently drafting its 14th five-year plan to amend the original target to 20% of non-fossil energy consumption by 2030. In the next five years, average annual installations in Chinese market will most likely reach 60 gigawatts. After U.S. economy started to recover in May, demand from the residential market has gradually recovered from the lows of epidemic and approved small rooftops solar PV installation have returned back to January's pre-pandemic level. The U.S. imported approximately 15 gigawatts of modules in the first seven months of the year, and the average monthly import volume was over 2 gigawatts. After falling to their lowest record in June, monthly imports rebounded to 2.2 gigawatts level in July. Recently, the U.S. Democrat, U.S. President candidate Joe Biden and proposed a new sustainable infrastructure and a clean energy plan, which aims to achieve carbon-free power generation by 2035 and set clear objectives for the entire economy to be climate neutral with net zero GHG emissions by 2050. In general, Europe has gradually returned to normal. Demand has been relatively stable in several major PV markets, including Spain, Germany, Netherlands, Poland, Portugal, and Italy. Actual installed capacity in the European market this year is expected to be significantly higher than our previous expectation. Recently, the second round of the solar auctions in Portugal attracted worldwide attention and set a new world record at the price of 0.01316 US dollar per kilowatt hour. Germany has amended the Renewable Energy Act to extend bidding for 18.8 gigawatt of PV power generation projects by 2028, which compromise of 5.3 gigawatt of rooftop installation and 13.5 gigawatt of large-scale ground power stations. Ireland held its first large-scale solar auctions for renewable energy, and solar dominated with the largest share of 796 megawatts. Commercing in 2021, the EU's 27 member states are planning to adopt 2030 climate and energy framework that will require renewable energy to account for at least 32% of primary energy consumption by 2030. This framework will certainly stabilize the long-term development of clean energy in Europe. India has been one of the most severely affected countries in the world, and the coronavirus pandemic continues to intensify with new infections climbing over 90,000 cases each day. As restrictions continue to ease nationwide, local transmission of the coronavirus is expected to continue in India for some time. Furthermore, India's worsening economic ties and trade barriers with China will further affect many projects currently under development in India, as well as some previously commissioned PPA projects. In particular, the border adjustment tax in India has lowered our expectations for PV installation in Indian market this year. Coronavirus cases have sharpened sharply in Middle East, and the new daily cases in major countries have remained below 2,000. The health pandemic countries to take its toll in Latin America as Brazil emerged as a top global coronavirus hotspot. while Chile and Mexico are both seeing some improvements. On a brighter note, Brazil has removed import tariffs for 101 specific items, including solar modules, trackers, and inverters, thus reducing taxes from 12% to zero since August 1. This is expected to help the distribution market to recover from the impact of COVID-19. In short, although periodic outbreaks of the recurrent pandemic do trigger some concerns, we see economic activity in most regions of the world improving significantly despite the fact that policies and economic slowdown in certain countries due to COVID-19 will act as a drag on solar installations. The increasing competence of the global solar supply chain and the hybrid advantage of clean energy have won growing support from governments and installers. In the mid to long term, we expect that reductions in solar costs will continuously beat expectations, and as grid parity is welcomed everywhere, the impact from policy cycles will greatly diminish. With continued cost reductions and the incremental growth coming from the expanding energy storage business, we are facing exciting new opportunity and our potential PV market size is expected to grow substantially. Recently, We were ranked as a top solar brand in debt finance project and named one of the most bankable PV manufacturers in the world by Bloomberg New Energy Finance. 100% of BNEF survey respondents considered the company as highly bankable. This outstanding brand recognition connects us to more customers in the broad PV market space. We will continue to dedicate resources to strengthen the quality control of our high-efficiency products to improve customer service excellence and to work more closely with our clients for customized product solutions according to their project requirements. This year, we have been able to accelerate the promotion of applications that enable further reduction of LCOE. We have also joined up with several leading PV companies to establish a new standard for 182 millimeter wafers and launched the P-type Tiger Pro and N-type Tiger Pro modules with maximum power output of 580 watt peak and 610 watt peak, respectively. So far, we have secured over 1 gigawatt of orders for high efficiency modules from the Tiger Pro series. and the first batch is scheduled for delivery in October this year. Next year, large-size wafer products are expected to account for over 70% of our total shipment, while significant growth in demand is expected for higher power output by official products. Finally, we are currently conducting market research and accelerating technical reserves associated with new products to better understand how we can serve the needs of our customers and facilitate the provision of more differentiated products and services for our global clients. With that, I will turn it over to Charlie.

Thank you, Jingle. We reported strong operational and financial results for the quarter with total shipments and gross margin in line with our guidance. and total revenue exceeding our guidance. Financial indicators such as total revenues, close margin, and net income have all increased dramatically compared with the same period last year. The company's increase in house integration level have contributed to this year-over-year close. Let's go into more details for the quarter now. was 1.2 billion U.S. dollars, up 22% year over year. Gross margin improved to 17.9% compared to 16.5% last year. EBITDA was 119 million U.S. dollars compared to 66 million U.S. dollars in the same period last year. Long gap net income was 53 million U.S. dollars significantly increased year-over-year. This translates into non-GAAP diluted earnings per year of $1.2. Total operating expenses accounted for 12.8% of total revenue, an increase from 12.6% sequentially and flat with the same period last year. The sequential increase was primarily due to an increase in shipping costs associated with a significant increase in solar module shipments during the second quarter of 2020 and an increase in disposal loss on fixed assets. Moving to the balance sheets, at the end of the second quarter, our balance of cash and cash-in prevalence were $970 million compared to $670 million by the end of Q1. Accounts receivable turnover days were 71 days compared to 76 days in the second quarter last year. Inventory turnovers were 90 days compared to 140 days in the second quarter last year. Total debt was $2.3 billion compared to $1.8 billion by the end of Q1, in which $128 million was related to international solar projects. Net debt was 1.37 billion U.S. dollars, compared to 1.14 billion U.S. dollars by the end of Q1 2020. On Monday this week, we announced our strategic plan to list our principal operating subsidiary, Jiangxi Jingco, on the Shanghai Stock Exchange after certain in intra-group restructuring. If the listing is successful, we expect to have greater access to cheap resources or capital, which will support us in capturing a greater share of market growth and value creation. We are committed to maintain our New York Stock Exchange listing for Jinko Solar. The pre-IPO financing, which is expected to be completed by the end of next month will be used for the advanced capacity expansion and the needs of working capital. This concludes our prepared remarks. We are now happy to take your questions. Operator, please proceed.

Thank you, management. We now begin our question and answer sections. If you have a question for today's speaker, please press 01 on your telephone keypad now. It will be answered at you. After you are answered, please ask your question. If you find that your question has been answered before you turn to speak, please press 02 to cancel. So once again, 01 on your telephone keypad now to ask your question.

So, Alfredo, is there any questions from analysts?

Yes, our first question is Philip from Rove Capital Karma. Please go ahead.

Hello? Hi, everyone. Thanks for the questions. In terms of, I would like to talk about the Q4 outlook. I think the implied shipping guide is for 6 gigawatts. which would be up 30% year-over-year. How do you expect your margins to trend in Q4? I think back on the Q1 call, you guys had talked about being 75% booked for the full year of 2020. With pricing through the entire supply chain going higher, including poly and glass, how are you able to talk about your margin outlook for Q4 as well as How are you able to maintain the 17% to 19% of the Q3? Thanks.

Yeah, Phillip. And the outlook in Q4 with respect to the gross margin comparing to the third quarter is roughly slightly going down, given the situation. The production cost, particularly the material cost, is increasing. due to the shortage of the certain materials. But at the same time, you know, the market price in China, we are expecting, you know, to be, you know, on the upward side, you know, compared to particularly in the second quarter, third quarter. But given, you know, the situations, we are expecting the gross margin we have some pressure and it's going to be slightly lower compared to the third quarter.

Okay. Thank you, Charlie. I think you guys have fixed pricing for your contracts. Have you been able to raise the pricing on customers which had fixed pricing, for example, in either Q3 or for Q4 shipments?

You know, We are expecting, you know, in the second quarter, we're expecting China will be very strong. So we, you know, we have sufficient, you know, and, you know, open capacity at that time back to second quarter to catch up the, you know, opportunities, market price increase. And in general, you know, if we sign the contract, we will stick to the original contract terms.

Got it. Okay, great. And then can you talk about, you know, I think one of your peers gave some very specific outlook and even guidance for 2021. Can you share, you know, what your thoughts are for 2021? So specifically, you know, I think you increased your module capacity to 30 gigawatts. Is that a good number to use for shipments for next year? And how do you expect your margins to trend as we get through each quarter in 2021?

In 2021, the overall market situation, we're expecting a pretty good year. We announced our plan to get access to the China capital market, and we are expecting to close 3.1 billion RMB financing by the end of the month. we have the plan to invest, particularly the sale capacity as well as the monowafer capacity. And if you look at the situation now, the tier one companies, they are dominating the market shares, and they were expecting more. I think compared to this year, we are expecting our growth rate will be relatively higher next year. you know, gigawatts we are reaching, you know, capacity of the module, I think it's a kind of, you know, renewable, maybe some base case, you know.

Yeah, we are still working on our 2021 plan yet, budget yet. We have not finalized it yet, so we are still working on it. But I think somewhere around 30 gigawatts will definitely be our target to follow.

Great. Okay. That's helpful. And coming back to your $458 million pre-IPO raise, can you talk through kind of how you got to the valuation at which that equity comes in and also what the use of proceeds will be? I'm imagining a big chunk of that is going to be for capacity expansion in 21. I know you just mentioned, Jenner, that you guys are still evaluating, but any additional color on that would be fantastic. Thanks.

Okay. So, you know, for the 3.1 billion U.S. dollars, sorry, RMB, you know, it's including third-party reputable investors like, you know, the investment arms or reputable commercial banks and investment funds focused on any sector. So back to your first question, how we come out of the valuation space based on the negotiation with third-party investors. And for the needs, for the fundings, the majority part will be for the advanced capacity expansion. And if you look at our capacity, we have very low capacity in solar cells. That will be our key focus. as well as we plan to increase our monowafer capacity and to solidify our competitiveness.

Great. Okay, one last housekeeping question. Can you share what the depreciation in CAPEX was for Q2 and then your expectations for Q3 and Q4?

I need to get back to you the number, you know, maybe after call. I think roughly depreciation should be each quarter. Let me get back to you after call. I need to check the numbers. But the CapEx this year is still roughly, you know, 3.5 billion U.S. dollars this year.

Great. Okay. Thank you, Charlie and Jenner. I'll pass it on.

Thank you.

Thank you.

As a reminder, please press 014 questions. Our next question is Brian from Coleman Sachs.

Hey, guys. Thanks for taking the questions. Just maybe a quick housekeeping follow-up from Phil's questions. Do you have the cash flow from operations and free cash flow results for the quarter?

No. No, we have the EBITDA number, right? We announced, you know, the EBITDA number, as well as the failed question of depreciation. I have the number now. It's roughly $40 million. And the operating cash flow, it's negative because this year, this quarter, we invest up. We anticipated, you know, next quarter, our shipments will continue to increase. And in terms of detailed numbers, I will get back to you after the call.

Okay, fair enough. We'll follow up. And then on the balance sheet, I noticed that the debt number was up about $500 million from Q1 to Q2. Can you talk to what that was related to and then any kind of bigger picture thoughts around delevering?

Sure. You know, from the leverage perspective, you know, we are in the process of close pre-IPO financing, 3.1 billion, which will, you know, decrease our leverage as a whole. And in terms of second quarter, which is the first quarter, the debt, the total debt increased a little bit. It's in connection with the capacity of expanding as well as the working capital for the inventory accounts receivables.

Okay. Fair enough. And then I guess related to the debt and next steps in the star listing process, you mentioned some intercompany restructuring. Could you elaborate on what that means, how long it takes, and then Does it have to do with some of the intercompany loans and can you just kind of give us a bit more detail around what has to happen from here on and how long that will take?

Yeah, it's a very short time in terms of internal reorganizations because we need to put 100% assets or manufacturing assets under the China entities and it's For us, it's very easy because we only need to reorganize certain, if not all, entities, particularly the sales entities under the China entities' control. And in terms of scope, I just want to emphasize it's 100% manufacturing assets, including vapors, cell, module, everything. But we still have two or three international solar downstream projects which we plan to sell in the future. So the international solar downstream assets are not in the scope of the entities we plan to launch the IPO in China.

Okay, appreciate that color. And then maybe just last one for me. I know, Charlie, you said that gross margins are, you know, they're being guided flat basically in 3Q and you're saying down slightly in 4Q. Can you help calibrate that a little bit just given there's so much volatility in the supply chain and specifically on polysilicon cost? You know, one of your peers talked about gross margins being down kind of 500 basis points in the back half of the year versus the first half of the year and being in the mid-teens. Is that how we should think about sort of that slight, you know, downtick for you? Are you going to be back into the kind of the mid-teens gross margin level in 4Q?

Yeah, I think, you know, back to the second quarter, you know, originally we – We have a relatively pessimistic outlook for the second half of the year because of the global coronavirus situation. But the situation, and I think most of the participants are not expecting that the cover is so quick for renewable energy, and as well as the price is upwards, reached to the bottom in the second quarter and up dramatically in the third quarter and fourth quarter. But on the other side, you know, certain materials, including polysilicon, glasses, are in a shortage, you know, supply, which puts some pressure on the cost, internal production cost. So that is why we expect, you know, this fourth quarter, the gross margin will be, you know, in a downward trend comparing to the third quarter and the second quarter.

All right, fair enough. But would you say mid-teens is too pessimistic of you, or is that about the right range?

You mean the fourth quarter, right?

Yeah, fourth quarter specifically.

Oh, I think it's slightly down, you know, comparing to third quarter. Fifteen percent, I don't expect that number in the fourth quarter. Okay, fair enough.

Thanks, guys. Thank you.

Our next question is Paul Johnson from GLG.

Hey, guys. Thanks for taking the question. Can you hear me? Yes. Hey, thanks, guys. So there's been a lot of talk about China's next five-year plan, and there's been some speculation that... the target could go up to 50 gigawatts a year. But then on the flip side of that, clearly incentives in next year, so any country where we've seen incentives in, you've seen a big decline in demand. So can you talk about what your view is on what you see with respect to demand in China next year? And then I have a follow-up.

Sure. I think for China's 14th five-year plan, Currently, the market intel is suggesting the total demand side is substantially increasing, and the draft has not been released yet. There's no public information on it, but according to the rumors we are reading or we are seeing in the market right now, I think if you convert the total installation number into an annual installation number, I think the number is indicating over 60 gigawatts, and maybe at the range around 60 to 70, even higher.

On top of that, I'm not sure you know or not, the President Xi had a speech at the United Nations, and China is committed to reach the peak of the carbon emission by the end of 2030. and we will try to achieve zero carbon emissions by 2060, which is showing China's commitment to renewable energy. As well as the next five years' plan, I think it's under discussion, but we think the possibilities the high possibilities that China will raise upward, you know, the targets.

Okay, that's very helpful. And then there's been a lot of focus on, you know, relisting and subsidiary listings of USADR stocks in China on the Shanghai Stock Exchange. Based on our understanding, a lot of U.S. investors are expecting, you know, listings on the Shanghai Stock Exchange and then that profit to be used to buy U.S. ADR stocks. But based on our understanding, we believe it's illegal in China to list on the Shanghai Stock Exchange and then use those proceeds outside of China, i.e., outside of Shanghai. Do you guys know if that's true or not? And do you agree with that?

I think, you know, the IPO process typically, you know, in China, let's say you issue the share 10%, and typically you have the use of the targets. Typically it's used for some, you know, CapEx as well as working capitals. But in China, you know, for the public companies, there is some... requirement, let's say 10% net income each year, you know, the public companies are required to distribute, you know, as dividends to investors. From that perspective, I need to check to the lawyer, but from that perspective, the 10% net income distribution, you know, as, you know, dividend, I think, you know, from my perspective, you know, I need to check, but I think from dividend perspective, you know, it's okay, you know, and the China entity are able to distribute the dividend out of China and ultimately dividend to the U.S. shareholders. But I need to check.

Okay. Thanks a lot, guys. Good luck. Thank you.

Thank you for your question.

As a reminder, please press 014 questions. As a reminder, please press 014 questions. There are currently no more questions. Management, do you have any following remarks? If that is no, then this is the end of today's call. And thanks everyone to joining this call. And you may disconnect now. Goodbye.