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spk04: Ladies and gentlemen, thank you and welcome to JNCO Solar Holdings' third quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After the management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host today, Ms. Ripple Zhang. Jinko Solar's investor relations manager. Please proceed, Ripple.
spk00: Thank you, operator. Thank everyone for joining us today for Jinko Solar's third quarter 2020 earnings conference call. The company's results were released earlier today and available on the company's IR website at www.jinkosolar.com as well as on Newswire services. We have also provided a supplemental presentation for today's earnings call. which can also be found on the IR website. On the call today from Jinko Solar are Mr. Chen Kangping, Chief Executive Officer, Mr. Charlie Cao, Chief Financial Officer, and Mr. Jenner 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 Jinko 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 Kamping, CEO of Jinko Solar. Mr. Chen will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Chen.
spk03: Mr. Chen Kamping, CEO of Jinko Solar We have plenty of reasons to believe that During the third quarter, our total solar module shipments were 5,117 megawatts. Total revenues were $1.29 billion, and the growth margin was 17%. In the fourth quarter, the company's profits faced certain pressures due to a few factors.
spk00: Supply shortage of raw materials increased production costs, coupled with the impact of fluctuations of the US dollar and higher logistics and transportation costs. With the turmoil of the global pandemic continuing to ease, PV has received wide support from most of the world's economies, and the bottleneck of raw materials is expected to gradually improve. We strongly believe that the PV industry has ushered in a golden age, However, we will continue to be vigilant about market conditions around the world and should not overestimate the economic turmoil in the next one or two years and underestimate the changes to come over the next decade.
spk03: for non-magnetic energy comparison, new energy generation device goals, and other parameters, as well as for the large-scale construction of the power supply system that is needed to achieve high proportion of renewable energy, network transformation, investment, and the subsequent launch of relevant partner policies, all have very positive expectations. Biden will probably push for new energy development beyond expectations. In the next five years, U.S. recovery needs are expected to increase by more than one-tenth. The European Commission officially issued the 2030 Coal-Based Goal Plan, which proposes to increase the temperature gas emissions reduction target in 2030 from 40% to 60% compared to the 1990 standard. This will accelerate the increase in the consumption of renewable energy. In short, as the recovery economy deteriorates more and more, 在疫情之后,各大经济体的能源建设和能源转型中,光伏都将成为核心的角色。 未来的市场空间超乎想象。 Government policies have been very favorable. China outlined strategic plans to hit peak emissions before 2030 and reach carbon neutrality by 2060, a significant step in the fight against climate change. The next announcement of the 14th Five-Year Energy Plan in March
spk00: 2021 is expected to focus on non-fossil energy sources and outline new energy power generation targets and other parameters. Furthermore, the large-scale construction of energy storage required by the power grid to achieve a higher proportion of renewable energy, investment in grid transformation, and the subsequent introduction of supporting policies all convey very positive expectations. After President-elect Joe Biden takes office in January 2021, his administration is expected to promote the development of new energy beyond current expectations. In the next five years, U.S. solar demand is expected to more than double. In September 2020, the EU officially released the 2030 Climate Target Plan, which has proposed to increase the greenhouse gas emission reduction target from 40% to 60% below 1990 levels by 2030. This will no doubt accelerate the increase in the proportion of renewable energy consumption. In short, as the economy of solar energy becomes more and more prominent, Solar power will play a vital role in accelerating the transformation of energy generation and consumption in major economies post-COVID-19, and the future market space is expected to expand beyond our imagination. With the approach of grid parity, leading companies will stand to benefit the most from technological advancement and cost reduction in the PV industry. On the one hand, top players are well positioned to expand their market share with competitive products driven by strong and sophisticated R&D, and to leverage the advantage of their well-known brands and distribution channels worldwide. On the other hand, through supply chain management and proportion of simultaneous growth of the supply chain, top players are expected to achieve technical innovation and product iterations more rapidly while helping to elevate industry standards to new highs.
spk03: 我们始终把保持技术的竞争力和不断推动精细化管理作为公司的战略目标。 今年7月,经权威第三方机构TAV来因实验室的测试, 金科N型组件转化效率达23.01%。 创造新的世界记录,8月,经权威第三方机构汉密林太阳能研究实验室测试, 金科N型TOPCOM电子转化效率达24.9%。 The company's strategic goals have always been to invest in technology as competitive advantages.
spk00: and continuously improve our operations and product lines. In July 2020, the maximum solar module conversion efficiency of our N-Type module reached 23.01% and set a new world record. Testing was conducted by TUV Rheinland, one of the world's leading testing service provider. In August, our N-Type TopCom cell conversion efficiency reached 24.9%, independently confirmed by the Institute of Solar Energy Research in Hammerin, which set another world record for the industry. Concurrently, we proactively optimized our supply chain management and ensured a stable supply of core raw materials and auxiliary materials through long-term purchase agreements, strategic cooperation, and other resources, where supply links were more likely to experience shortages We transformed our technology and used substitute materials to ease the volatility in the supply chain brought about by rapid growth.
spk03: module products are going through a period of rapid change. We believe that gradual advancement
spk00: adjustments are more beneficial. The maturity of the supply chain ensures the safety and reliability of products, and the use of standardized application is more conducive to the healthy development of the industry. We are committed to produce the highest quality products that will continuously improve the energy density of the system and reduce system costs for our customers. So far, our next-generation TigerPro service has received orders for an aggregate amount exceeds 2 gigawatt. The first batch of mass produced Tiger Pro modules were shipped in October and the maximum mass production power can reach 585 watt. The Tiger Pro series continues to set new benchmarks for the industry in terms of high compatibility and high adaptability.
spk03: At the end of 2020, the production capacity of our single-battery battery and component range is expected to reach 20, 11 and 30 watts. At the same time, in order to deal with the rapid growth of the vast market space and the next year's output volume, we are evaluating the production capacity of various segments to ensure the appropriate proportion of unilaterality. Global solar energy needs rapid growth. The company is in an advantageous position. I believe that the company has the ability to continue to expand its market share and further consolidate our leading position in the industry.
spk00: By the end of 2020, we expect our in-house annual monosynicom wafer, solar cell, and module production capacity to be 20, 11, and 30 gigawatts, respectively. At the same time, in order to cope with the broad market demand and the expected rapid growth in the shipments next year, we are currently evaluating all our production lines. in order to increase production capacity for each segment and ensure appropriate integrated production level accordingly. The global demand for solar energy is accelerating, and the company is well-positioned to meet expectations. We believe that the company has the ability to continue to expand its global market share and further reinforce our leading position in the global PV industry.
spk03: I'll pass the floor to Janet. I would like to introduce the performance of the company. According to the current forecast, in the fourth quarter of 2020, the company's total output was between 5.5 to 6 gigawatts. The annual income was between $13.1 billion to $14.3 billion. The profit was between 13% to 15%. In 2020, the total output was between 18.5 to 19 gigawatts.
spk00: Before turning over to Jenner, I would like to quickly go over our guidance for the fourth quarter of 2020. We expect total solar module shipments to be in the range of 5.5 gigawatts to 6 gigawatts for the fourth quarter of 2020. Total revenue for the fourth quarter is expected to be in the range of $1.31 billion to $1.43 billion. Growth margin for the fourth quarter is expected to be in the range of 13% to 15%. the full year 2020 shipments to be in the range of 18.5 to 19 gigawatts.
spk08: Thank you, Ms. Chen. In the sub-quarter of 2020, total shipment of solar modules reached 5,117 megawatts, in line with our guidance. During the quarter, while we faced the challenges from the pandemic and the changes in the market supply and demand, We remotely adjusted our geographic mix in response to any market of . Overall, shipments to Europe increased significantly compared with the previous quarter. Shipments to the Asia-Pacific region remained strong, while shipments to North America and China were consistent with the performance in the second quarter. In terms of market demand, since the beginning of the third quarter, delays in the supply of some raw material Auxiliary materials together with increased downstream demand lead to price increase along the entire supply. With the gradual recovery in supply and strong demand brought by the installation rush in the fourth quarter, we are seeing that price increases for some raw materials have been absorbed because of strong market demand. we expect the market pressure to gradually ease next year. The Chinese PV market will no longer enjoy subsidies starting in 2021 and will enter the era of great parity on a large scale. Under the 2030 carbon emissions reduction target and the 2060 carbon neutrality goal, China will have to gradually replace the traditional thermal power as a result, it is estimated that China's annual average installation capacity will reach 60 to 70 gigawatts over the next five years, delivering phenomenal growth to the renewable energy markets. The COVID-19 pandemic continues to intensify in the U.S., and the latest daily average number of confirmed diagnoses has exceeded 200,000, reaching a new peak. While the situation continues to evolve in the U.S., In the long term, the Biden administration is expected to support the development of renewable energy, including plans for the U.S. to rejoin the Paris Agreement and to achieve net-zero emissions by 2050. Other measures are also expected to promote the development of renewable energy in the post-pandemic era in the United States. According to the forecast by the consulting firm Woon McKinsey, Assuming ITC does not extend it and the current policy remains the same, US PV power plants are expected to add about 100 GW of installed capacity from 2020 to 2025, with an annual capacity of about 20 GW added from 2021 to 2023. Recently, the European Commission announced an economic recovery plan to provide renewed confidence and stimulate growth for economic development in the post-pandemic era. It is worth noting that the plan recommended accelerating the development of renewables and encouraged investment in innovative clean energy technology as important consideration for economy recovery. It also proposed supporting this initiative with 45 billion euros in funds dedicated to the development of renewable energy, which further reinforced Europe's long-term commitment to the renewable energy sector. The EU Council has endorsed a €1.5 billion public sector loan facility to support energy transaction and green investment. The credit will be available to governments of 27 EU member states and cannot be used for nuclear power or fossil fuel projects. These measures are expected to further stimulate the development of renewable energy in the post-pandemic era and promote the EU-wide target of generating at least 32% of energy from renewables by 2030. Economic activity in the Asia-Pacific region has basically recovered and returned to normalcy, and market demand remains strong. In the first three quarters of 2020, average monthly newly added rooftop installation in Australia exceeded that of last year. If COVID-19 situation does not worsen for the rest of the year, residential installation capacity may reach 3 GW in Australia for 2020. Vietnam may consider imposing tariffs on imported components in the future, but it is still in the early stage of discussion, and the impact on the demand is expected to be relatively limited. In addition, the Ministry of Industry and Trade of Vietnam stated that after more than three years of encouraging FIT rates to develop more solar power plant projects in Vietnam, It is now working on a pilot program to determine the price of solar power with the aim of transition from FIT to a bidding system, which may relieve investor pressure to a certain extent. Japan's new prime minister announced in his first policy address that Japan will achieve zero greenhouse gas emissions by 2050. In the future, Japan will actively promote research on next-generation solar cells and carbon recycling technologies, and is committed to reduce reliance on thermal power generation. Overall, it is expected that Asia-Pacific region will sustain healthy growth in the fourth quarter and into next year. Emerging markets have been greatly impacted by the pandemic for a relatively long time, Brazil has been severely affected by the pandemic and has yet to contain it. However, local coronavirus transmission continues to ease in other countries such as Chile, UAE, and South Africa. The number of newly diagnosed cases in a single day has steadily declined, and we believe there will be increased demand as economic activity recovers. According to the statistics from the Brazilian Photovoltaic Solar Energy Association, Brazil has added about 162,000 new solar generation systems over the past 12 months, an increase of more than 130% year-over-year. Saudi Arabia is pursuing an ambitious renewable energy strategy. It plans to add nearly 60 GW of clean energy installed capacity of the state grade by 2030. of which 40 gigawatts will come from PV power plants. Some African countries are also actively promoting the installation of PV power generation system to solve the problems of rising power demand in their countries. In short, volatility and the fluctuations of the supply chain in the short term and the resurgence of COVID-19 poses some immediate challenges, but in long term, The competitiveness of renewables will provide strong support for the long-term development of the renewable energy markets. Among renewables, solar power has had the largest cost reduction in recent years. As LCOE and the cost of energy storage continue to decline over time, solar energy will continue to lead tremendous opportunities in this growth sector and accelerate the transformation of the global energy system. which have been further encouraged by policy support for energy conservation, global emissions reduction, and the sustainable development of renewable energy sources. It is estimated that the global installation will exceed 300 gigawatts in 2025 and exceed 1,000 gigawatts in 2030. We are confident about the future development of PV. In terms of customer value, We have always been committed to build reliable applications that will reduce LCOE for our customers. Since the successful launch of the new Tiger Pro series in May 2020, we have held over 50 online webinars to convey the technology highlights of the product line to investors, EPCs, upstream and downstream suppliers. This is one of the channels we adopted in this as usual time. In order to provide a comprehensive customer service and to demonstrate the optimal LCOE and the return on investment due to the excellent compatibility and adaptability qualities of these popular products. We maintain solid relationship with participants in the supply chain and obtain timely feedback from customers to help us make forward-looking predictions and strategic decisions. Our next generation of high-efficiency Tiger Pro modules have been well received by our clients worldwide. As of the end of October, we have already secured orders for a total of 2 gigawatts. Recently, the company has been awarded the highest rating for National Customer Satisfaction Enterprise Credit Service Platform of China, which also reflects our consistent commitment to the product quality. In future, large-sized products with advanced technology will most likely stand out more in the midst of fierce market competition. By leveraging the innovation of our advanced technology, extensive and forward-looking market strategy, and long-term brand loyalty among our global customers, we will continue to adjust our PV product mix while maintaining the premium quality of our products, to meet the needs of global market demands. With that, I will turn it over to Charlie.
spk10: Thank you, Jeter. In the third quarter, we reported strong operational and financial results with total shipments, total revenue, and gross margin all in line with our guidance. Although the significant increase in silicon material costs and the volatility our exchange rates brought some pressures on our performance during the quarter. The company benefited from our in-house production capabilities and some cost control, which allowed us to maintain financial indicators such as revenue and gross margin at stable levels. Let me go into more details about the quarter now. Total revenue was 1.29 billion US dollars an increase of 3.8% sequentially, and an increase of 17.2% year-over-year. Close margin was 17%, which remained stable quarter-over-quarter. Income from operations was $80.4 million, an increase of 25.6% sequentially, excluding anti-dumping and countervailing duties' reversal benefit Income from operations increased 28% year-over-year. EBITDA was 144 million U.S. dollars, compared to 100 million U.S. dollars in the same period last year. Long-gap net income was 47 million U.S. dollars, an increase of 7% year-over-year. This translates into long-gap diluted earnings per year of $1.06. Taking into account the loss from the change in fair value of convertible senior notes and co-option due to the sharp increase in the stock price of Jinko Solar in the third quarter of 2020, GAAP net income was close to break-even. Total operating expenses in the third quarter accounted for 10.8% of total revenue and decreased both sequentially and year-over-year. Moving to the balance sheet, By the end of the third quarter, our balance of cash to cash equivalents were $943 million, compared to $969 million at the end of the second quarter of 2020. AR turnover days were 61 days, compared to 63 days in the third quarter last year. Inventory turnover days were 97 days, compared to 93 days in the third quarter last year. Total debt was $2.5 billion, in which $128 million was related to international solar projects, compared to $2.3 billion at the end of the second quarter. Net debt was $1.59 billion, compared to $1.37 billion at the end of the second quarter of 2020. By the end of October, we announced our plan. Principal Operating Subsidiary Jingkou Solar Company Limited, Jiangxi Jingkou, had completed an equity financing of RMB 3.1 billion USD, completing an important step towards our plan to go public in China capital market. This additional capital raise is helping to expand our capacity, further strengthen our leading positions in innovative R&D. Recently, we announced our plan to sell a 20% stake in Abu Dhabi's Sui Han Power Station to Jinko Power, which will help us focus on our core business and continue to sustain our long-term growth in the global PV industry. This concludes our prepared remarks, and we are now happy to take your questions. Operator, please open the call.
spk04: Thank you very much. We will now begin the question and answer session. To ask a question, please press 01 on your telephone keypad. Please press 01 on your telephone keypad. You will be placed in the queue. If your question has been answered before your turn, you may cancel by pressing 02. If you would like to cancel your question, you can press 02. First, we have Mr. Philip Shen from Bach Capital Partners. The floor is yours, Mr. Philip.
spk05: Hi, everyone. Thank you for taking my questions. The first one is on the margin outlook for Q4. I think for Q3, your cost per watt was roughly 20.3 cents. And if we take your guidance into account for Q4, it suggests The cost per watt may be closer to 20.7, 21 cents. Can you help explain, you know, how can your cost per watt be flat in Q4 when polysilicon prices have gone up so much along with glass? I think glass alone is up two cents per watt. And then freight is up meaningfully. So where are you – How are you able to maintain that flat cost structure in spite of the rising input costs? Thanks.
spk10: Hey, Philip. This is Charlie. And the gross margin, 13% to 15% for the fourth quarter. And firstly, I want to just do some clarifications. We believe the gross margin is reaching to the lowest level I mean, Q4 is the lowest level, and if we look forward, so we expect the gross margin in the first half of the year, next year, will gradually improve quarter over quarter. And back to questions, and it's a combination. In-house production costs quarter over quarter, let's say fourth quarter versus third quarter, it did increase because of the polysilicon cost. You know, the glasses and a lot of materials is on the upside trend. On the other side, you know, we, you know, the ASP, you know, the module price, you know, at the same time increased a little bit. And as well as we have, I think we have good mix in terms of the cement and grass and which is, you know, some relatively high ASP ratings, you know, higher margin ratings. So, which helps us, you know, to deliver relatively slightly, let's say, the margin, you know, decrease, you know, fourth quarter versus third quarter.
spk05: Okay. Great. So, what you're saying is the pricing is helping to offset But from a cost standpoint, when you say the in-house production cost is helping, can you specifically highlight what area is helping you drive that cost structure lower? And did you specifically find, for example, independent of the ASP, were you able to keep costs flat? And if so... Where are you getting that specifically?
spk10: Philip, and I said, you know, the in-house production cost is increased a little bit, quarter over quarter. But the material cost is up, you know, dramatically, particularly for the silicon, the glasses. But we are hoping, which is offset by, you know, and our production efficiencies and we have relatively more production volume, and the production cost is relatively lower, but the material cost is higher. Second one is the most important, the ASP is relatively higher, quarter over quarter. And with China, the ASP has increased because of the input cost increase, as well as we have... higher mix in the U.S. and other, you know, the ratings with relatively higher ASP.
spk05: Great. Thank you for the clarification, Charlie. As we look to next year, you talked about margins improving in Q1 and Q2. I know you haven't provided official guidance, but can you share how much improvement you see and also, you know, what kind of bookings do you see for Q1 and Q2 and Is the pricing also higher in those quarters relative to Q4?
spk08: Phil, this is Jenna. Let me take this booking question first. I think in our last quarterly call, we established our strategy that Ginkgo, as a tradition, we always target to to achieve 50% level order book field before the year begins. So I think that is still our strategy. We are on the right track to close that.
spk10: The marketing side, on the first side, we expect the material cost will We have done a little bit, including the polysilicon, and we are seeing the polysilicon prices decreasing to RMB 75 now. And the glasses supply side will be relatively, you know, the supplies, the volume is stable, but the total Q1 and Q2 global demand is relatively lower. So we expect the material cost will have the contributions. On top of that, you know, we are promoting the large size 182, you know, the Tiger Pro, and the large size products, and the production cost is lower, and we can charge the volume, and we're expecting the 182. And next year, combined together next year, we'll get, you know, 40... 50%, you know, 182 in our shipments. And this part, you know, will help, you know, gradually quarter by quarter and improve our gross margin as well.
spk05: Great. Yes, that larger format should be helpful. So thank you very much for the questions, guys. I'll pass it on. Thank you.
spk04: Thank you very much. Next we have Mr. Gary Chiao from Credit Suisse. The floor is yours.
spk06: Hello, management. Thank you for taking my questions. This is Gary from CS. So basically three questions from my side. So firstly, can management share with us the latest update on your subsidiary stock market listing? And do you expect the timing of the Asia listing would have any impact on our capacity expansion decisions into the next one to two years? And the second question is something about the solar glass. So given the currently relatively high solar glass price, are we kind of holding back our module production plan a little bit? So in other words, if there's not such kind of high raw material costs, would our fourth quarter module output be otherwise higher? And lastly, on the bifacial solar module, So just one small question. Have we tried any ultra-wide floating glass as a backsheet of the solar glass instead of solar glass? And if possible, can Benjamin share with us the economics comparison between two pieces of solar glass or using the backsheet as a floating glass or even compare with a transparent backsheet solution? Thank you.
spk10: Yeah, a couple of questions. And the first one is, you know, our subsidiary, the Jiangxi Jingco, you know, we closed the equity financing, you know, pre-IPO financing just, you know, by the end of October, and we started the preparation for IPO in China immediately. And the process is smooth, and we will keep the market informed if we reach significant milestone. And the second one is the you know, capacity, the funding for the capacity, and is that going to be dependent, you know, on the IPO proceeds? It's not. And we close the 3.1 billion RMB, and we think, you know, we have sufficient funding for the capacity expansion next year. And we will focus on the solar cell capacity as well as some monowafer capacity. in the prepared remarks in our CEO, and we target to maintain stable and slightly increasing on the integration levels, and maintain 75%, 80%, and to have good control of our capabilities. And on top of that, you talk about the, I think, the bifacial classes, and the Transparent, yeah.
spk08: Yeah, I think you have two more questions, both regarding the glasses, right? I think, firstly, the beauty of our Ginkgo strategy is we have certain flexibilities based on the market turbulence. That's why we have the geographic mix and together with the product, different product portfolio mix. So to conclude our conclusion, we are keeping the flexibility to adjust our capacities and also the factory output based on the market turbulence. We are keeping such kind of flexibility. And the second question about the glass bifacial side, so we have foreseen the bottleneck of the glass supply, I think, back a year ago. or even one and a half years ago. That's why when we promote the bifacial product, we do not offer only double glass, but also we offered a transparent backsheet solution as well. So both solutions are well accepted across industry, and based on our customer feedback, it's neutrally well accepted. Meanwhile, for the ultra-wide floating glass you just mentioned, I think the whole industry is trying to impose or trying to introduce such a glass to ease the shortage of supply from the solar glass manufacturing capabilities right now. And JNCO has done some progress on that way together with our peers. We are on that way, but it's still, you know, the total volume available versus the demand that we are facing right now is still short of supply in terms of the glass. Hope that answers your question. Gary.
spk06: Yes, thank you very much. That's very clear. Thank you, management, and we'll pass on.
spk08: Thank you.
spk04: Thank you very much. Next, we have Mr. Tony Fei from BOCI. The floor is yours.
spk07: Hi, management. Thanks for the questions. I have three from my side. The first one regarding your operating margin. So in the third quarter, we see actually your operating margin has increased Q&Q despite your growth margin declined a little bit. So can you explain a little bit behind the reason behind it? Because we see you have quite a bit of savings in your sales and marketing expenses despite the fact that shipping costs actually increased quite a bit in the recent month. And if possible, can you provide your guidance on the shipping costs in the Q4? And the second question is regarding your integration plan. So I think for 2021, your priority will be increasing your sale capacity in-house. But there has been quite a lot of debate regarding the economics of PERC and HAT on the sale technology route. So have you made a decision on how much of a new sale capacity will be PERC and how much from that will be in HAT? So the third question regarding the exchange rate. So because of the R&B appreciation recently, do you see any impact on your order intake, especially in the overseas market? And if possible, do you have a plan on how much of your China order will increase in your sales mix in 2021? And do you expect you have increasing hedging costs for the currency side in next year? Thank you.
spk10: And, you know, for the first question, I think, you know, the operating expenses, right? And, you know, we expect relative stable, you know, operating expenses against revenues, roughly 11%, you know, quarter over quarter, including the fourth quarter. And the second question is the sale capacity. Capacity, and we... You know, we have not finalized the decision, but, you know, we will expand basically the PERC capacity, but have the flexibility to upgrade to, you know, the N-type TopCon technology. And back to the TopCon, you know, technology, and we had 800 megawatts. and the operation back to one year ago. And the efficiency is reaching to very good level. And we think the technology now is in relatively mature stage. And so we build the new capacities. Of course, it's a big size, and the big size capacity. And we have the flexibility to operate to the top count very quickly. Exchange rate is, you know, it did have pressure and we did hedge roughly 50%, you know, the RMB against US dollars. And for the, you know, the pricing and the, we don't believe, you know, the 5%, 7%, you know, the exchange rates, you know, will have an impact on the demand size and from international markets and the customer are able to absorb, you know, the, the potential impact. So we don't believe we have significant adjustment for the mix in China with this international market because of the exchange rate.
spk07: Great. Thanks for the call. I'll pass on.
spk08: Thank you.
spk04: Thank you very much. Next we have Mr. Brian Lee from Goldman Sachs. Mr. Brian Lee, you may ask your question.
spk02: Yeah, hi, guys. Thanks for taking the questions. Charlie, could I go back to that previous question on OPEX? So I didn't capture it, but why was SG&A, you know, so much lower this quarter, and what's the expectation for Q4 in terms of either absolute dollars or percentage sales?
spk10: uh you know in the third quarter firstly i think you know uh you know the total let's say the total revenue you know is increasing right and if i think the the total revenue that there's some contributions second one is that you know we have lower marketing expenses you know activities and as well as you know because of the because of the the relatively lower SP. And when we calculate the warranty cost, the warranty cost relatively, you know, will be a little bit lower. So, it's a combination of, you know, some one-off, you know, operating expenses and savings and revenue increase as well as the decrease of warranty costs.
spk02: Okay. And the expectation for Q4?
spk09: Q4 is roughly, because Q4 is roughly the same, I think 11%.
spk02: 11% of sales for just the SG&A line. Is that the guidance?
spk10: Yes. I mean, the operating expenses for the total revenue is 11% roughly in the fourth quarter.
spk02: Okay, so OPEX in total, including R&D, not just SG&A. Okay, fair enough. On the pricing, you mentioned earlier one of the questions, I think it was maybe Phil at the beginning of the call. The ASP for 3Q, I think, you know, if we just do the calculation, it was about $0.24 per watt. The guidance for 4Q is down about $0.25 sequentially, so... Maybe I misheard you, but it sounded like you were expecting a 4Q, or is that just part of the mix and the overall pricing blended is still going to be down in 4Q?
spk10: You mean the SP, when you're calculating, is a little bit down, right? Correct, like 3%, I think. Yes, yes, and it's not correct. I know your calculation, you use the total revenue, which is, you know, the total shipments. And the third quarter, we have other revenues, some low-efficiency solar cell and modules. So the module revenue account for the 95 percent, and the 5 percent is our revenue. So when you do the ASP calculation, your Q3 will be relatively lower. Second one is to the Q4, the guidance revenue. We don't consider the other revenues. We just use the module revenues as a reference.
spk02: OK. I think I captured that. I'm netting out the volume that's not related to modules and still getting to $0.24 for 3Q. But I can take that offline. But maybe can you just answer the question, what percentage increase in pricing are you expecting across the module mix for Q4 versus Q3?
spk10: You mean the percentage of ASPs quarter over quarter, right?
spk07: Yes.
spk10: Yes. You know, it's slightly increased, you know, the Q4 versus Q3. I just talked about, you know, because we have higher mix in the U.S. and in China, you know, the ASPs has increased in the fourth quarter. So it's a combination, you know, basically. contributed to the increase of AST in the fourth quarter.
spk02: Okay, fair enough. Maybe two more, if I could squeeze them in. Just one housekeeping one first. The third quarter, do you have the capex depreciation and free cash flow numbers for the quarter?
spk10: Okay, I can give you, you know, the... Let me check. I can give you the... The first quarter to third quarter, the nine-month numbers, you know, the total capex roughly, you know, for the nine months is roughly 350 million U.S. dollars. And operating cash flow is roughly negative 200 million U.S. dollars, which is because of the inventory, you know, with a significant increase in the inventory levels, you know. Okay, great.
spk02: And then last one, I'll pass it on after this, is the Abu Dhabi sale, the 20% stake. I know that was outside of the quarter, but can you provide the P&L impact that you're expecting from that in 4Q? I thought you had been carrying it on the balance sheet at $50 million of value, and I think you sold it for $22 million. So my first question is, is that the correct math? And if so, why are you booking such a loss here? And then last, I'm not sure if this is related, but why did the non-competitive balance on the balance sheet go down this quarter so much?
spk10: Of the other projects, we are counting on long-term investment, because it's an investment on equity, 20%. And we signed the sale-purchase agreement with Single Power, and the valuation is based on the independent third-party valuation firms. But the closings are expected to take a longer time, maybe six months, because it's subject to a lot of regulatory and including the government approvals. And in terms of economics, we don't expect significant impact after the closing. It's very small, depending on the closing date.
spk02: Okay, but it will be booked at a loss. Is there any impact this quarter from... No loss.
spk10: No loss, but, you know, because the closing is taking a longer time, so we, you know, before the closing, the economics of the Abu Dhabi projects, we will enjoy the economics before the closing. So that is why I'm saying, you know, after the closing and depending on the timing and the fact that for sure it's not a lost situation, and it's in a perfect situation.
spk02: Okay, what was the carrying value in the long-term investment?
spk10: A new check, but it sounds on the balance sheet that we have a separate item carrying the investment, and we can get back to you after the call.
spk02: Yeah, you reported $25.5 million in the quarter, but I suppose some of that is not Abu Dhabi.
spk09: Yeah, I need to check.
spk02: Yeah, I can take that offline. This last one, the non-controlling interest, it was down $100 or close to $200 million quarter on quarter. I need to read into that.
spk10: Oh, you mean the rationale, right? The non-controlling interest on the balance sheet?
spk02: Yeah, on the balance sheet, just wondering what prompted the big move there.
spk10: So, you know, it's because, you know, we, you know, by the end of October, right, October, we did the equity financing for the Jiangxi Jingkou, the major subsidiaries. So before that, and we, in some of our subsidiaries, we have arrangement with the The energy fund is supported by the government, and because we have the equity financing very large, 3.1 billion, and some of our investors, they think it's good. We bring up some minority interest to the subsidiary levels, so we organize the arrangement with fund and some of the funds we plan to redeem in the future, which is purely equity investment from the government equity fund.
spk02: Okay. Thanks a lot, guys. I'll pass it on.
spk04: Thank you. Thank you, Mr. Ryan. Yes, in the absence of time, we will take the last question from the participants. Next, we have Mr. William Gribben from UBS. The floor is yours. Mr. William, please ask your question.
spk01: Great, thank you. I just have one quick one here. Just wondering if you could clarify if there's any ADCVD true-ups that are impacting the fourth quarter guidance?
spk10: It could be a little bit, but it's not significant impact. So when we give the margins, when we give the margin guidance, we didn't consider the positive impact.
spk01: Okay. Very good. Thank you.
spk10: Thank you.
spk04: Thank you very much. Ladies and gentlemen, with that, we have come to the end of the conference call. Thank you for your participation and have a pleasant evening ahead. You may now disconnect from this call. Thank you.
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