JinkoSolar Holding Co Ltd DR

Hello, ladies and gentlemen, and thank you for standing by for Jinko Solar Holdings Co-Limited 3rd Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After 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 for today's call, to Ms. Ripple Chang, Jinko Solar's Investor Relations Manager. Please proceed, Ripple.

Thank you, operator. Thank you, everyone, for joining us today for Jinko Solar's third quarter 2021 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'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. Li, Xian De, Chairman of Board of Directors and Chief Executive Officer of Jinko Solar Holding Company Limited, Mr. Jenna Miao, Chief Marketing Officer of Jinko Solar Company Limited, Mr. Pan Li, Chief Financial Officer of Jinko Solar Holding Company Limited, and Mr. Charlie Cao, Chief Financial Officer of Jinko Solar Company Limited. Mr. Li 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. Penley, 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 risk 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 Solar's public filings with 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. Li Xiande, Chairman and CEO of Jinko Solar Holdings. Mr. Li will speak in Mandarin and I will translate his comments into English. Please go ahead, Mr. Li.

Please go ahead, Mr. Li. The cost of logistics has increased further compared to the second quarter. The main construction price has reached a new high of nearly a year. But due to the drive of energy transformation in most areas around the world, the increase in the price of electricity, and the support of policy such as additional financing, customers are also improving their access to the main construction price. Although it has been challenged by many, compared to this year's global patent, there is no significant difference in the forecast for the beginning of the year. We are very pleased to have delivered total shipments of approximately 5 GW, total revenues of $1.33 billion, and gross margin at 15.1%.

Total shipments were impacted by the delay in sales revenue recognition caused by logistical issues and blockage. The release of new sale capacity significantly reduced sale production costs, partially offsetting the pressures on production costs inflected by the high prices of polysilicon and other materials. Logistic costs have further increased compared with the second quarter, and module prices hit a new high. in almost a year. However, due to the transition to renewable energy in most regions of the world, the increase in electricity prices, financing support and other favorable policies, clients are more willing to accept higher module prices. Despite all the challenges, global installation this year has not differed from expectations set at the beginning of the year as the resilience of solar demand is gradually increasing. Currently, in its most severe shortage, we expect polysilicon supply will gradually return to sufficient levels starting next year, and as a result, installation demand is expected to increase significantly.

In the second quarter of the battery cycle, 7GW high-efficiency PORC batteries can be fully produced in three quarters, leading to a production cost of more than 10% in the third quarter of the battery cycle. In the battery cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle cycle

我们致力于不断地以技术创新和产品的竞争力为客户提供最优的解决方案。 Due to high material prices, we accelerated the pace of cost reduction with upgraded technology. At present, we have reduced the thickness of our monowafers by nearly 15% compared to the beginning of the year, which saves polysilicon in terms of sales. The 7 gigawatt high efficiency per capacity put into production in the second quarter finally reached full production capacity in the third quarter, causing sale production costs in the third quarter to drop by more than 10% sequentially. The company's large size module products accounted for nearly 50% in the third quarter, a significant increase from less than 20% in the first half of the year. The global demand for solar remains strong, but installation costs are rising over a period of time. We are committed to providing customers with the best solutions based on technological innovation and product competitiveness.

官户主电是生命租集长达20到25年的发电产品。 产品的性能至关重要。 近期,我们的高效N型单晶硅单节电子效率最高达到25.4%。 and re-invented the world record. With the continuous development capability and two years of mass production experience, we are greatly expanding the construction of N-type electronic chips, which will produce 16 GW of N-type electronic chips in 2022, which will produce 16 GW of N-type electronic chips in 2022, which will produce 16 GW of N-type electronic chips in 2022, which will produce 16 GW of N-type electronic chips in 2022, Modules are power generation products with a life circle of 20 to 25 years, and product performance is crucial. Recently, our high-efficiency N-type monocrystalline silicon solar cell

reached a maximum conversion efficiency of 25.4%, setting a world record yet again. Based on our continuous leading R&D capabilities and two years mass production experience, we are quickly expanding N-type cell production capacity. We are preparing for approximately 16 gigawatts of 10 N-type cell production capacity to be operational in the first quarter of 2022. contributing about 10 gigawatt output for the full year. This will help make up for the lagged sale production capacity and hopefully will lead the industry into the era of more premium and high-efficient N-type products. Recently, we launched a new series of N-type modules with maximum power output of 620 watts. Next year, we are planning to increase our global market share by enhancing our sales and promotions of N-type products and achieve at least 50% growth in annual shipments.

We continued to improve our global supply chain infrastructure. So far, we have signed polysilicon supply agreements with a number of overseas polysilicon manufacturers.

and have strategically invested in Tongwei Sichuan Yongxiang and the Inner Mongolia Shinto high-purity polysilicon production project. Our 7 gigawatt monocrystalline silicon wafer plant in Vietnam will commence production in the first quarter of next year. After that, we will have approximately 7 gigawatt of integrated monowafer cell module manufacturing capacity overseas. A sound and diversified global industrial chain infrastructure will enable us to be more flexible in terms of order production and customer delivery as we continue to provide integrated services for our global customers.

Before I hand over the topic to Jenna, I would like to introduce the overall sales volume of the company in 2021 between 7.3 and 8.8 GW. in 7-8.5GW, revenue from 18B to 22B, net profit in 13-16%, and by the end of 2021, our current battery capacity will reach 32.5GW, 24GW, and 45GW respectively. Due to the reduction of the US market supply and the impact of global logistics, we have reduced the total supply in 2021, Before turning over to Jenner, I would like to go over our guidance for the fourth quarter of 2021.

We expect total shipment to be in the range of 7.3 to 8.8 GW, including module shipment to be in the range of 7 to 8.5 GW for the fourth quarter of 2021. Total revenue for the fourth quarter is expected to be in the range of $1.8 billion to $2.2 billion. Growth margin for the fourth quarter is expected to be in the range of 13% to 16%. The annual monowafer, solar cell, and solar module production capacity is expected to reach 32.5 gigawatts, 24 gigawatts, and 45 gigawatts, respectively, by the end of 2021, with impacts from less shipment to the U.S. markets. and the global logistic situation, we are lowering the guidance for our full-year 2021 shipment, including waivers, sales, and modules to be in the range of 22.8 gigawatts to 24.3 gigawatts. Thank you, Ms. Lee.

Total shipment in the sub-quarter was 5 gigawatts, with module shipment increasing 18% sequentially to 4.7 gigawatts. In terms of module shipments by region, Europe and Asia-Pacific were the main contributors. Driven by China's combined goal of 30-60 and efficient energy transition, shipments to Chinese markets doubled sequentially. Shipments to emerging markets increased significantly both year-over-year and sequentially, a sign that markets are benefiting from policy support. The People's Bank of China recently launched a carbon emission reduction support tool. As large-scale and distributed projects start construction, next year's total pipeline in Chinese market is expected to exceed 100 GW. Looking forward to 2022, market demand in China, U.S., India, Europe, and Australia will continue its upward trajectory. Module prices remain high. which was accelerated the penetration of products with lower LCOE and the penetration of the distributed generation business, which is less price sensitive. Our distributed business accounted for approximately 35% to 40% in the third quarter and over 50% in some markets, such as Australia, Japan, and Brazil. Clients have been favorable towards our premium quality products, such as Tegel Pro and a 2mm product. which were specifically designed for residential CNI distributed generation facilities. Meanwhile, our global brand awareness and global marketing team strengthened market competitiveness for our BIPV products. We have recently won the bid for the new Dubai Electricity Water Authority's headquarter building project, which will become the world's largest and tallest single building equipped with BIPV systems. The BIPV system uses advanced N-type cell technology and modules with a transparency range between 3% and 16% and can provide a power output of 500 watts to 708 watts. As one of the directions of our core developments, the proportion of shipments in the distributed generation market will further increase next year. Shipments of Tiger Pro products that can bring lower ALCOE accounted for nearly 50% in the third quarter and are expected to exceed 70% in the fourth quarter. In 2022, we will optimize and match the capacity advantage of Tiger Pro and Tiger Neo products, solidifying our leading position in high efficiency products. In terms of contract performance and pricing, In the face of uncontrollable factors such as the severe volatility in upstream raw material prices, energy quota, and carbon emission control, we have established a market forecast and short-term dynamic review mechanism. For newly signed orders, we are securing materials in advance and introducing a floating price clause in contracts. in order to avoid a negative impact for market mortality to some extent. In short, we are very optimistic about the market demand. Short-term problems such as raw material supply, logistics, et cetera, are gradually being solved through remitting efforts. We focus on winning the market with the best products and services. With that, I will turn it over to Pat.

Thank you, Janet. Let me go into more details about this quarter now. Total revenue was $1.33 billion, an increase of 8.1% sequentially, mainly benefiting from substantial growth in module shipment. Growth margin was 16.1% compared with 17.1% in the second quarter this year. Total operating expenses in the third quarter was 184 million, an increase of 18.2% sequentially. The sequential increase was mainly attributed to an increase in selling and marketing expenses due to rising shipping costs under a tight global logistic market. We remained flexible and adjusted both domestic and overseas shipments, mitigating the negative impact on profitability from volatile shipping costs by establishing long-term shipping agreements with logistic companies. Total operating expenses accounted for 13.8% of total revenues in the third quarter this year. Excluding impacts from shipping costs, the ratio of operating expenses was stable compared with the second quarter this year. EBITDA was $89 million compared with $143 million in the second quarter of 2021. Taking into consideration the significant increase in benefits from change of fair value due to a decrease in the company's stock price in the third quarter this year, net income was $30.1 million, a significant increase both sequentially and year-over-year. Non-GAAP net income was $2.5 million, and diluted earnings per 80th was 5 cents. Net foreign exchange loss, including change in fair value of foreign exchange derivatives, was approximately $1 million, a significant decrease from a net exchange loss of $9.4 million in the third quarter of last year. and flat sequentially. We will continue to optimize our hedging against foreign exchange risk to reduce the impact of foreign exchange volatility on our operating results. Moving to the balance sheet, at the end of the third quarter, our balance of cash and cash equivalents was $1.1 billion, which improved from the second quarter. Accounts receivable due from third parties was flat sequentially, and AR turnover days were 65 days compared with 62 days in the second quarter this year. As shipments to the U.S. and global transportation routes were hampered by disruptions, inventory turnover days was 171 days compared with 138 days in the second quarter of 2021. Total debt was $3.69 billion at the end of the third quarter compared to $3.12 billion at the end of the second quarter this year. Out of the total debt, $68 million was related to international solar projects Next day was $2.5 billion compared with $2.1 billion at the end of the second quarter this year. This concludes our prepared remarks. We are now happy to take your questions. Operator, please proceed.

Thank you. For the participants with questions to pose, please press 01 or your telephone keypad and you will be placed in the queue. To cancel the queue, please press 02. Once again, 01 or telephone keypad now. First, we have Philip from Ralph Capital Partners. Your question, please.

Hi, everybody. Thank you for taking my questions. The first one is on your Vietnamese wafer capacity that you're bringing online. So 7 gigawatts by Q1, and with that, you'll use German poly, I believe. When would you expect... shipment volumes or shipments to hit the U.S. that are using either German poly or perhaps even U.S. poly, and then the VMAs, wafers, and then Southeast Asia cell and module. Could we see the volumes to the U.S. start to restart in Q2? And then how many gigawatts do you expect to ship into the U.S.? ? in 2022 as a result of this new supply chain? Thanks.

Thank you, Phil. Great question. I think we have made a very strategic move to establish our Vietnamese wafer factory together to secure a long-term contract with multiple, let's say, non-China or Pacific suppliers. According to, based on the current schedules, we will We'll start to ramp up our Vietnam wafer factories by early Q1, let's say January, February. And we are expecting a full value chain established outside China will start to fully utilize by end of Q1. So ideally the products start to arrive in U.S. market by late first half, let's say May or June. And the massive volume will be definitely in the second half. So total volume-wise, we are looking to around production numbers. We're looking at around 5 gigawatts of production. And considering the uncertainty of logistics, we are not 100% sure how many of them will arrive at the US.

Great. Thank you, Jenner, for the detail. When you think about the anti-circumvention risk, we saw the current case go away. But I think the petitioners, through their law firm and Tim Brightbill, were talking about potential other cases. Do you have a view on what those cases could be and how they could impact this capacity? Or what's your view in general about that? Thanks.

Thank you. I think this, let's call it, trade wars won't stop. That's our long-term view. That's why we have made the decision to establish a fully vertical integrated value chain of capacities in both Vietnam, Malaysia, including U.S. So that should be our ultimate solution to solve all those potential trade issues. And at least that's the best solution we have right now. In long term, really, we don't have a crystal ball to see it. But we are expecting the solution Ginkgo can bring to the market should be one of the most reliable ones.

Right. OK. Thank you. And then another one here on the Section 201. We recently saw a surprise. exemption reinstated for bifacial modules in the U.S., which means I think the modules can come in tariff-free, and then also there might be substantial refunds for modules that have been already shipped in. So I was wondering if you might be able to quantify what the Section 201 refunds could be, the timing of it. Have you received any thus far, for example, And then if this decision gets reversed yet again, what would the process be to perhaps return that money to the US government? Have you thought through the longer term picture for the Section 201 bifacial situation? Thanks.

Thank you, Phil. I think from the cash flow wise, we are not expecting to receive any refund in any short term. We have read your report about the uncertainty of this potential appeal from the government side. We believe that's highly possible, and that's why we still put a question mark there. We do not expect such kind of lawsuits will reach an end pretty soon. But if we can get some potential refund, definitely that will be very positive for the company. but we have to wait for quite a while to see the final results. So we will wait and see. We haven't planned it in our cash flow yet.

Okay, thank you. One last one, I'll pass it on. As it relates to the margin, you gave us, I think, some capacity numbers for 2022. Maybe can you talk about how you see margins trending in 2022, especially if the assumptions that you make now kind of persist? Do you think margin expansion is potentially available, especially with flexible pricing based on input costs as we get through 2022? Thanks.

This is Charlie, and looking to next year, 2022, I think we are more confident in the the margin will be improved year-over-year. This year is very special and challenging, particularly the supply chain shortage and high input costs, including the logistic issues as well. Looking to next year, we think the supply chain will get more friendly compared to this year. And on top of that, we will increase our production integration level. And we are expanding the n-type, the cell capacities. And next year, roughly we estimate the capacity will reach to a wafer 48 gigawatts, cell 48 gigawatts, and module 50 gigawatts. roughly 80% integration level and we are expecting we can get more net income contributions from the N-type because we are more confident and we have the advantage of this next generation technology in terms of the production level and the cost advantage, which is the product is very popular in the market, and we can get the price premium.

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

Thank you, Philip. Next, we have Gary from Credit Suisse. Your question, please.

Thank you, management, for taking my questions. So my first question is, Can measurement elaborate a little bit more on our upcoming N-type cell capacity? So I think we are relatively kind of early in terms of the relatively large-scale kind of N-type capacity. So can you maybe share with us more on your expected cost of competitiveness of this new capacity, and how do we sync up the kind of two technology trends, the TopCon and JT? Thank you.

Hey, Gary, this is Charlie. And we are investing 16 gigawatts in-time TopCon capacities. And we have two years' experience in running roughly 900 megawatts capacities in our factories. And now the production metrics and the cost advantage, which is the perk. And we are worried in, I think, leading the industry. And for next year, when we ramp up, we expect to ramp up the capacity in the first quarter, and I think in the four operations roughly in the second quarter. And in terms of the you know, integrated production cost for the n-type versus the PERC. For the medium term, we expect the cost will, you know, the difference versus the PERC is very small, even the same. And more important, you know, if we look at the conversion efficiencies, the n-type versus, as well as the, you know, electricity, additional electricity generations to our customers, and we believe it's a very good leading market product and we can get the price premium and get more perfect contributions for this product.

Okay, thank you. My second question is on the module shipment. So I think some of our peers are relatively cautious on the 4-Q kind of demand. But I think our guidance still suggests a meaningful kind of a Q-on-Q shipment increase. So just to wonder if Matt can share more on how can we achieve this kind of still very strong Q-on-Q increase.

Thank you for your question, Gary. This is John. Quarter over quarter, we have pretty strong Q4 shipment expectations. Mainly it's driven by combined demand from China and the non-China market. And I think after the relatively weak quarterly shipment in the first three quarters of 2021, I think most of our customers, let's say non-Chinese market customers, are gradually accepting the market balance of these new prices, and they are trying to take the time, try to close the project, close their pipeline. And for China demand, everybody knows there are quite a strong demand in China in the last two months' time. So we successfully secure quite significant volumes and to supply a pretty strategic project across China market. So combine those two factors together, I think we can achieve a pretty strong achievement in Q4.

Okay, thank you very much. So my last question, Anouk Hassan, is on the weather. Can management share with us the latest update of our subsidiary Asia listings?

for the IPO process, you know, for our subsidiaries, and we are, you know, on the track to get the IPO done. And by the end of September, we got approval from the Shanghai Stock Exchange. Now we are in the process of registration with Chinese securities regulators. And we expect to roughly in the next one and two months, we can get everything ready and to get the IPO done.

Okay, that's all my questions. Thank you.

Thank you.

Thank you, Gary. Audio participants with questions to post, please press 01 or telephone keypad and you'll be joined in the queue. Next, we have Rajiv from Samsara Capital. Your question, please.

Yes, good morning and good evening to you. My first question is about the potential shipments that were lost because of logistics issues in the third quarter and might be lost in the fourth quarter as well. Could you help us, give us a sense of... of how much in terms of megawatts you might have lost in terms of shipments not happening because of logistics in Q3 and what that impact might be in Q4. And also help us understand if this lost shipment, is that a temporary timing thing where the shipments get pushed out into 2022? or that market opportunity is lost forever.

Thank you. I think, let me take your first question. And in terms of quantifies of the delays, I think it's well looking at, let's say, 100 megawatt level of delays. I think the delay between Q3 and Q4 is not because we haven't shipped or we haven't produced a module or the customer doesn't want the module. It's because of the logistic delay. You know, there's a lot of traffic jams across the ports, like in Europe or in the U.S. So accounting-wise, we cannot recognize those modules until we deliver the module into our customer's site or in their warehouse. That's why we have to delay the revenue recognition, I think, partially from Q3 to Q4 by approximately 1 to 200 megawatts, let's say several hundred megawatts. But the module itself has been produced. The contract is solid, and the price has been secured. So we just need to wait until this logistic bottleneck is gradually solved, and we can recognize revenues in Q4.

And just to follow up on that, in terms of Q4, are you experiencing similar logistic issues or maybe even worse because – of post-quarter Christmas, all the competition you have from the rest of retail. So is the problem for the post-quarter segment even worse?

I don't think so. At least Q4 will be slightly better than Q3. The reason is the China market, domestic market demand is pretty strong. So we can divert the risk, not only rely on the shipping line companies, we can recognize more revenue in domestic market. So that's one of the positives. And also, after these port issues across Europe or US, the government side has taken many actions to push for the port itself to speed up the loading procedure and loading speed to make sure everything can go faster. So we have seen this improvement from the logistics side as well. So combined those two, we believe the situation will be much, much improved compared with Q3.

Okay. My next question is about the average selling prices. And you mentioned that there was a small increase in the selling price. but obviously it did not offset the increases in material costs. Could you talk about to what extent your shipments in the third quarter were still subject to long-term contracts where you had to honor pricing that was negotiated some time back? close to pricing that was negotiated sometime back versus the pricing that is versus modules that are shipping into prices that are you know currently available in the spot market thank you I think from contract execution wise we have to find a mutual solution together with our customers

So since it's a signed contract, we cannot expect our customers to swallow all this potential increase because of raw materials. We have to find a mutual solution together. So there are quite several different kinds of solutions we can reach agreement with customers. And I won't spend too much time to illustrate everything. But at the end of the day, I think over 75% of our contracts delivered or executed in Q3 are old-time heritage. And also, we have to find lots of solutions combined with short-term and long-term solutions together with our customers to find a win-win solution for long-run because we are not doing business in the spot market. We are doing business in power sector, which needs very long-term sustainability and the win-win solution with the customers for long-term. There will always be market up and down. We cannot just ruin the customer relationship because one-time issues.

Right. So, Junaid, just so I understand, you mentioned that 75% of shipments were into long-term contracts, and these long-term contracts have been somewhat modified. to reflect the realities of the cost pressures. Can you give us a sense of what percent of going into 2022 and learning from the experience of these higher prices that we are now having to live with, higher costs of materials that we are having to live with, What percentage of shipments might be, you know, if you do 30 to 35 or 32 to 36 gigawatts next year, what percentage would be long-term contracts that have already been signed? Or are there flexibility versus contracts where pricing has not yet been determined?

So we have approximately 25 to 30%. of all the work being signed or committed to the customer end for the 2022. Some of the contract is based on secure the price and terms. Some of the contract is just a framework contract, which means we keep the commercial part flexible up to the market. And we also have some of the framework contract which has a index-based pricing mechanism, which allows both our end and our customer ends to have flexibility when the market goes up and down. So basically, we have learned a lot of lessons from 2021, and we carried on, and we established some new business model with our customer end for 2022 and longer term.

So what you're saying is that the framework agreements will give you more flexibility on pricing if the cost of materials moves or shipment cost moves in an unfavorable way. Is that also the reason why you are confident that the gross margin next year should improve because you are embedding a higher gross margin than was achieved in 2021?

Well, the gross margin will be a separate topic. I think the gross margin improvement mainly comes from a much improved vertical integrated capacity expansion by end of this year, so which will contribute a lot of margin improvement. Another important factor will be our new product, TIGO new product, will contribute a lot of premium because of the nice parameters and the extra power output such product can generate. And the third one will be our portion of, we say, large-dimension products. For example, you know, our 182-millimeter product portion increased from first half around 20% to 25% to end of this year around 60% to 70%, and next year it might go even higher, which gives us a very good competitive edge. Hope that answers your question.

Yes, yes. Thank you. And one last question for Charlie. Charlie, the general and administrative expenses have been much higher this year than last year in the first three quarters. And first two quarters, they went up quite substantially in the third quarter as well. Can you give us some sense of why that increase is happening? And in particular... how much of this increase in costs is related directly to the IPO in China?

Thanks for your questions. I think the operating expense is relatively high. It's contributed by, I think, firstly, the shipping cost. The shipping cost is pretty high, and we have very high exposures to to, you know, shipments out of China. And second one is the IPO cost. IPO cost, I don't believe it's very significant. Roughly maybe too many U.S. dollars for the third quarter. And on top of that, I think third quarter, our shipment is not so big, you know, relatively. And the fourth quarter, we have a very big jump on the shipments, which will dilute the operating costs. And excluding the variable costs, particularly the shipping costs, the warranty costs, and the fixed costs for operating expenses is fixed and relatively stable.

Actually, Charlie, I'm sorry, I missed something that you said about what amount the IPO costs were. But the question that I'm trying to grapple with is, you know, the GNA, which normally should not increase that much, you know, last year it was running at around $50 million a quarter. This year it started at around $55 to $60 million, and it was almost $70 million in the third quarter. So that's a pretty substantial increase. Can you tell us what is driving this increase and what we should expect for Q4?

So the GNA cost is an administrative cost. I think it should be stable. Looking for the future, it should be stable. We have some IPO costs and we have some, I think, the a quarter adjustment for the, let's say, the probation for the accounts receivable. And excluding that, I think it's relatively stable.

Okay. Thank you.

Welcome.

Thank you. Audio participants with questions to pose, please press 01 or telephone keypad and you'll be placed in the queue. Next, we have Alan from Jefferies. Your question, please.

Thanks a lot for the operator for having the questions and thanks a lot for management. My first question is about, so just to check, because the inventory has increased by quite significantly, so just to check, is this tied to the shipment in the sea to overseas market?

So, I think there are two aspects. One is, you know, the inventory is on transit to overseas markets and challenged by the logistics, you know, and the delay. The second one is we are expecting, you know, back to third quarter, the material cost is still on the, you know, upside. So we intentionally, you know, put more and get more materials to make sure we have relative advantage for the production in the fourth quarter.

Understood. Thanks a lot. So when it comes to the fourth quarter, I've noticed that the company was guiding for 12% to 15% on gross margin over the last three quarters, but the guidance has increased from 12 to 15 to 13 to 16, while the upstream policy cost has increased a lot. So first of all, I would like to learn from the management, is it because of the increase in percentage of large size module and cost cutting efforts so that the company is confident to make a probably higher margin even when upstream policy cost is higher?

It's a combination. One is, you know, you are talking about the large size percentage. And we, you know, our capacity is really 7 gigawatts. We talked in the pre-release. Second one is percentage. And third quarter, you know, the large size, 182, roughly 50%. And the fourth quarter, we reached to 70%. And on top of that, you know, we are expecting our ASP, you know, ASP, you know, will continue to increase. I think particularly because we have shipments, more shipments in China, and China ASP, the small market, the price is pretty high. And the Q4 versus the Q3, the ASP, you know, has, I think, you know, increased, you know, it's roughly one cent to two cents per watt.

Understood. I guess, okay, thanks a lot. So it's a combination of these factors. And on the n-type new generation cells, So I suspect the company is using the TopCon technology and would wonder if the yield rate, is it like able to disclose the yield rate of the production line? Because it was a concern on the yield rate because TopCon has more production steps.

We are reaching, for entire TopCon, we are reaching almost 99%. So I think that's a leading number in this industry. That's why we have our confidence to expand our capacity to such a sizable volume to extend our competitive advantage as well.

Understood. That's very impressive. I think it's one of the leading indicators in the market. Thanks a lot, management.

No problem.

Thank you, Alan. Next, we will be taking one last question from Brian Lee from Goldman Sachs. Your question, please.

Hey, guys. Good evening. Thanks for squeezing me in here. I might have missed this, or maybe I'm misinterpreting something, but could you help reconcile? I think you mentioned 100 to 200 megawatts. kind of revenue recognition issue Q3 to Q4. But the actual shipment guidance is changing by, you know, two plus gigawatts versus what you had previously. So is that being pushed even further into the early part of 2022? Or what's the, I guess, the disconnect between the 100 to 200 megawatts you're calling out specifically 3Q to 4Q and the bigger kind of shipment guidance change that's happening here for the full year.

Yeah, sure. I think my previous answer is between these delays, between revenue recognition delays from Q3 to Q4, it should be like somewhere around 200 megawatt level. And the delay will continue, but I think the improvement is definitely be better than Q3 because we have seen this increase traffic jam across all the main ports is improving day over day, week over week. So that's why I'm saying the shipment and together we are shipping more into China market in Q4. So that's why we don't have to suffer the logistic problems from the shipping line. So those are the two factors why we say the revenue recognition in Q4 the pressure will be lighter or easier than Q3. So regarding the guidance change, I think it's mainly because we have some delays of one of our workshops, cell workshops, that give us kind of ceilings for this capacity expansion. So that's why we naturally adjusted our guidance accordingly.

Okay, that's helpful. And so just to be clear, you haven't seen any cancellations of shipment schedules, whether for this year or into next year, just things are changing on the schedule, but you haven't seen anything canceled outright?

We have seen pretty, let's say, several cases canceled by the shipping line companies, but we always kind of find some solutions because, you know, we have this, multi-year shipping line contract with all the major shipping lines. So even if they cancel the shipments or the shipping lines this week or next week, we can always try to find out the solution to squeeze them in for the next one in the, I don't know, next month or the month after, right?

Okay, fair enough. And then maybe just two last ones from me and I'll pass it on. Are you reiterating your CapEx guidance for 2021? I think you had said 1.1 billion U.S. before. And then any early thoughts on capacity increase and CapEx for 2022? Yeah. Thank you.

This is Pan. And for the CapEx side, we expect that in Q4, we'll have a $400 So the total CapEx in this year will be $1.2 billion, and the next year will remain the same $1.2 billion for 2022.

Okay, so flat CapEx year-on-year. Any thoughts around the funding for $1.2 billion of CapEx in 2022?

No, we are, you know, our subsidiary is in the China IPO process, and we're expecting to raise at least 6 billion RMB. So that is the most, you know, the most reliable, you know, the majority part. Upon that, we will make it some, you know, debt financing as well.

Okay. Understood. Thanks, guys. I'll pass it on. I appreciate the time.

Thank you, Brian. I will now hand the session back to you. Please go ahead, Ms. Ripple.

Ms.

Ripple, please go ahead.

Hello. Yes, let's end the call today. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.