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spk11: Hello, ladies and gentlemen, and thank you for standing by for GINCO Solar Holdings Co. Limited second quarter 2023 earnings conference call. At this time, all participants are in a 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, Ms.
spk12: Stella Wang, GINCO Solar's Investor Relations. Thank you, operator.
spk01: Thank you, everyone, for joining us today for Zinco Solar's second quarter 2023 earnings conference call. The company's results were released early today and available on the company's IR website at www.zincosolar.com, as well as on New Survivors 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 Zinco Solar, Mr. Lee Sander, Chairman of the Board of Directors and the Chief Executive Officer of Zinco Solar Holding Company Limited, Mr. Janet Miao, Chief Marketing Officer of Zinco Solar Company Limited, Mr. Pan Li, Chief Financial Officer of Zinco Solar Holding Company Limited, and Mr. Charlie Cao, Chief Financial Officer of Zinco Solar Company Limited. Mr. Li will discuss Zinco Solar's business operations and company's highlights followed by Mr. Miao, who will talk about the sales and marketing, and then Mr. Pan Li, who will go through the financials. You will all be available to answer 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 Zinco Solar's public filings with the Securities and Exchange Commission. Zinco 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 Zinco Solar Holdings. Mr. Li will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Li. Mr. Li.
spk10: 10.4 gigawatts, with a growth of 74.1% compared to the first quarter. We are very happy to be able to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of the industry in order to reach the third quarter of The current interest rate of the second quarter is $1.81 billion, which is 65.6% higher than the previous one. The current adjustment rate is $1.967 billion, which is 70.1% higher than the previous one. The net profit per share is $0.77, which is 48.5% higher than the previous one.
spk01: We are pleased to report a solid growth as we overcame volatility in supply chain prices and ending up thanks to our excellent market network, the highly qualitative products, and our highly effective supply chain management. Module measurements in the second quarter were approximately 17.8 gigawatts, up 36.2 percent sequentially. Shipments of the competitive N-type module were approximately 10.4 gigawatts, up 74.1% sequentially. We are happy and proud to be the first module manufacturer to reach the milestone of shipping 10 gigawatts of N-type modules in a single quarter. Besides, our shipments to the U.S. market increased from the first quarter, largely reducing demographic charges Our efforts inside chain management, technology advancement, and the process improvement also improved our profitability. Net income was $180.1 million in the second quarter, up 65.6% sequentially. Adjusted net income was $196.7 million, up 70.5% sequentially. Diluted earnings per ordinary share were U.S. dollars 0.77, up 48.5% sequentially.
spk10: Due to the large-scale market and inventory accumulation of raw materials, the price of the second-grade materials has decreased significantly. The price of the second-grade materials has also been fluctuating. The increase in price fluctuation of large-scale customers is more influential, so that customers with a positive attitude will be able to lower the price at a certain rate. Due to the substantial release of polysilicon production volumes and excessive inventory, polysilicon prices declined sharply in the second quarter,
spk01: which also caused a certain volatility in module prices. Since most customers are sensitive to price, they were cautious and slowed down their orders, which to some extent affected our module demand. As the lower supply chain prices stabilized in the third quarter, domestic customers started to place orders, and major projects were initiated and started construction in China. The lower prices also led to a surge in demand from some overseas markets. We expect production and sales in the PV market to rebound in the second half.
spk10: 随着越来越多的企业布局TopCom的产能,EngineTopCom技术成为行业主流已经成为了确定性趋势。 但不管企业数字与技术储备不足,工艺技术路线选择的差异,出现了项目延期。 There's more and more players deploying TopCon production capacity.
spk01: Anti-TopCon is certain to become the mainstream technology in the industry. However, some of the new engines experience the project delays and slower than expected production and efficiency ramped up due to insufficient technical know-how and differences in technology and the process, keeping competitive N-type production in short supply. As of the end of the second quarter, the mass-produced efficiency of our 182 N-type TopCon capacity had reached 25.5%, with N-type module power output of around 580 watts-p, which is about 25-30Wp more than P-type modules of the same variant. The integrated cost of M-type modules remains competitive compared to P-type modules. We are confident we will continue to lead in efficiency and cost through technology iteration and process optimization.
spk10: At the end of May, we announced the construction announcement of the 56GW integrated 3C base. and will become the largest N-type integrated production base in the recovery industry. 3C integrated base is a new production model innovation that can lead the recovery industry. It will fully reflect the advanced product and technology, investment cost and operation efficiency, as well as the advantages of information and intelligentization. At the same time, we actively respond to the changes in global recovery industries and increase the construction of overseas industries. One of the U.S. projects The expansion is expected to start in September. As of now, Jinko has formed a leading industry chain in the overseas market. It has the ability to divide and distribute from fiber and battery to components. At the same time, it has professional traceability and good product competitiveness. In the second half of the year, we will continue to invest in overseas N-type products and N-type products. At the end of the year, we will form more than 12 B products in overseas ETIWA.
spk01: At the end of May, we announced the construction of a major production base of 66 GW integrated wafer cell module capacity in Shanxi, which will become the largest N-type integrated production facility in the industry. Our Shanxi integrated base is another strategic expansion of the production model championed by Zinco Solar in the PV industry that will fully demonstrate our advantages in highly efficient technology and products, lower investment costs, and greater operational efficiency, as well as intelligent and smart manufacturing capabilities. Meanwhile, we proactively responded to shifts in the global PV landscape by expanding our overseas industrial chain. The 1 GW capacity expansion for N-type modules in the U.S. is expected to start production in September this year. So far, we have established an industry-leading overseas industrial chain network with integrated production capabilities from wafer cell to module, with traceability and excellent product competitiveness. As we continue to invest in n-type capacity expansion overseas in the second half, we will reach an integrated capacity of over 12 gigawatts overseas by the end of 2023, with n-type accounting for over 75%. We will continuously strengthen and expand our global industrial chain to provide premium and high-quality products and services to our global clients.
spk10: 作为全球极具创新力的光幕企业, 我们始终拥有社会责任, 把ESG管理架构的持续往上, 作为公司可持续发展的重要举动。 我们基于科学和目标创意建议的方法和要求, 制定了近零采放的目标及路线图。 to actively promote global climate change reduction and response to climate change. We continued to improve the supply chain tracking system and the third-party独立审计制度, which improved our supply chain reliability. With the advantage of social responsibility and travel, we achieved a leading position in the global enterprise development assessment. At the same time, we also strengthened the relationship As one of the largest and most innovative solar module manufacturers in the world, we have always carried on social responsibility
spk01: and taking a continuous improvement of our ESG management as a key matter for our sustainable development. In the second quarter, we set up a goal and a roadmap to net zero emissions based on methods and requirements advised by the Science-Based Target Initiative, SBTI, actively promoting our global carbon emissions reduction and addressing climate change with concrete actions. With outstanding performance in social responsibility fulfillment, we led the mainstream PV industry in the SNP global corporate system ability assessment. We improved our traceability system and independent third-party audit mechanism to enhance our supply chain reliability. Meanwhile, we enhanced our cooperation with leading institutions and professionals in global renewable energy development and joined the International Renewable Energy Agency, IRENA. Through sharing best practices and experience, we are dedicated to making a positive contribution to the sustainable advancement of renewable energy globally.
spk10: To continue to enhance the competitiveness of the company, before I hand over the topic to Jenna, I would like to introduce the performance of the company. It is expected that at the end of 2023, the efficiency of the N-type battery will reach 25.8%. We look forward to the price of the industry chain, and the demand for it will continue to rise. The target of the year is 70 to 75GW, of which the N-type component will reach about 60%. As the demand for N-type products in the global market continues to increase, we continue to invest in N-type products with high technology and cost competitiveness. It is expected that by the end of 2023, Sanjin Guipian High-efficiency Electronics' main production capacity will reach 85, 90 and 110 GW, of which N-type production capacity is 75% or more. In the third quarter of 2023, the company's main production output will be between 19 and 21 GW.
spk01: In summary, we are confident in the development of the PV industry. We will continue to enhance our integrated operations and management. We are positive about the long-term prospect of PV plus energy storage model and will continue to grow our competitiveness by actively developing our energy storage business. Before turning over to Jenna, I would like to go over our guidance for the third quarter and the full year of 2023. By the end of 2023, we expect mass-produced n-type cell efficiency to reach 25.8%. We are optimistic that demand will grow as industrial chain prices stabilize and reach our four-year module measurements to be in the range of 70 to 75 gigawatts, with n-type module accounting for approximately 60% of the total module measurements. As demand for N-type products continues to increase in the global market, we will move on to invest N-type capacity, which is competitive both in technology and cost. We expect our annual production capacity for monowafers, solar cells, and solar modules to reach 85, 90, and 110 gigawatts, respectively, by the end of 2023. This end-type capacity accounted for over 75% of the total capacity. We expect the module shipments to be in the range of 19 to 21 gigawatts for the third quarter of 2023.
spk07: Thank you, Ms. Lee. Total shipments in the second quarter were around 18.6 gigawatts, over 95% of which were module shipments. We are glad that total module shipment in the first half of 2023 exceeds 30 gigawatts, making us the number one in the PV industry for the first half module shipment. In terms of product mix, N-type PiperNeo accounted for 58% of the module shipment in the second quarter, a steady increase from nearly 50% in the previous quarter, thanks to its high power output, quality, and reliability. In terms of geographic mix, China and Europe remain the largest regions in the second quarter, accounting for over 50% together. The proportions of other markets remain relatively stable. Most importantly, we are glad and proud to see both the efficiency of customer clearance and the size of our shipment to the U.S. market improve sequentially, benefiting from our dedicated efforts. As we continue to make effective progress, we expect our shipments to the U.S. market to gradually increase in the second half. For orders and prices, visibility of our order book has reached about 80 percent for the whole year of 2023, improving compared with the first quarter, with overseas orders making the majority. Decline in raw material prices drove module price lower. Recent prices for our new contracts have fluctuated within a reasonable range in line with market trends, and Tiger Neo retained a competitive premium over P-Type. With the gradual release of our untyped capacity, we expect Tiger Neo to accelerate its penetration into China, Europe, and emerging markets in the second half. The proportion of Tiger Neo shipment for the full year 2023 to reach around 60% of our total module shipments and its product strength to continue to lead the industry. Recently, we were awarded the top brand PVP Europe sale 2023 by EPUPD research. This recognition by our downstream partners does not only prove that Jinko Solar is one of the preferred European brands for installers to work with, but also reflect our strong reputation and commitment to our customers as a leading supplier and an anti-TopCon technology leader. In addition, we are recognized as 2023 overall highest achiever for the first consecutive year in Renewable Energy Testing Center's PV Module Index Report, a reaffirmation of quality, bankability, and reliability of our product. In summary, we are happy to navigate through volatility in supply chain prices and demand in second quarter, leveraging our advantage in terms of global marketing network industrial chain layout, and product competitiveness. Meanwhile, we continue to improve our mechanism to cope with risks and enhance our customer relations and marketing network. As supply chain prices stabilized recently, we are optimistic about the return of demand in the global market for the second half. In the medium and long term, as the economy of solar power becomes more and more prominent, The PV market will move forward at a healthy and sustainable growth pace. We expect China, the U.S., Europe, and other developed markets to grow at a steady pace and the emerging markets to continuously expand inside. We are confident we will provide more economic value to our customers with excellent products and services and continue to grow our market share. With that, I will turn the call to pass.
spk09: Thank you, General. We are pleased to report strong financial results in the second quarter, with quarterly total revenues, gross profit, income from operations, and net income all reaching historical new highs. Recently, our majority-owned principal operating subsidiary, Ingo Solar Company Limited, announced its intention to issue ordinary shares for no more than RMB 9.7 building to fund the construction of our anti-integrated production facility in Shaanxi. This expansion of advanced integrated production capacity will help us to continuously improve our cost structure. An increase in equity capital will also help us improve our capital structure. As we keep enhancing our global industrial chain, marketing network, and product competitiveness. We hope to achieve healthy and sustainable profitability. Let me go into more details now. Total revenue was over 4.2 billion, up 32% sequentially, and up 63% year-over-year. Gross margin was 15.2%. 6% compared to 14.7% in the second quarter last year. We continue to make good progress in clearing customs in the U.S. market, significantly reducing the mortgage charges compared with the first quarter this year. Total operating expenses accounted for 11% of total revenues compared with 12% in the first quarter this year and 16% in the second quarter last year, improving sequentially and year-over-year. Income from operations was $212 million compared with income from operations of $176 million in the first quarter this year and loss from operations of $43 million in the second quarter last year. improving sequentially and year-over-year. Operating margin was about 5% flat compared with the first quarter this year and last margin of 1.5% in second quarter last year, also improving year-over-year. Net income attribute to Jinko Solar Holdings ordinary shareholders was about $180 million. up 66 percentage sequentially and compared to a net loss attribute to the Gingko Solar Holdings ordinary shareholders of about 93 million, improving year-over-year. Excluding the impact from a change in fair value of notes, a change in fair value of long-term investments and share-based compensation expenses, adjusting net income attribute to the ordinary shareholders was about 197 million, up about 71% sequentially, and up 2.9 times year over year. Diluted earnings per share was $0.77 in the second quarter, up about 49% sequentially, and compared to diluted loss per share of $0.07 in the second quarter last year, improving year over year. Moving to the balance sheet, at the end of the second quarter, our cash and cash equivalents were about 2.35 billion from 1.48 billion at the end of the first quarter this year, improving sequentially. Accounts receivable turnover days were 79 days compared with 95 days in the first quarter. Inventory turnover rate decreased to 17 days in the second quarter from 100 days in the first quarter. Total debt was $4.7 billion at the end of the second quarter compared to $4.4 billion at the end of the first quarter. Net debt was $2.4 billion compared to $2.9 billion. at the end of the first quarter this year. This concludes our prepared remarks. We're now happy to take your questions. Operator, please proceed.
spk11: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. The first question today comes from Brian Lee with Goldman Sachs.
spk00: Please go ahead. Hi. Thanks for taking the questions. This is Grace on for Brian. I guess first question around the ASP trajectory. Obviously, Bali Sarkand had a big decline in 2Q, though it has stabilized in recent week. At the same time, like we're hearing some oversupply in certain areas of the market. Just wonder if you can talk about the ASP and maybe the margin trajectory moving through the rest of the year and maybe into 2024. Thank you.
spk06: Hey, this is Charlie speaking.
spk08: And, you know, firstly, I want to talk, you know, this year it's a very big, you know, solar market. You know, a lot of markets are very strong, including China, United States, and European markets. And we delivered a very strong performance for the first half year. And in terms of the, you know, revenue sharements, the next generation end-type top companies are leading the industries and take about 50% market share, you know. 50% of portfolios is from end-type. And we believe we are familiar to the momentum throughout the year. And one type, because of the cutting edge, and it's a very strong, you know, great function, you know, for end customers and have, you know, advanced, you know, more power output for the end customer. And we are seeing in the market, is accepting the, you know, the n-type, you know, it's going to dominate the markets and will continue the, you know, supply relatively shortage even, you know, throughout next year. So back to questions on ASP, it's, you know, the first half is pretty, you know, relatively stable and starting from the June this year, because of the polysilicon relatively oversupply situations. and make the solar modules have the relative adjustments. If you're looking for the mid-term perspective, we think it's very good for the downstream and accelerate the demands from different markets. And it will also generate solar and storage, the big markets in the future. And for the ASP train, it's relatively in line with the industry. The second half year, it's for sure in the downward trend, but it has been stabilized. And we believe, thanks to the very, very strong China installations, particularly in Q4 this year, the ASP will maintain and maybe possibly relatively in upward trend. And for the proper margins, you know, probabilities, just, you know, we're trying to believe, you know, and we almost closed out the sales order this year, and over 80% is, you know, boxed. And so we are planning actually for the next year, and for this year, we believe the momentum will continue year over year. It's a very good year for JNCO in terms of the profitability, even the second half year. And the N-type will take more sharements for JNCO in the second half year, 60% to 65%, which is 50% in the first half year. And on top of that, U.S. market is very positive for us. you know, for the, starting from the third quarter. And, you know, our modules were detained, you know, starting from last year. And we have done a lot of work, traceability, ESDs, and communications with relevant, you know, U.S. regulators. And starting from July, and our modules, and the, you know, speed of the, let's say, going through the, customs has been speed up and we are expecting, you know, our shipment to the U.S. market will be accelerated starting this quarter. And we have also gets ready for the overseas capacity, 12 gigawatts integrated starting from wafer to modules and to, for the U.S. market next year. So next year will be a very big, you know, mark year for JNCO to have more markets here in the U.S. And as well as we have been, you know, in expansion for the U.S. module capacities, one gigawatt is in place, and we plan to start, you know, operations from the end of the third quarter.
spk06: So, yeah, that's back to your questions, you know, overall.
spk12: Thanks, Charlie. That's super. Thanks, Charlie.
spk00: That's super. Maybe I missed it. Can you provide us your updated CapEx number for 2023? And then also you talked about like 12 gigawatts for overseas capacity next year. So just wondering if you can provide us the CapEx number and how you think about funding it? Because I think you mentioned like the equity or the capital that you raise in China cannot be used in the U.S., so I just wonder how you think about the capital rates here. Thank you.
spk08: Yes, and you know, for the capex this year it's roughly 15 billion RMB. And we estimate, you know, first half year we have generated around roughly 5.5 billion RMB operating cash flows and this year we estimate over 10 billion operating cash flows this year. As well as we have completed the convertible loans in the second quarter in each year. So we have sufficient cash to support the CapEx. You know, the overseas capacities almost we, you know, we will complete it by the end of this year. So we don't foresee any, you know, additional cash needs next year for the 12 gigawatts integrated capacities.
spk12: Thank you. I will take the rest offline.
spk06: Thank you.
spk11: The next question comes from Philip Shen with Roth MKM. Please go ahead.
spk05: Hey, guys. This is Matt on for Phil. Thanks for taking the questions. Looking at the U.S. market, there is this expectation in the industry that modules made with China Poly that was not from Xinjiang could get into the U.S., but we haven't really been seeing that yet. Do you know what might be taking so long and when non-Xinjiang projects China poly modules made in Southeast Asia might get cleared by CBP?
spk08: Yes. You know, we, you know, for JNCO, we focus on, you know, 100%, you know, poly silicon out of China to serve the U.S. markets. And, you know, just like I said, you know, we are worried, you know, pretty smooth and speed up the process starting from the third quarter. And for the China-based poly and the probabilities of the, you know, we're not sure, but, you know, it's possible, impossible, but from JNCO perspective, we will continue. We have some long-term conference with, you know, the tier one and the poly makers out of China, and we will continue to increase the, you know, the source and the volume from the poly producers. And the poly out of China, you know, the volume is roughly 10,000 metric tons, which we believe is sufficient to supply, you know, the U.S. market. As tier one companies, we can, you know, take the advantage, and we have the largest integrated capacity, 12 gigawatts, including, you know, including 75% top-com, you know, the end time. So I think, you know, we can take the lead, you know, in terms of the market share as well as the poly, you know, sourcing from the suppliers out of China.
spk05: Do you think it's possible that non-China poly not made in Xinjiang ever makes it into the U.S.? Just kind of curious on your view.
spk08: I'm not in a position to make, you know, the predictions or the judgment, but, you know, from the legal perspective, you know, the traceability is, and if you can do, you know, but from the implementation perspective, from the relevant regulators, we are not sure in their positions.
spk06: Okay, thank you for the color. I'll pass it along. Thank you.
spk11: Once again, if you wish to ask a question, please press star and 1 on your telephone and wait for your name to be announced. The next question comes from Rajiv Chaudhry with Connoisseur Capital. Please go ahead.
spk03: Good morning and good evening. And first of all, congratulations on a superb quarter. and for the very strong guidance. One question that has not been asked yet is about the inventory reserve that you have taken in the quarter. Normally, your inventories tend to go up every quarter because you are growing the business, and they grow up by $200 to $250 million a quarter. This time, your inventories sequentially were down about $200 million quarter to quarter. And so my first question is, is it reasonable to think that the inventory reserve that you took was actually in the neighborhood of $400 million, which would make sense given the sharp decline in the prices of poly and obviously at any point in time, you have a lot of poly in your working process. So the first question is, is the inventory reserve in the ballpark of 350 or $400 million and that your gross margin without this inventory reserve would actually be in the mid-20s in the second quarter?
spk09: Yeah. Hello, Rajiv. This is Pat. And as a mention to the inventory reserve, yes, actually, we made some inventory reserve in the second quarter. And this has also impacted our This is only a temporary treatment of the inventory. We don't think it will be a long-term treatment to our inventory.
spk03: I understand that. Obviously, it's a one-time thing. The question is, was it in the ballpark of $400 million and that you're If the reserve was not taken, your true earnings would be $400 million higher.
spk06: I mean, $400 million is one number.
spk08: We provided roughly, I think, 500 million RMB, inventory provisions. But the second quarter, I think we did pretty good, and we anticipated, let's say, the PALI decline. starting from June. So we speed up the inventory goods delivery and control the inventories very tight. That is why you are saying our total inventory numbers is relatively lower quarter over quarter. But we still have some kind of the orders and targeting the residential markets. And the initial markets, you know, it's kind of the two-state customers, and they, you know, they are typically when the supply chain, particularly the end price, has a significant, let's say, adjustment, which we typically will offer some price discounts to the initial customers. That is why, from the accounting perspective, by the end of the second quarter, we recorded additional inventory one time in the provisions. And we don't believe that is recurring items in the future.
spk03: Charlie, I understand it is not an ongoing thing. My question simply is reflecting what was the true earning power of the company in the second quarter? And what I'm trying to get at is, that if the poly, if you exclude the impact that the sharp decline in poly prices has had on the inventory reserve, that your earnings would have been a lot higher, not just somewhat higher, but a lot higher, maybe as much as $200 million higher.
spk08: Oh, you mean, you know, if let's say the poly price is relatively stabilized and the module price is, you know, is a very stable and for sure you know it's not this case and we are able to generate more earnings yeah significantly so is it fair to say that without this inventory reserve the gross margin could have been in the mid 20s 24 25 percent well i think it is roughly i think uh Without that, it's roughly up to 20%.
spk03: And you expect it to be higher in the third quarter because the rate at which the price of modules is coming down is slower than the rate at which the poly price is coming down.
spk08: Yeah, we expect, you know, strong, continually strong earnings, and because the, you know, the M-type module, they have strong earnings generating power. We get more percentage shipments, and second-wise, we have higher shipments in the U.S. markets. And so that is a combination of the two key factors. And of course, the poly is down to be, you know, stabilized.
spk03: and module you know is still uh you know it's uh it's reaching uh kind of the stabilized point also my next question is about the storage business did the storage business contribute any revenues in the second quarter and what should we expect for the full year
spk08: In storage, from a long-term perspective, it's going to be a very big, very important business unit from the long-term, three to five years. But this year is kind of an investment year. We invest on the teams, sales channels, and R&D. Even we still invest some small capacities. The revenue contribution for this year is not significant and we even make some, you know, we are expecting you this year for the investment year. We, you know, we will make some kind of, you know, small losses for the business. But for the future, looking to the next year, it's going to be a very big, you know, let's say, you know, high growth, you know, segment for Jinko.
spk03: So will you hit a few hundred million dollars this year or not really?
spk06: Not this year, not this year.
spk08: No, this year I think, you know, maybe I think, you know, probably we don't disclose the numbers, but again, it's kind of the early investment, you know, segment, the business unit. But we have... roughly rich sizeable teams, including the key functions. And by the end of the fourth quarter, we think we are in a good position for next year to penetrate the storage market.
spk03: Right. Also, going back to the cost of polysilicon, is it fair to think that the average cost of the polysilicon in the second quarter was roughly three cents lower than the cost of polysilicon that you had in the first quarter so sorry did you repeat your question yeah my question is on the cost of polysilicon uh and i'm talking not about the cost of polysilicon in the in the market but the cost of polysilicon that you embedded in your earnings, in your operations and therefore your earnings. Is it fair to think that the cost of polysilicon in the second quarter was roughly, excluding the inventory reserve, was roughly three cents lower than the first quarter cost of polysilicon?
spk08: I didn't have the numbers. I know your questions. And Q1, I think, you know, the Polly starting January is kind of a very big rebound. And it started down month over month and significantly declined starting from June. And I think it's, you know, but starting in June, it's a small impact on the Q2 financial figures because we have you know, the inventory turnover is 60 days, you know, 70 days. So it's a, we can get back to you, you know, after the call, but I think it's a slightly lower, you know, the poly from the financial statements perspective.
spk03: And also, one last question. Is it fair to say that at this point, in the third quarter, your average cost, your total cost per watt, is under 15 cents?
spk08: We don't disclose the numbers. It's a kind of competitive advantage, and that's the information. You know, it's a significant improvement, you know, back to your questions in third quarter, starting from July. And as well as, you know, we continue to improve our internal operations, which is the supply chain, you know, the cost. And so it's a significant improvement, but we don't disclose the cost structure, even including a total, you know, cost.
spk03: And a final question, Charlie. You know, First Solar has made a point of noting that they have a lot of long-term contracts going out multiple years, going out two, three, four years. And Maxion has said the same thing. And these contracts are for prices in the high 20s. high 20s going out multiple years. Do you think that that kind of pricing that far out is really sustainable, given what is actually happening to prices in the market right now?
spk08: I think, you know, the U.S. market generally is a very big market, sustainable, long growth. There are a lot of disruptions, you know, from the recent two years because of the, let's say, the WRO, UFLPA, so makes the supply, you know, tight. And so some of the, let's say, the local producers take that advantage, sign a lot of, you know, long-term contracts. But from the long-term perspective, we feel the silicon-based technology, And so now the focus is to oversee polysilicon supply, you know, relative shortage. And we are able to, let's say, next year it's going to be a very big year for JNCO. And we have secured sufficient, I think, you know, poly out of China. So we are able to sign, you know, very, I think, very decent, you know, contracts. And with, let's say, the policy stabilized and we are able to, you know, get more contracts not only next year, maybe next two or three years. So that's, you know, historically we take the majority, a very big market share in the U.S., 25%, because of disruptions. But we have overcome disruptions. the disruptions and so for the long term we think, you know, we are in good positions with our peers.
spk03: Final question. Will you be able to take advantage of the IRA in terms of the production that you are starting with the one gigawatt type of product in the U.S.?
spk08: The IRA, you know, You mean, you know, JNCO is, let's say, applicable or not? We think IRA is kind of very transparent, you know, policies, and it's for the local productions in the U.S. And when we do that, we don't, let's say, depend on why it's not IRA. We think relatively size, you know, local productions and the, you know, local accountants make, you know, Ginkgo the more, you know, competitive in the market. But we strongly believe the IRA is, we are, you know, qualified, let's say, the IRA.
spk03: Okay. So you expect that you will be able to benefit from it, but you're not counting on it?
spk08: Yeah, we don't account it. We do work conservative accounting. I know some peers, you know, The U.S. producers, they do accrue basis, even the quality on the cost of goods sold. You know, that's a different, you know, accounting perspective. But we didn't do that. We want to do it on cash basis, you know, based on the, you know, the application and the fund of the IRS in the future.
spk03: Okay. Thank you and congratulations again.
spk08: Thank you. Thank you.
spk11: As a reminder, if you wish to ask a question, please press star then 1 to enter the question queue. Once again, if you have a question, please press star then 1 on your telephone and wait for your name to be announced. The next question comes from Alan Miles with Jeffrey. Please go ahead.
spk02: Thanks for taking my question and congratulations for the great results. So a couple of questions to follow up. So first of all, I would like to clarify. So the amount, because in Asia reporting, the overall impairment in Tokyo was around 1.3 billion RMB. So in US reporting, around 500 million is recorded in cost of revenue. and the remaining is under the impairment of long-life assets. So, is this understanding correct?
spk08: Yeah, you're right. That's the kind of different presentations in different, you know, accounting standards. And in the U.S., the inventory provisions is typically item of cost of goods sold. But in China, the PRC standards, they have separate, you know, line called, you know, kind of the assets in common, including everything. you know, the fixed assets and as well as the inventories. So that's kind of the presentation of different accounting standards.
spk02: Thank you. So if we add back $500 million of inventory impact, so the cost margin in Q2 is actually improving compared to Q1, right? Yes.
spk08: Yes, you're right.
spk02: Yeah. And then another thing is the impairment of long life assets, to my understanding, are those equipment, which we can also expect it is a one-off thing, right, because the impairment of equipment will happen every quarter.
spk08: It's a one-off, and we provide it, you know, for the small, you know, size, you know, and the small size modules, you know, capacities. and to make our assets to be more competitive on the balance sheet.
spk02: Thank you. And then another question is in relation to the port charges because I recall that in 4Q last year and the first quarter this year, there were port charges affecting the market. So what is the situation of the port charges in the U.S. in 2K and what do you expect in 3K with the acceleration in the clearance of the products?
spk08: So, you know, for the post charges and the, in the first quarter we have 400 million in RMB, you know, post charges for the U.S. and because it's a detained modules and very high, you know, storage cost. And the second quarter, we put a lot to 200,000 army, one quarter. And starting from the third quarter, we believe, you know, with the four charges, we have very small numbers. And because our modules have been, you know, cleaned up and split up, you know, on the U.S., you know, the customs side.
spk02: So thanks a lot. So this is an exciting development action. So it leads to the next question as to how much U.S. shipment has been sold to the U.S. in the first and second quarter?
spk06: Oh, you mean the shipment percentage, right?
spk08: The total? The U.S. shipment against the total shipments. It's 5% to 10% in that range.
spk02: Understood. So for this year, after we raise our guidance to 70% to 75% big award, 5% to 10% is around like 4% to 7% big award. So next year, our target is 12% big award. Is it correct?
spk08: It's roughly 10% on the market, Simon, next year. And it could be in a range, let's say, you know, above 10 gigawatts, and depending on, you know, let's say particularly the supply stack, you know, the poly stack. And we are confident with 10 gigawatts is kind of the base case. Base case, right.
spk02: Thank you. So that's actually quite a strong improvement from this year, like 4 to 7 gigawatts to 10 gigawatts still. So we'd like to know what is your expectation on U.S. installation next year on this basis? This year probably U.S., I think the base case is like around 30 gigawatts. So I think the company is implying market share gain next year, right?
spk07: Yeah, it's kind of a go-back-to-normal strategy, right? So in the last two years' time, we have got, let's say, we got stuck by different regions, different reasons. And now we have seen, you know, positively, you know, things go back, start to go back to normal. That's why we are expecting a kind of normal market share or normal stable supply from GINCO to U.S. markets. That's why we expect, you know, around 10% of our total shipment goes to U.S. market next year.
spk02: So what is your expectation on U.S. installation in 2024 then?
spk07: Well, it depends. It's really, we see a robust demand there. So it's really a question of whether the supply will be normal or it will be, let's say, strictly under the US LPA inspection, right? That will decide what could be the size of a US market. It could be somewhere from 30 gigawatts to even up to 50 gigawatts. It really depends on the supply side.
spk02: Thank you. Thank you. So my last question is basically the... for the polysilicon supply correspondingly? Because 12 gigawatt approximately, you still need quite a lot of polysilicon, like probably around 20,000 to 30,000 tons. So have you logged in that supply already?
spk08: The majority part of it, we have logged. And the overstate capacity is 100,000 metric tons. 100,000 metric tons, which can support, let's say, you know, I think roughly 50 gigawatts. And we take 20% market share from the, let's say, the poly supply side. We are confident. And as well as some of the overseas, you know, capacity, we still have some flexibility to increase the capacity. So we're thinking, you know, we can achieve that.
spk02: Thanks a lot. I've got a final question on A-share placement. So will that eventually lead to dilution of the U.S. shareholding?
spk08: Yes. It's probably maybe 7% to 9% dilution. It's not significant. The U.S. has 58% shareholding of the A-share. And if, let's assume 10%, you know, the maximum, maybe it should be lower. It's roughly 53, right? 5%, you know, the difference, the lower. Understood.
spk02: So thanks a lot for taking my question. And congratulations again for the great results. Thank you. Thank you.
spk12: That does conclude our question and answer session and our conference for today. Thank you for participating. You may now disconnect.
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