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JinkoSolar (JKS)

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1 hour ago, Dan said:

A 12% gross margin today is several times more millions than the same 12% in 2012

However a 0% gross margin today is worse than in 2012 because it results in many more millions cash burn and this time around the banks are not so willing to bail out.

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2 hours ago, Klothilde said:

However a 0% gross margin today is worse than in 2012 because it results in many more millions cash burn and this time around the banks are not so willing to bail out.

I don't follow JKS closely enough to know, but is the bailing out coming from banks?  Or from the government?  Or is that pretty much the same thing.

I remember people saying that JKS has some special treatment due to it's size and the focused importance of cleaner energy (cleaner air).  Isn't that one good thing about a centrally planned economy... that they do not need to 100% allow industry to follow the whims of the current, at hand market, but can instead direct funding to what they see as important in the future?

China must also be feeling the economic effects of global warming now?  Look at Italy with a bridge collapse in Genoa caused by prior flooding.  Flooding in Venice and Rome within 1 or 2 weeks of each other.  Trees knocked down all over the place. Similar things are probably happening in China too?

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Also one more nice thing about JKS.. I remember they have a big role in this distributed power program & the poverty alleviation / Top runner program.  

And didn't we read that new capacity late this year / early next will come from those programs?

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4 hours ago, Klothilde said:

However a 0% gross margin today is worse than in 2012 because it results in many more millions cash burn and this time around the banks are not so willing to bail out.

I am not certain how close to 0% margins Jinko and others will be. If you look at the spreads of the average selling prices for high efficiency mono Perc and Multi Perc cells, there is around 7% margins on the Mono and 12-13% on the Poly. They like First Solar also have contracts that are signed through this year that should keep the ASP above average which might imply upside to those margin numbers.

 

My concern is more in the volume shipments much more than margins. JKS was very aggressive on volumes. Their guidance if Q3 was met was for 4GW in Q4. I am expecting a 500MW or more downward revision on shipments. The difference in 3GW per quarter vs 4GW per quarter is $25-50M in gross at margins in the high single digits.

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UBS cuts JKS from $18 (that's what sold shares for in February) to $12. They maintain "buy" which is 50% upside at today's price of $8 and I will gladly take $12, but now not in a year.

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On ‎10‎/‎24‎/‎2018 at 9:01 AM, solarpete said:

Grid parity everywhere and a little more progress on the storage front.  When solar becomes cheaper than fossils everywhere, all the time, and storage solves the reliability problem, market dynamics will take over, and all the dumbsh*t climate denier politicians and their brain-dead supporters can go pound sand.

Sorry to be so blunt, but I'm tired of "living with stupid"....

Here's an article underscoring my point.  Even city councils and utility commissions are starting to see the renewable light:

https://earthjustice.org/news/press/2018/glendale-hits-the-brakes-on-500-mil-gas-fired-power-plant

The demand will be there.  Solars just need to learn to grow their business sustainably, not through these bimodal boom-bust cycles.

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JKS total operating cash flow Q1 2016 - Q2 2018: $184M
JKS total CAPEX Q1 2016 - Q2 2018: $1017M

In other words, since 2016 the company has been investing way more in CAPEX than the cash it produced.  I don't know if that's healthy you guys.  I would say it's fine to invest beyond your cash capacity when you are investing in highly profitable capacity that will ensure future profits.  But I'm just not sure their capacity is so competitive if I look at their cost profile.  It rather looks to me like a sad tragedy.  They thought they were going to become highly profitable by investing in cutting edge high-efficiency capacity and in the end the high-efficiency products became a boring commodity as well, sold more or less at cash cost.

Or is there something I'm missing?  

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On 10/30/2018 at 8:33 AM, pg6solar said:

JKS reports on Nov. 26...CC is at 6:30AM! That's Monday after the Thanksgiving weekend. I guess they do not want anyone on the call. I wonder why?

Jinko has changed timing of its CC from 6:30 AM to 7:30AM. That and CSIQ's reported about 25% GMs on manufacturing business, I'm cautiously optimistic now for next Monday.

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23 hours ago, pg6solar said:

...I'm cautiously optimistic now for next Monday.

Margins will most probably be very good in Q3 and they should push good EPS.  However the outlook they give will also have its impact.

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42 minutes ago, Klothilde said:

Margins will most probably be very good in Q3 and they should push good EPS.  However the outlook they give will also have its impact.

I had pointed out the spread between upstream cells to downstream module pricing as an increase in margins and profitability. It  appears for now that Multi Perc has a good price spread that is good for 20%+ margins. Mon Perc Cells to  Mono Perc Modules appears to have only a 10-15% margin. The spread in China for Mono is a profitless endeavor.  The mono perc cells cost 40% more than the poly perc cells while the Mono Perc modules command similar price in China as poly  and only 10% more in ASP globally. This suggests for now that CSIQ model of pushing poly is advantageous vs the Jinko push into mono Perc.

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I'm not quite with you.  I understand the higher spread for multi perc but I don't think it has such a bearing on a blended level.

Both JKS and CSIQ were talking about 25-26 cts blended production cost by year's end.  JKS would need an ASP of 29-30 cts to cover OPEX&NI and break even.  However the current spot price of mono-PERC is already down to 26-27 cts. 

So how do we get to 4+ cts spread?  Do we assume lower cost or higher ASP?  Let's talk Q1.

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So what do you think guys?  Looks like they are beating on earnings and revenue.  

However if you deduct the CVD reversal benefit and the exchange gain you're left with $0.05 EPADS or barely breaking even.

I expected a margin boost in Q3 based on dirt-cheap 3rd party components but that did not happen.  Imho the current cost structure doesn't bode well for the next coupla quarters.  Jmho.

ASP: 33.0 cents
CPW: 28.8 cents (excluding CVD reversal benefit)
OPEX/W: 4.0 cents

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They were asked why their competitors (read CSIQ) reported significantly higher margins. The reply was basically "it is not sustainable". Keep in mind that CSIQ reported exactly double GMs of JKS (taking CVD out, 25% or so for CSIQ vs. 12.5% or so for JKS). How can this great margins disparity continue? JKS said they expect margins to remain stable (read mid-upper 12% not including one timers, not 15%+ they said before). This means CSIQ's manufacturing business margins have to go down eventually or sooner than later.

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1 hour ago, Klothilde said:

So what do you think guys?  Looks like they are beating on earnings and revenue.  

However if you deduct the CVD reversal benefit and the exchange gain you're left with $0.05 EPADS or barely breaking even.

I expected a margin boost in Q3 based on dirt-cheap 3rd party components but that did not happen.  Imho the current cost structure doesn't bode well for the next coupla quarters.  Jmho.

ASP: 33.0 cents
CPW: 28.8 cents (excluding CVD reversal benefit)
OPEX/W: 4.0 cents

I believe they got the margin boost that most were expecting. The benefits from the upstream ASP collapse would be best for Q4 not in Q3 and they should trend to better margins in Q4.

 

You have to look at their inventory at the end of Q2 vs their Q3 guidance as Jinko has traditionally secured inventory plus for the the next quarters productions before the quarter. That Q2 end inventory vs Q3 actual shipments was a $0.3186 cost before depreciation on the RMB. Costs after the quarters depreciation would be $0.30684.  Your suggestion of production costs of $0.28 is down $0.02-$0.03 from that level. This suggests that they carry far more inventory than required which historically they show. I believe they carry 20-25% more inventory than production historically. If you remove from that ASP $0.04 for labor depreciation and energy costs which are not inventory related, then the cost is $0.24 for inventory.  When you use a cost of $0.24 then you get roughly inventory for the quarter to build guidance plus 23%.

Looking at  JKS Q3 inventory end, the  target inventory to shipment levels is now $0.20 vs Q4 guidance. That is 33% lower input costs for Q4 vs Q3. This would suggest if they carry 20% over that the inventory cost is now around $0.17.

When you compare Jinko inventory management to CSIQ, Jinko is not as efficient in inventory turnovers and Just in Time inventory management. This is in part due to larger wafering and cell than CSIQ. 

 CSIQ inventory at the end of Q2 had a cost of $0.21 for the guided shipments for Q3. The fact that CSIQ costs came in at estimated ~$0.25 would suggest that they had exactly enough inventory if you add in $0.04 for labor, depreciation and energy. As of Q3, the inventory costs for CSIQ vs Q4 shipment guidance is now $0.1872. With added non inventory costs, their ASP will be likely around $0.23 or close to a 10% cost decline based on  a 10% decline in inventory costs.  That is relatively flat with where I  expect their ASP decline for Q4 to fall. That is projecting flat margins on modules for CSIQ.

 

For JKS  their inventory is suggesting  that in Q4   they would have continued benefits  of the upstream price drops. It is reasonable to assume that JKS would increase their margins in Q4 even with the price drops of the ASP. This is due to the 33% invnetory cost reduction vs guidance shipments and the ASP price trend decline being favorable for JKS.  With JKS contracted volumes from earlier, the ASP should drop less that the spot has dropped. Their costs to ASP spread should continue to increase as input invnetory declines 33% but ASP declines 10-15% in Q4. I am expecting this cost spread to rise from your $0.05 to $0.06 in Q4 as costs come in at ~$0.22-$0.23 and the blended ASP is ~$0.28. That is pushing 21% margins or a 5-6% improvement. Even relying on OEM, the margins would fall in the range of 15-21%.

Comment: I have not listened to the con call as of yet.

 

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3 hours ago, Klothilde said:

Good Gracious it will take me one week to sort through your post but they did guide flat margins qoq for Q4.

Yes , while shopping for grocery it dawned on me that my logic was flawed. I was taking inventory/guidance to determine a cost for materials. That works fine for a CSIQ that does not OEM but is flawed when looking at JKS that can spike sales by using OEM. When taking OEM volumes out of the equations, the margins drop significantly for JKS into the low teens.

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On 11/26/2018 at 1:26 PM, Klothilde said:

ASP: 33.0 cents
CPW: 28.8 cents (excluding CVD reversal benefit)
OPEX/W: 4.0 cents

This was a bit sloppy based on a simple revenue / total shipments calculation.

Since I suspect the revenue contains some non-module portion that may distort ASP calcs I think it is better to derive the numbers from their cost indication.

They claim cost dropped 10% qoq.  Based on total blended of $0.323/W in Q2 we get $0.291/W in Q3.  Deducting $014 for shipping and warranty we get a blended of $0.277/W.  At 12.8%GM the ASP is thus $0.317/W which is more in line with my estimate for CSIQ Q3 ASP ($0.318/W)

Regarding the cost I speculate that the difference between CSIQ and JKS may have to do with their wafer inventory and switch to 3rd party wafers after the 531 wafer price crash.  A combination of lower wafer inventory at 531 and a stronger and quicker switch to 3rd party wafers after 531 could have boosted CSIQ's Q3 margin stronger than JKS's.

Now assuming JKS hits 25 cts in blended costs in Q4 and GM stays flat as guided (12.8%) that would put ASP at 28.7 cts, resulting in a spread of 3.7 cts/W.  I don't think that will be enough to cover OPEX & NI.  What do you think?

P.D.  As a side note, the Q3 ER marks the third time I've caught them giving wrong margin guidance (aka lying).  During the Q2 con call they said margins would trend above 15% for the rest of the year and voila.  Looks like they don't give a sh*t.  That's why I'm taking the flat margin guidance with a grain of salt, could go a coupla points down.

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4 hours ago, Klothilde said:

This was a bit sloppy based on a simple revenue / total shipments calculation.

Since I suspect the revenue contains some non-module portion that may distort ASP calcs I think it is better to derive the numbers from their cost indication.

They claim cost dropped 10% qoq.  Based on total blended of $0.323/W in Q2 we get $0.291/W in Q3.  Deducting $014 for shipping and warranty we get a blended of $0.277/W.  At 12.8%GM the ASP is thus $0.317/W which is more in line with my estimate for CSIQ Q3 ASP ($0.318/W)

Regarding the cost I speculate that the difference between CSIQ and JKS may have to do with their wafer inventory and switch to 3rd party wafers after the 531 wafer price crash.  A combination of lower wafer inventory at 531 and a stronger and quicker switch to 3rd party wafers after 531 could have boosted CSIQ's Q3 margin stronger than JKS's.

Now assuming JKS hits 25 cts in blended costs in Q4 and GM stays flat as guided (12.8%) that would put ASP at 28.7 cts, resulting in a spread of 3.7 cts/W.  I don't think that will be enough to cover OPEX & NI.  What do you think?

P.D.  As a side note, the Q3 ER marks the third time I've caught them giving wrong margin guidance (aka lying).  During the Q2 con call they said margins would trend above 15% for the rest of the year and voila.  Looks like they don't give a sh*t.  That's why I'm taking the flat margin guidance with a grain of salt, could go a coupla points down.

I am with you on this near term. They have not been hitting margin guidance as of late.  Q3 operationally looks a lot like the prior quarters and Q4 appears to be similar as well. That is they are basically a profitless module manufacturer and are using 1 timers, subsidies and Forex to show profitability.


In Q3
They made $27M in  net income  after an $8.9M tax liablity($35.9M)
They had $33M in CVD and Forex gains. 
They basically made $2.9M before taxes.
Of that  $2.15M comes from other income Net and subsidy and not core operations.
That makes them ~0.8M outside of adjustment or profitless.

 

When projecting forward, Gross might go up slightly but they should have an added $15M for shipment costs offsetting much of that increased gross. To me Q4 looks similar with maybe slightly better income outside of adjustments.

 

As for the bullish response in stock, that is always forward looking 6 to 9 months out. This movement  is more market based on bullish comments. for 2019 How that translates into increase shipments and margins is TBD.

 

They made China demand comments suggesting 55GW to 60GW bsically moving back to 2017 levels. When you add 10 to 15GW China demand to the 4GW from India and third world market growths as well as the EU increases, you could be looking at 25-30GW increase in shipments over 2018. This places demand in the 115-120GW range next year with potential upside. 

 

The negative that I see on this is that they are not doing much in Capex next year and are relying on suppliers. Those comments do not suggest such a large increase in demand. T The reliance on suppliers instead of capacity growth t would suggest it would keep their margins lower with little upside movement.


"2019 we are still budgeting the CapEx next year. It’s going to take very conservative and the prudent approach and we don’t expect significant investment in 2019. Our focus is to work with our strategic supplies to deliver high quality products to our customers."
 

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3 hours ago, SCSolar said:

The negative that I see on this is that they are not doing much in Capex next year and are relying on suppliers. Those comments do not suggest such a large increase in demand. T The reliance on suppliers instead of capacity growth t would suggest it would keep their margins lower with little upside movement.


"2019 we are still budgeting the CapEx next year. It’s going to take very conservative and the prudent approach and we don’t expect significant investment in 2019. Our focus is to work with our strategic supplies to deliver high quality products to our customers."
 

Well currently they are generating very little cash flow, so the cash required for big CAPEX would have to come from further debt.  So maybe they are prudent on CAPEX because they fear getting drawn into a debt spiral like Yingleeee or maybe it was the banks who told them "sorry hon but I just don't see the cash flow to get my money back".  I think the banks have started to tell a few people "sorry hon", e.g. Qu.

Looking at Q3 numbers it looks like they already started playing with working capital to squeeze out the required cash for their CAPEX commitments.  AP up, AR down, inventory down.  I'm definitely getting the vibe that they are starting to get prudent on cash.

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