JinkoSolar Holding Company (JKS) Q4 2020 Earnings Call Transcript

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JinkoSolar Holding Company (NYSE:JKS)
Q4 2020 Earnings Call
Apr 09, 2021, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Corporation Limited’s fourth-quarter 2020 earnings conference call. [Operator instructions] After the management’s prepared remarks, there will be a question-and-answer session. As a reminder, today’s conference call is being recorded. I would now like to turn the meeting over to your host for today’s call to Ms.

Ripple Zhang, JinkoSolar’s investor relations manager. Please proceed, Ripple.

Ripple Zhang — Investor Relation

Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar’s fourth-quarter 2020 earnings conference call. The company’s results were released earlier today and available on the company’s IR website at www.jinkosolar.com, as well as on Newswire Services. We have also provided a supplemental presentation for today’s earnings call which can also be found on the IR website.

On the call today from JinkoSolar are Mr. Li Xiande, chairman of the board of directors and chief executive officer of JinkoSolar Holding Company Limited; Mr. Charlie Cao, chief financial officer of JinkoSolar Holding Company Limited; and Mr. Gener Miao, chief marketing officer of JinkoSolar Company Limited.

Mr. Li will discuss JinkoSolar’s business operations and the company highlights, followed by Mr. Miao who will talk about the sales and marketing, and then Mr. Cao who will go through the financials.

They will all be available to answer your questions during the Q&A session that follows. Please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.

As such, our future results may be materially different from the views expressed today. Further information regarding these and other risks is included in JinkoSolar’s public filings with the Securities and Exchange Commission. JinkoSolar 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 JinkoSolar Holding. Mr. Li will speak in Mandarin and I will translate his comments into English. Please go ahead, Mr.

Li.

Li Xiande — Chief Executive Officer

[Foreign language]

Ripple Zhang — Investor Relation

2020 was a very challenging year for the solar industry, but it kept its momentum for strong growth despite the era being shrouded in uncertainty as we went through the COVID-19 pandemic globally scale. Although demand for solar installation was affected and we experienced the domino effect over the global economic slowdown and went through some of the lowest points, we were still able to recover rapidly after restrictions were eased in major markets. In the second half of 2020, shortages of polysilicon and solar glass, rising shipping costs, and the appreciation of RMB, together with the impact of co — COVID-19, each with significant volatility in the industrial value chain. In a year full of extreme challenges, we continued relentlessly to optimize cost through technical innovation and improved process.

Gross margin in the fourth quarter were within our expectations and both revenues and shipments for the full year recorded significant growth compared with 2019. Meanwhile, our brand and global distribution channels further demonstrated our strong advantages and resilience during market volatility and we were able to actually increase market share and solidify our leading status in the global PV industry. Our solar module shipments during the quarter and for the full-year 2020 both take historical highs. As of the end of 2020, our accumulated module shipments reached 70 gigawatt, making JinkoSolar the world’s largest PV manufacturer.

We expect our shipments to sustain a growth rate of over 30% in 2021.

Li Xiande — Chief Executive Officer

[Foreign language]

Ripple Zhang — Investor Relation

As the global economy continues to face unprecedented impact around the COVID-19 crisis, the solar industry has shown solid resilience against the pandemic and achieved rapid recovery amid positive news and heightened enthusiasm for clean energy. In 2020, the performance of the global solar market exceed expectations with newly added installations worldwide of approximately 134 gigawatt, an increase of 22% year over year compared with 2019. During the pandemic, governments introduced stimulus packages which ushered in a wave of new opportunities for renewable energy to develop across the global industry chain. Economic stimulus often leads to large-scale capital investments.

This investment will most likely determine the direction of the economy — economic recovery now and for decades to come. More than 170 countries in the world have made specific policy objectives to encourage the development of renewable energy, a unified move that has not only boosted the industry but made the move to clean energy solutions unstoppable. For the Chinese market, which accounts for about one-third of the world’s total new PV installations, the pledge to reach the peak of carbon dioxide emissions by 2030 and carbon neutrality by 2060 cover both considerations for energy safety and the economic development by adopting supportive policies and measures in China’s near-term decarbonde — decarbonization plan. In order to switch electricity generation from fossil fuel to renewable energies as the primary source, China has been accelerating the application of new technologies and the reform of the electricity system — system.

Meanwhile, grid parity worldwide has brought rapid development to improve distributed photovoltaic generation and energy storage systems. Following the proliferation of clean energy globally, the solar industry will continue rolling out its ambitious plans and leveraging all opportunities. So we are in for strong growth momentum over the next few years.

Li Xiande — Chief Executive Officer

[Foreign language]

Ripple Zhang — Investor Relation

Since the fourth quarter of 2020, mismatch between supply and demand drove up the price of polysilicon caused by the relatively long capacity expansion circle for polysilicon production and volatile short-term market sentiment. At the same time, with the price increases of bulk commodities, higher production costs were passed down the industrial value chain which resulted in significant price increases in modules. In response, some investors in solar power generation have accepted lower yields. However, prices in each upstream and downstream segment continued to fluctuate, and we predict, will do so into the second quarter of this year.

Since installations are still likely to increase and the supply is sufficient in most segments of the supply chain, we anticipate that demand for modules will revive once market prices stabilized. While there are still supply shortages, there is enough polysilicon to support over 180 gigawatt for module production. This will help balance demand with supply in the year. We remain optimistic about global installation levels in 2021.

Li Xiande — Chief Executive Officer

[Foreign language]

Ripple Zhang — Investor Relation

The continuous volatility in the industrial value chain further highlighted the resilience to risk of integrated manufacturers. Meanwhile, economic uncertainties continue to concentrate key players and heightened competition for survival of the fittest and rewarded highly adaptive companies to gain more market share. We closely monitor the market trends, adjust it with flexibility each link over the production process and to continuously optimize our supply chain management throughout our network and partners. Firstly, we signed long-term agreements with material suppliers to secure the steady supply of core materials.

Secondly, we continued to build symbiotic partnership along upstream and downstream to share resources, especially for segments with more severe supply shortages, and actively established practice forming an industrial ecosystem. In addition, we maintained flexible tracking and the storage of alternative technologies and materials to minimize market risk caused by supply chain volatility.

Li Xiande — Chief Executive Officer

[Foreign language]

Ripple Zhang — Investor Relation

As the solar industry enters the era of grid parity around the globe, JinkoSolar continues to expand successfully with more business scenarios and business models, leveraging our brand-reach location, built on years of global marketing and excellent service. We have established the dense foothold to build specific, standardized, and industrialized energy storage development models in eight major regions worldwide. At present, we have shipped our energy storage products to — to the Middle East and Africa and it will launch products specially designed for the U.S. and Japanese markets in the second half of 2021.

Meanwhile, our business in the global distribution market is showing a rapid upward trend and our products for BIPV systems have been installed in a number of commercial real estate projects in China. JinkoSolar’s renowned brand and expert teams continue to drive the successful execution of our business from stable supplies of global customers to localized after-sales services with a guarantee to the reliability and the consistency of our products and services.

Li Xiande — Chief Executive Officer

[Foreign language]

Ripple Zhang — Investor Relation

JinkoSolar is committed to promoting the acceleration of carbon-neutrality through product innovation and operating excellence. Over the next one or two years, our technical goal is to reach the highest in volatility efficiency of 25.5% for the N-Type monocrystalline silicon solar cells and 29% for the multi-junction solar cells. So far, our new-generation Tiger Pro flagship products have accumulated orders of over 10-gigawatt. Tiger Pro provides the best match between the maturity of the industry and high-efficiency, large-area products.

We expect the Tiger Pro series to account for 40% to 50% of our total shipments this year. In addition, we will continue to leverage our leading technical innovation capabilities to promote the development of safe and highly efficient energy systems in response to the increasing demand of this space. We have been actively deploying solutions for the solar+ plus industries such as technical storage for photovoltaic hydrogen — hydrogen production and integrated PV storage smart systems.

Li Xiande — Chief Executive Officer

[Foreign language]

Ripple Zhang — Investor Relation

We remain bullish on mid to long-term growth of the solar market space and continue to invest in new production capacity with technical and cost competitiveness. Taking into consideration multiple factors like technical maturity and stability to meet increasing downstream demands for high-efficiency products. We expect our in-house annual production capacity of monosilicon wafers, high-efficiency solar cells, and modules to reach 33, 27, and 37 gigawatts, respectively, by the end of 2021. We expect the proportion of our in-house production capabilities to reach over 75% in 2021 which will enable us to become even more resilient to risks and continue the volatility of the supply chain and technical upgrades.

This long-term investment in our business will help to optimize operational efficiency and increase profitability.

Li Xiande — Chief Executive Officer

[Foreign language]

Ripple Zhang — Investor Relation

Before turning over to Gener, I would like to go over our guidance. We expect to total solar module shipments to be in the range of 4.5 gigawatts to 5 gigawatts for the first quarter of 2021. Total revenue for the first quarter is expected to be in the range of $1.18 billion to $1.3 billion. Gross margin for the first quarter is expected to be in the range of 12% to 15%.

Based on current estimate, the full 2021 shipments, including — including wafer cells and modules to be in the range of 25 gigawatts to 30 gigawatts.

Gener Miao — Chief Marketing Officer

Thank you, Mr. Li. In the fourth quarter of 2020, total shipments of solar modules reached 5.8 gigawatts. And for the full year of 2020, total annual shipments were 18.8 gigawatts.

Even so, supply and demand remains volatile, we were still able to reach our shipment targets for the full year 2020. Our modules were shipped to nearly 160 countries and regions in the world. As our overseas markets remain our main shipment destinations with the Asia Pacific, U.S., and Europe accounting for the major portion. Shipments in Asia Pacific achieved a significant growth of over 60% in 2020.

During the fourth quarter, we strategically increased the portion of shipments to emerging markets in order to capture growth opportunities as the — these economies gradually recover from the pandemic. Our well-recognized solar brand’s global network of localized, real-time customer service, quality products, and advanced technology were major assets that help to mitigate risks and increase our global market share in 2020. Shipments of high-efficiency monocrystalline products increased significantly from 74% in 2019 to nearly 100% in 2020. In May 2020, we launched a new generation of flagship products for the Tiger Pro series, leading the industry to fully enter the era of ultra-high power efficiency above 500W peak.

As technology innovation continues to accelerate product’s integrations, we estimate that shipments of Tiger Pro modules will reach 40% to 50% of total shipments in 2021, which will great — greatly reduce the LCOE for the customers under the same conditions. Recently, we launched a new ultra-high-efficiency Tiger Pro product specially designed for distributed DG Market and well-suited for a wide range of distributed scenarios including industrial and commercial rooftops and residential rooftops. In the future, we will continue to launch premium PV products and diversified solutions and continue to expand our brand influence in the field of distributed generation segments. In the recent price hikes, along the supply chain caused a correlated increase in module prices and pressured the downstream installations demand.

However, we believe the short-term price rise will have a relatively limited impact on the demand following China’s pledge to achieve peak carbon emission by 2030 and carbon-neutrality by 2050 state-owned interim prices were assigned a mandatory target for renewable energy installations. According to client feedback, several major Chinese SOE investors have already lowered use target for the power generation projects, bringing strong installation expectations for the downstream market. We believe that newly added — newly added PV installations will sustain significant growth momentum in 2021. In the mid to long term, global transition to clean energy will become irresistible as more and more countries’ large policy and goal to cut carbon emissions, demand-side incentives are expected to partially offset cost pressure.

The solar industry will continue its strong growth momentum. Next, I will detail reach — I will detail each region’s market trends. In China, 2021 is the first year of the 14th five-year plan and it is also the first year for the solar industry, except to the residential sector, to enter into the era of grid parity without subsidies. In one aspect, according to the new 2021 policy draft, projects should be won through bidding.

Otherwise, new installations would be approved as a result of the reductions of subsidies on existing projects. This will lead to lower-price projects going forward and increased solar generation capacity will further drive down the costs of solar power. Furthermore, because of delayed projects not connected to the grid by June 30 will lose subsidies. This will account for the most of the connections to the grid this year.

Including residential projects with 10 gigawatts, the Chinese market is expected to achieve a growth rate of 25% year over year and new installation reaching 55-gigawatt level in 2021. Average annual installations during the 14th five-year plan is expected to reach 70 to 90 gigawatts. According to the latest report of Bloomberg New Energy Finance, new solar installation capacity in the U.S. reached a record high of 16.5 gigawatts in 2020.

The solar industry showed a tenacious volatility in the midst of the pandemic’s doomed and gloomy atmosphere and economic contraction. President Biden has announced that the U.S. will rejoin the Paris Agreement and that the House of Representatives has reintroduced as GREEN Act, a critical bill that includes a five-year extension of solar investment tax credit. The economic recovery policy in the post-COVID era and accelerating decarbonization of the U.S.

energy system will further enhance the attractiveness of solar power and energy efficiency. In 2021, newly added solar installations are expected to exceed 20 gigawatts for the first time. Compared with other renewable energy sources, the price of solar power in the U.S. is very competitive and that market competition is more rational because of this unique supply demand relationship and market entry route.

We are confident about maintaining our leading position in U.S. market with our stable supply capacity — capability, excellent customer service, and high-quality product advantage. In 2020, our shipments in Asia Pacific market reached a historical high with — with Vietnam contributing the largest growth in the shipments. Affected by expiration of old FIT projects, Japan and Russia to install a large number of projects in September 2020.

As the economic advantage of rooftop projects continue to grow in Japan, rooftop solar power generation is expected to replace utility-scale projects and becomes the main source of the newly added power generation capacity for the country. Affected by some adverse factors including the pandemic and excessively high electricity costs, new installation in India experienced a decline. However, it is worth mentioning that the Ministry of New and Renewable Energy will impose a tariff of 40% and 25% solar modules and cells respectively in — from April 22. This move is expected to stimulate — stimulate a new round of installation rush before the deadline.

Demand in other markets in the region such as Australia is expected to remain stable. According to the European market outlook for solar power, 2020 to 2024 published by SolarPower Europe, the European market reached 18.7 gigawatts of newly installed solar power producing a double-digit growth of 11% in 2020, the highest growth rate since 2011. In terms of market performance, the new — Renewable Energy Sources Act will benefit the investment of rooftop installation in Germany. The law established a leader in solar generation and residential energy storage is expected to become another emerging growth driver.

The spotlight was on Spain in 2020 as the country led Europe’s subsidy-free market growth. And it became the third-largest solar marketing in Europe. In January 2021, Spain awarded a total of over 3 gigawatts of solar and wind power capacity and the first of the renewable energy auction, published in 2017, with the lowest LCOE for solar at $1.8 per kilowatt-hour. In addition, the solar market in the Netherlands, Poland, and France all maintained solid momentum.

We remain bullish on the long-term developments of the European market. Most countries in emerging markets like Latin America and the Middle East are actively promoting solar power projects. Applications for solar power generation have been extensive and — extensive and a major driving force for solar power development in emerging markets. Brazil’s state-owned energy research office recently announced that it has registered a total of nearly 67 gigawatts of renewable energy projects for auction in June this year, including 1,950 solar projects with a total capacity of over 41 gigawatts.

Dubai supreme — Supreme Council of Energy recently announced a significant increase in renewable energy share of Dubai’s total energy mix. Following a strong recovery from the severe impact of the pandemic, emerging markets are expected to become a powerful contributor to the development of the global PV industry. We see solar generation becoming widely popular in more and more countries. And the growth of the global solar market will no longer rely on single or dominant — dominant markets like the U.S., Europe, or India, and will continue to diversify.

The generate — general trend of global cleaning — clean energy transition will open up a new growth cycle for solar plus energy storage projects to achieve cost-effective integration of flexible resources in the smart distribution grid. At present, we have developed diversified solutions for our residential, C&I, and utility customers in our major markets around the world. We will cooperate with leading companies in the energy storage supply chain to accelerate deployment to the entire energy storage business channel. Recently, we won Overall High Achievers Award in the 2020 Photovoltaic Module Index Report published by the Renewable Energy Test Center.

Our high performance across three essential indicator categories: reliability, performance, and quality, demonstrated our commitment to product excel us. As the world’s first global solar manufacturer who joined RE100, JinkoSolar was the first company in the industry to sign that global framework of principles for the carbon-decarbonizing heavy industry. In 2021, we will strengthen our distribution channels, expand our network of value-added customer service, and bring greater value to our global customers with high-quality reliable modules and premium service. With that, I will turn it over to Charlie.

Charlie Cao — Chief Financial Officer

Thank you, Gener. In the fourth quarter, driving costs of raw materials and the shipping costs combined with RMB appreciation, put pressure on our profitabilities. The gross margin was 16% or 14.3% excluding the reversal benefit of AD/CVD. In line with similar guidance, our long-term competitive advantage in branding and distribution channels and demand for our high increasing products and customer services have helped to partially offset the pressures from upstream price volatility.

As costs along the supply chain stabilize, our highly efficient product — production capacity and better integrating will continue to give us a competitive edge in the industry. Let’s go into more details about a quarter now. Total revenue was $1.4 billion, a decrease of 1.1% year over year. The gross margin was 16%, compared to 17% in the third quarter of 2020, and 18.2% in the fourth quarter of 2019.

Excluding the AD/CVD reversal benefits, the gross margin was 14.3% in line with our previous guidance. Total operating expenses in Q4 were $220 million, an increase of 51% sequentially, and an increase of over 26% year over year. The sequential and year-over-year increase was managed treatable — attributable to an increasing disposable and income losses and increments as a result of our companies upgrade of production lines. Total operating expenses accounted for 15% of our total revenues in the fourth quarter of 2020, compared to 10.8% in the third quarter of 2020, and 11.9% in the fourth quarter of 2019.

The operating margin was 0.8% in Q4, compared to 6.2% in Q3, and 6.2% in Q4 last year. EBITDA as $100 million, compared to $148.4 million in the third quarter. Non-GAAP net income was $5.1 million, a decrease of 92% year over year, which translates into non-GAAP diluted earnings per ADS of $0.11. Taking into account the loss from the change in fair value of convertible senior notes and call option due to the sharp increase in the stock price of the company in Q4, GAAP net loss was $57 million.

I’ll brief you on our FY 2020 financial results. 2020 was dramatically stronger compared with 2019. Total solar module shipments were 18.8 gigawatts, up 31% year over year. Total revenues were $5.4 billion, up 18% year over year.

Benefited from increasing shipment of solar modules and production volumes of our integrated high increasing capacity as well as cost reduction from the company’s industry-leading integrated cost structures, gross profits for the full year was $945 million, an increase of 13.6% year over year. The gross margin was 17.6%, compared to 18.3% in 2019. Excluding the AD/CVD reversal benefit, the gross margin was 17% flat with 2019. The operating margin for the full year 2020 was 5.1%, compared to 5.8% for the full year 2019.

Operating expenses were 12.5% of total revenues in 2020, flat with 2019. The EBITDA was $463 million, compared to $376 million in 2019. Net debt to EBITDA ratio was 3.4 times. Non-GAAP net income was $147 million, compared to $139 million in 2019.

This translates into non-GAAP basic and diluted earnings for eight years of $3.02. Moving to the balance sheet. At the end of the fourth quarter, our balance of cash and cash equivalents was $1.2 billion, compared to $943 million by the end of the third quarter, and our cash flow levels significantly improved. The AR turnover days include 250 days, compared to 61 days in Q3.

Inventory turnover days were 97 days flat with the quarter. Total debt was $2.8 billion, compared to $2.5 billion at the end of the third quarter, and $1.9 billion by the end of last year, in which $115 million was related to international solar projects. Net debt was $1.5 billion, compared to $1.59 billion for the third quarter, and $1 billion by the end of last year. In September 2020, we announced our plan to let our principal operating subsidiaries Jiangxi Jinko as the start of mar — market in China.

By the end of October 2020, Jiangxi Jinko completed an equity financing of RMB 3.1 million. This process is cruising and progressing smoothly. This concludes our prepared — prepared remarks. We’re now happy to take your questions.

Operator, please proceed.

Questions & Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin our question-and-answer session. [Operator instructions] Your first question is from Philip Shen who’s from ROTH Capital Partners. Your line is now open, Philip.

Please go ahead.

Philip Shen — Roth Capital — Analyst

Hi, everyone. Thank you for taking my questions. With Q1 over now, can you talk about what you see for pricing in Q2 as well as shipments and margins? I know you have not provided official guidance but any color on the Q2 outlook would be very helpful. Thanks.

Charlie Cao — Chief Financial Officer

Hey, Philip. The pricing, from the pricing perspective, you know, the input costs continued to be relatively high, given particularly the polysilicon, you know, the supply bottlenecks. And we are seeing, you know, the rebalance, you know, negotiations with our customers. And the — the module price, glo — globally including China, I think in a trend to — to go up, you know, to absorb, to reflect to, you know, the input costs impact.

So you know, we– we didn’t give the guidance of the second quarter, but I think, you know, overall, you know, the gross margin to be relatively stable. So after the first half of the year, we think — we are, you know, expecting some positive factors like, you know, the solar glasses prices, you know, the — the market prices down, the RMB, you know, they are depreciating, you know. It looks like, you know, it’s positive and off — to be off — to offset some input cost pressure, specifically the polysilicon impact. But I think it’s a little bit, you know, impact on the global demand from a module perspective because of the high input costs.

And I think most of the Tier 1 companies like to balance the shipments versus the – you know, the module shipments versus the high input cost. And so I think the shipments, we are not expecting the German company for the second quarter. And quarter by quarter, shipments will have significant increase.

Philip Shen — Roth Capital — Analyst

OK. Thanks, Charlie. So — and then —

Gener Miao — Chief Marketing Officer

Yeah. So I think — Philip, this is Gener. So yeah, so regarding the shipment, I think you might have noticed that our disclosure of the shipment targets includes a total shipment instead of module-only shipment, reflecting our strategic flexibilities because, right now, we see the unbalance of the demand and supply from upper street to down street right now. So that’s why, like Charlie was trying to say, we — our shipment targets are still in line with what we planned, but we are keeping some flexibility between wafer, cell, and modules in order to mitigate the market risk and try to optimize our margins.

Philip Shen — Roth Capital — Analyst

Thanks, Gener. I did notice that in — I was wondering if you could share a little bit more on that, Gener, specifically, how much wafer-only sales or cell-only sales could we see so that we can get to a more accurate module-only or module shipments in ’21? Thanks.

Gener Miao — Chief Marketing Officer

We don’t have that number yet because we are keeping that flexibilities to make sure that we can adapt our strategy to the current polysilicon price hike. That’s why we keep that as a flexible part. But in general, we are still taking module as our main business, but partially of our shipments will be wafer or cell. It depends on the margin, on the spot market.

Philip Shen — Roth Capital — Analyst

OK. Thanks. One other question for me. You guys added, I think, 16 gigawatts or plan to upsell capacity by the end of this year.

Can you give us a little more color on that strategy around the capacity expansion and the focus on why you’re investing so much in cell? And then help us with the capex for 2020 total and then what you expect it to be in ’21. And how much do you expect that to be from partner contributions in terms of the capex? Thanks.

Charlie Cao — Chief Financial Officer

The capex in 2021 is in our range of USD 1 billion to USD 1.2 billion, reflecting our investment on the — dramatically on the solar cell, as well as the wafer stakes. And for the strategy of solar cell, it’s reflecting our – you know, in a couple – you know, in recent two or three years, we didn’t increase our solar cell capacities because we think the technology is not so mature in the last two or three years. And now, the market is shifting to bigger-size, highly efficient, and N-type solar cell technology, and we believe it’s a time to increase our solar cell capacity and increase our integration levels. And that is why we increased a little bit more on the solar cell capacity in 2021.

Philip Shen — Roth Capital — Analyst

Great. And the 2020 capex, Charlie?

Charlie Cao — Chief Financial Officer

2020, I didn’t have the exact number, but I think it’s roughly USD 5 billion. Or sorry, it’s USD 500 million.

Philip Shen — Roth Capital — Analyst

OK. Great. Thank you. I’ll pass it on.

Charlie Cao — Chief Financial Officer

Thank you, Philip.

Operator

Thank you. [Operator instructions] Your next question is from Brian, who’s from Goldman Sachs. Your line is now open, Brian. Please go ahead.

Unknown speaker — Goldman Sachs — Analyst

Hi, guys. Thank you for the question. I have a couple of questions for —

Charlie Cao — Chief Financial Officer

Hello?

Unknown speaker — Goldman Sachs — Analyst

Hi. Can you hear me?

Charlie Cao — Chief Financial Officer

Yeah. Your voice is breaking, right? So –-

Unknown speaker — Goldman Sachs — Analyst

Is it better now?

Charlie Cao — Chief Financial Officer

Yeah, yeah. It’s better. Please go ahead.

Unknown speaker — Goldman Sachs — Analyst

Yeah. Thank you for the question. This is Grace on for Brian. I have a couple of questions for you.

Just wonder how far then are you booked for modules. And is there a flexibility in pricing? Or were you not able to raise pricing until like the second half of 2021? Thanks.

Gener Miao — Chief Marketing Officer

Thank you for the question. I think for the module price, one side, we have a firm commitment for the contract we signed. But also, we always keep a portion of our capacities to the spot market to adapt ourselves to the volatile market changes. So for the contract signed part, we are doing our best to respect the contract, legal commitment.

But since we have a long-term partnership with many customers for years, so we are still talking to many of them, try to get their, let’s say, help and flexibilities to work together to face the current challenges in the market. So that’s on progress. Did that answer your question?

Unknown speaker — Goldman Sachs — Analyst

Yeah, yeah. Thank you. And how far then are you booked for the module for 2021?

Gener Miao — Chief Marketing Officer

I think the order — our order book are more than half booked. But still, we are –some of them are with a firm commitment. Some of them are with flexibilities, with framework contract only. So yeah.

Unknown speaker — Goldman Sachs — Analyst

OK. Great. Thanks for that color. I guess my second question is now that there are more details around the China 14th five-year plan, you talked about expectations for like 55 to 65 gigawatts.

So I just wonder, how are you thinking about the demand picture here, like in terms of like what could drive upside or downside?

Gener Miao — Chief Marketing Officer

Sorry, can you repeat — what’s the upside and downside for what?

Unknown speaker — Goldman Sachs — Analyst

For China demand, what could drive like upside or downside.

Gener Miao — Chief Marketing Officer

OK. Yeah. So I think right now, in short term, we did face some challenges because of the unbalance of the growth of the capacities, like our pre-March earnings speech. The growth of upper stream capacity is much slower than the expansion of the downstream demand, so there’s — it’s caused a short-term turbulence and volatile market situations right now.

But in long term, we are still a believer for the long-term growth of the market, including China market and other markets as well, because we see a very ambitious target announced by China government. And we have accepted a very clear signal from our downstream customers about the ambitions of pipelines in China. So the current challenge is the short-term market unbalance, the supply and demand, happen in upper stream. But we expect that it could be resolved in the next, I’d say, midterm, short-term or midterm, because the China, let’s say, China grid parity projects always got a long time to — after the PPA signed to get grid connections.

So I think, yeah, the market will adapt itself based on the market principles. And the China market, together with the global market demand, will continue to be very strong and at high-speed growth.

Unknown speaker — Goldman Sachs — Analyst

OK. Thanks for the color. And if I can sneak in one more. I just wonder how should we think about like the opex in 202.

Should we think about, like as a percentage of sale, like around 12% to 11%? And how should we think about the gross margin in the second half of ’21 versus the first half?

Charlie Cao — Chief Financial Officer

You know, the gross margin — and we are expecting some more competitions among Tier 1 companies. And the bottleneck is still material. So we are expecting the second half-year with more debottleneck for the materials. And the costs are expecting to be improved compared to the first half-year.

And we have more possibilities with the integration-level increase, with the debottleneck of the key materials, and to improve our gross margin in the second half-year.

Unknown speaker — Goldman Sachs — Analyst

OK. Thanks. And –

Operator

Pardon the interruption, Grace. Are you still there? We lost you for a minute there.

Unknown speaker — Goldman Sachs — Analyst

Yeah, yeah. Thanks for the color. And the opex, how should we think about the opex? Is it — do you expect still around a return to like a normal — kind of like normal range like 11% to 12% of the sales, net sales?

Charlie Cao — Chief Financial Officer

Yes, it’s still in that range, 11% to 12%, against the total revenue.

Unknown speaker — Goldman Sachs — Analyst

OK. Thanks. I’ll pass it on.

Gener Miao — Chief Marketing Officer

Thank you.

Operator

Thank you. Your next question is from Philip, who has a follow-up question, who’s from ROTH Capital Partners. Please go ahead.

Philip Shen — Roth Capital — Analyst

Hi, everyone. Thank you for taking my follow-ups. One of the questions I had was around polysilicon. And given where pricing is and the dynamic there, pricing continued to go higher.

I was wondering if you could share how much polysilicon you’ve secured for 2021, possibly in metric tons.

Gener Miao — Chief Marketing Officer

So, Phil, I think from the supply side, we have secured enough polysilicon supply. But the challenge is, because of this market situation, all those secured polysilicon supply is always up to the market condition. So that’s a big pressure — or is a big challenge for everyone. But currently, it’s extremely — almost mission impossible to secure a long-term polysilicon pricing.

So we secured the volume. I think it’s enough. But from the pricing-wise, it’s still always up to the market.

Philip Shen — Roth Capital — Analyst

And what’s your view, Gener, as to when that pricing can become released? I think Tongwei has some capacity coming online at the end of this year. Do you think we have to wait until Q4? Or is there — and if we get relief before that, what causes that relief?

Gener Miao — Chief Marketing Officer

We think it will release step by step. It won’t change overnight. But gradually, I think that the pressure will be released. The challenge here right now is the demand side is very, very hot right now.

So that’s why the upper stream is always holding their expectations. It’s — the demand will support the price. So it will — in short term, we are still expecting a volatile market up and down. But in the long run, like you said, the pressure will release step by step and follow the market principles.

Philip Shen — Roth Capital — Analyst

OK. And then as it relates to Q2 shipments, we talked about this earlier, Gener, but when I look at Q1 relative to what we forecasted, the Q1 levels are — what you guided to were lower. For Q2, should we expect something similar, meaning is — if you think back to what you expected to do in Q2, back at the end of last year, is — do you expect the shipments to be lower in Q2 now versus then because the raw material outlook is so challenging? And as a result, you know, your customers and you are pushing out orders. So are you — do you expect to build less in Q2 than you previously had imagined?

Gener Miao — Chief Marketing Officer

I think, Phil, the principle we are holding in the company is to keeping the module capacity more flexible than others, right? So our wafer and the cells are in the full rent. And for the module side, we are holding more flexibilities up to the — what we say, right, the margins, and the market conditions. That’s why, you know, the shipment contains all three segments we have. So I think we will hold the same principle for Q2 as well.

So number-wise, I don’t think it’s the right time to talk about it and maybe we can talk about it next time.

Philip Shen — Roth Capital — Analyst

OK. All right. I appreciate that. And then in terms of the China listing, Charlie, I know you mentioned some details on that.

I was wondering if you could share — if there’s — what’s the potential for the China listing to be in Q3 or 4 of this year? Is it meaningful? Or is it more likely in the early part of ’21 — sorry, ’22. I know you guys have talked about perhaps taking a two-year process. But I wanted to see if the others are going this year, like Daqo and then I think Canadian Solar is — has a chance of getting out there this year. I’m thinking you guys have a chance to get there this year as well China listing but wanted to get some color from you guys.

Thanks.

Charlie Cao — Chief Financial Officer

OK. For the China listing, we have a separate team working on this process. It’s more complicated compared to the U.S. listing.

And the process is –, you know, it’s on track, and everything is very smooth. And we’re expecting to reach some significant milestone, and in — in the next couple of months, and we will keep the market in progress. And in terms of timetable, you know, how long we will get to the China listing dock, it’s really out of — a lot of process is out of the company’s control. And particularly from the — you know, typically, these are a couple of rounds of submission and, you know, response different, you know, comments from the regulators, and the regulators they have — they have, you know, different, you know, tendencies to control the total volume of China listings.

So it’s — you know, from a company perspective, we try to drive the process, you know, more as quick as possible and the more efficiently. But some of the process, it’s depending on — from the government regulator’s perspective.

Philip Shen — Roth Capital — Analyst

OK. Thanks very much for the follow-up questions. I’ll pass it on.

Gener Miao — Chief Marketing Officer

Thank you, Phil.

Operator

Thank you. Our next question is from Johnny Chen, who’s from Green Court Capital. Your line is now open, Johnny. Please go ahead.

Johnny Chen — Green Court Capital — Analyst

Yeah. Hi, everyone. Can you hear me?

Gener Miao — Chief Marketing Officer

Yes.

Johnny Chen — Green Court Capital — Analyst

Hi, everyone.

Gener Miao — Chief Marketing Officer

Hello.

Johnny Chen — Green Court Capital — Analyst

Thank you for taking my questions. And I have two questions for you. So firstly, we know that the company has been developing untapped solar cell technology, especially in TOPCon. So would you please elaborate it — elaborate a little more on the, you know, the capacity plan and the efficiency and the success rate? And my second question is that is there — is there any possibility that the company develop another N-type technology we call HJT.

Thank you.

Charlie Cao — Chief Financial Officer

OK. We build up our R&D capabilities on N-type a couple of years. And I think 2019 — starting from 2019, we have built around 800 megawatts of TOPCon-based, you know, capacities. The efficiencies have been reached to roughly 24%.

And now this year, we are building more capacity on the solar cell capacities. And the, you know, t capacity is large size-based solar cell capacity, as well as, we have flexibility to upgrade, you know, or to quickly upgrade to the, you know, you know, the TOPCon-based technology or [Inaudible]. And in terms of HJT, you know, we still believe, you know, it’s not cost per [Inaudible] at this stage. And we have the, you know, R&D and the technology available, and we continue to watch out the maturities, particularly, from the equipment perspective, the raw material perspective.

So we don’t have a plan to roll out the large-sized capacity on HJT in addition, you know, one or two years.

Johnny Chen — Green Court Capital — Analyst

Thank you. Thank you. I have a follow-up. Would you please — I want to make sure that I hear — heard you right.

So, what is your capacity expansion plan for TOPCon again this year in 2021?

Charlie Cao — Chief Financial Officer

Well, 2021, we did have a plan to increase our TOPCon capacity. Just to emphasize, the new capacity — older capacity were very, you know, easy and convertible, and we have flexibility. And, of course, there is available room to upgrade to the TOPCon immediately.

Johnny Chen — Green Court Capital — Analyst

Yeah. So, so the capacity expansion is based on the [Inaudible] technology, right?

Charlie Cao — Chief Financial Officer

Yes, right [Inaudible]. Yeah.

Johnny Chen — Green Court Capital — Analyst

Yeah. Thank you. Thank you. That’s all for me.

Gener Miao — Chief Marketing Officer

Thank you.

Operator

Thank you. Your next question is from Kim Pao who’s from ROCIM. Your line is now open, Kim. Please go ahead.

Kim Pao — ROCIM — Analyst

Hi. Can you hear me? Hello?

Gener Miao — Chief Marketing Officer

Yeah.

Kim Pao — ROCIM — Analyst

Hi. Thank you for taking my call. I have a couple of questions. One is, you mentioned in your opening remarks that SOEs are willing to accept now lower-than-normal returns with the new — with the new solar farm projects.

Can you give us a little bit more color on that? Like what kind of returns they’re willing to accept now? And second, I wanted — my second question, I want to ask a little bit more about your view as to the current supply demand situation of polysilicon materials and when do we think we would see a return to normal pricing for polysilicon? And also, at what level, currently, if you were to maintain a margin from — from your end of, let’s say, 2020’s normal operating margin? What kind — what kind of polysilicon price would you need to actually get there?

Gener Miao — Chief Marketing Officer

Thank you. So regarding your question about Chinese SOEs IR expectations. Actually, I think that there are a lot of Chinese SOE IPPs, who has set up a very ambitious renewable targets for this new five-year plan. And according to what we have heard from the market, I think, their IR expectations has been lowered from previously around 8% to 10% to right now around 6% to 8%.

So I think that’s a very big, let’s say, jump or, let’s say, a big decline in order to pump up more renewable projects in renewable sector, which gives a lot of hopes and ambitious targets for the whole industry, especially in China. Regarding your second question about supply demand relationship, especially for polysilicon, I think I — in the previous question to Phil, we have provided our views that for the polysilicon, you know, we speak for ourselves, the attention of the polysilicon supply is mainly driven by the unbalanced growth or expansions between upstream and downstream because the ramping-up phase for the upper stream is much, much lower than downstream. That’s mainly the reason. And for the price range or how much when it will goes back to so-called, let’s say, 2020 level, it just depends on the supply and demand relationship, as well.

So that’s why we see, in short term, our view is the volatile upper stream, the volatile market driven by the shortage of the polysilicon or the upper stream material will continue in the short term. But in mid and long term, we deeply believe the market principles, which will automatically balance between the supply demand across the different sector in this industry. And we believe, in long run, renewable is still a very promising industry. Hopefully, that answers your question.

Kim Pao — ROCIM — Analyst

Can I have a follow-up?

Gener Miao — Chief Marketing Officer

Sure.

Kim Pao — ROCIM — Analyst

Hello? Hello? Hello?

Gener Miao — Chief Marketing Officer

Yes. Go ahead.

Kim Pao — ROCIM — Analyst

OK. I’m just thinking, so like in terms of time, the — given the fact that there is not that much new supply for polysilicon coming on stream until toward the end of the year, do you think we should be able to reach some — when you say mid to long term, do you think we should be able to reach a more reasonable polysilicon price and margin levels for us as a result toward the end of the year?

Gener Miao — Chief Marketing Officer

Well, , you know, firstly, about the polysilicon, I think there are capacities starting wrapping up, and the new capacity start to release the polysilicon materials to the market. It’s just, you know, a step by step, it won’t be — it won’t happen overnight. So I think you can look into, you know, the main polysilicon manufacturers are ramping up plan. I think that there’s a lot of public information available.

And then regarding your margins question, I think the margins will follow the market principle as well, right? So it will goes up and down. For example, recently, the solar glass price has dropped significantly, which helps the module makers more or less, let’s say, ease the pressure from the upper stream a little bit. So it happens. It just that we prefer to look into this industry in the mid or long-term instead of one month or two.

Kim Pao — ROCIM — Analyst

Thank you.

Gener Miao — Chief Marketing Officer

Thank you.

Operator

[Operator signoff]

Duration: 74 minutes

Call participants:

Ripple Zhang — Investor Relation

Li Xiande — Chief Executive Officer

Gener Miao — Chief Marketing Officer

Charlie Cao — Chief Financial Officer

Philip Shen — Roth Capital — Analyst

Unknown speaker — Goldman Sachs — Analyst

Johnny Chen — Green Court Capital — Analyst

Kim Pao — ROCIM — Analyst

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