JinkoSolar Announces Second Quarter 2021 Financial Results

JinkoSolar Holding Co., Ltd. announced its unaudited financial results for the second quarter ended June 30, 2021.

Second Quarter 2021 Business Highlights

As the price of polysilicon rose rapidly in the second quarter, and there was a certain time gap in the transmission of price increases from upstream to downstream in the industry chain, we quickly increased the external sales of silicon wafers, and proactively lowered the production volume of solar modules.
Over 7GW of new cell capacity was put into production in the second quarter to support the rapidly growing demand for large-size products.
We signed strategic logistic cooperation agreement with Maersk and China COSCO Shipping Corporation to support steady growth in global sales.
We are optimistic about the global demand in the second half of 2021 and in 2022, and will accelerate our market expansion in China.

Second Quarter 2021 Operational and Financial Highlights

Quarterly shipments were 5,203 MW (3,976MW for solar modules, 1,227 MW for cells and wafers), total shipments down 2.8% sequentially, and up 16.4% year over year.
Total revenues were RMB7.93 billion (US$1.23 billion), down 0.2% sequentially and down 6.2% year over year.
Gross profit was RMB1.36 billion (US$210.5 million), up 0.1% sequentially and down 10.2% year over year.
Gross margin was 17.1%, compared with 17.1% in Q1 2021 and 17.9% in Q2 2020.
Net income was RMB66.2 million (US$10.3 million), down 79.2% year over year. Mainly because of the impacts of convertible senior notes.
Non-GAAP net income was RMB274.7 million (US$42.5million), up 457.4% sequentially and down 27.0% year over year.
Basic and diluted earnings per share were RMB0.35 (US$0.05) and RMB0.35 (US$0.05), respectively. Basic and diluted earnings per ADS were RMB1.39 (US$0.22) and RMB1.38 (US$0.21), respectively.
Non-GAAP basic and diluted earnings per share were RMB1.44 (US$0.22) and RMB1.44 (US$0.22), respectively. Non-GAAP basic and diluted earnings per ADS were RMB5.76 (US$0.89) and RMB5.75 (US$0.89), respectively.

Mr. Xiande Li, JinkoSolar's Chairman of the Board of Directors and Chief Executive Officer, commented, "We are very pleased to have delivered revenue of US$1.23 billion, and gross margin of 17.1%, as well as a significant increase in Non-GAAP net profit quarter-over-quarter, despite very challenging market conditions. As prices along the supply chain remain high, but relatively stable, we see overall acceptance of price increases continuing well into the second half of the year. Demand for modules is gradually resuming, and our module production volume increased remarkably month-over-month in the third quarter.

We are taking initiatives to strengthen our business for the long-term and increase the reliability of our services to the U.S market. So far, we have formed a few strategic co-operations such as a joint investment with Tongwei Co., Ltd. in a high-purity crystalline silicon project with annual capacity of 45,000 metric tons, an investment in Inner Mongolia Xinte Silicon Materials Co., Ltd., and we have signed a strategic five-year polysilicon supply agreement with Wacker Chemie AG. Wacker will supply polysilicon to JinkoSolar from its production sites in Germany and the United States. Meanwhile, our overseas wafer manufacturing facility started construction in August and will serve our production facilities in Malaysia and the United States when production ramps up. We further improved our traceability system for procurement and production.

Over 7GW of newly-added capacity of large-size cells was put into production during the second quarter to support the rapid growth in demand for large-size products. We are also expanding our investment plan for N-type cell capacity based on our technical advantages and two years of mass production experience.

We expect the proportion of our large-size product shipments to increase rapidly to approximately 50% of total shipments in the second half of this year. In addition, the uptake of the distributed generation businesses achieved rapid development with more flexible business models and lower sensitivity to prices. In response to this trend, we have also raised the proportion of shipments in relation to distributed generation projects for the full year to around 40%, compared with 20%-25% last year, in order to meet the needs of customers facing different distributed application scenarios.

We expect the second half of 2021 through 2022 to be a big moment for solar installations, and we believe we will grow even faster than the industry average and further increase our market shares."

Second Quarter 2021 Financial Results

Total Revenues

Total revenues in the second quarter of 2021 were RMB7.93 billion (US$1.23 billion), a decrease of 0.2% from RMB7.94 billion in the first quarter of 2021 and a decrease of 6.2% from RMB8.45 billion in the second quarter of 2020. The sequential and year-over-year decreases were mainly attributable to a decrease in the shipment of solar modules.

Gross Profit and Gross Margin

Gross profit in the second quarter of 2021 was RMB1.36 billion (US$210.5 million), compared with RMB1.36 billion in the first quarter of 2021 and RMB1.51 billion in the second quarter of 2020.

Gross margin was 17.1% in the second quarter of 2021, compared with 17.1% in the first quarter of 2021 and 17.9% in the second quarter of 2020. The year-over-year decrease was mainly attributable to a decline in the average selling price of solar modules in response to the intensified market competition globally, partially offset by the Company's continued reduction of integrated production costs enabled by its industry-leading integrated cost structure.

Income from Operations and Operating Margin

Income from operations in the second quarter of 2021 was RMB356.4 million (US$55.2 million), compared with RMB149.1 million in the first quarter of 2021 and RMB434.7 million in the second quarter of 2020.

Operating margin was 4.5% in the second quarter of 2021, compared with 1.9% in the first quarter of 2021 and 5.1% in the second quarter of 2020.

Total operating expenses in the second quarter of 2021 were RMB1.00 billion (US$155.3 million), a decrease of 17.1% from RMB1.21 billion in the first quarter of 2021 and a decrease of 7.0% from RMB1.08 billion in the second quarter of 2020. The sequential decrease was mainly attributable to (i) a decrease in shipping costs as a result of a decrease in the shipment of solar modules and (ii) a decrease in disposal and impairment loss on property, plant and equipment. The year-over-year decrease was mainly attributable to a decrease in shipping costs in relation to the decrease in the shipment of solar modules in the second quarter of 2021.

Total operating expenses accounted for 12.6% of total revenues in the second quarter of 2021, compared to 15.2 % (or 13.7% excluding impairment loss) in the first quarter of 2021 and 12.8% in the second quarter of 2020.

Interest Expense, Net

Net interest expense in the second quarter of 2021 was RMB157.5 million (US$24.4 million), an increase of 0.6% from RMB156.5 million in the first quarter of 2021 and an increase of 48.3% from RMB106.2 million in the second quarter of 2020. The year-over-year increase was mainly due to an increase in interest expense, as the Company's interest-bearing debts increased.

Subsidy Income

Subsidy income in the second quarter of 2021 was RMB162.2 million (US$25.1 million), compared with RMB130.3 million in the first quarter of 2021 and RMB14.4 million in the second quarter of 2020.

Exchange Loss/(Gain) and Change in Fair Value of Foreign Exchange Derivatives

The Company recorded a net exchange loss (including change in fair value of foreign exchange derivatives) of RMB4.4 million (US$0.7 million) in the second quarter of 2021, compared to a net exchange loss of RMB26.6 million in the first quarter of 2021 and a net exchange gain of RMB69.7 million in the second quarter of 2020. The net exchange loss was mainly due to the exchange rate fluctuation of the US dollars against the RMB in the second quarter of 2021.

Change in Fair Value of Convertible Senior Notes and Call Option

The Company issued US$85.0 million of 4.5% convertible senior notes due 2024 (the "Notes") in May 2019 and has elected to measure the Notes at fair value derived by valuation model, i.e. Binomial Model. The Company recognized a loss from a change in fair value of the Notes of RMB335.7 million (US$52.0 million) in the second quarter of 2021, compared to a gain of RMB414.9 million in the first quarter of 2021 and a loss of RMB89.1 million in the second quarter of 2020. The change was primarily due to an increase in the Company's stock price in the second quarter of 2021.

Concurrent with the issuance of the Notes in May 2019, the Company entered into a call option transaction with an affiliate of Credit Suisse Securities (USA) LLC. The Company accounted for the call option transaction as freestanding derivative assets in its consolidated balance sheets, which is marked to market during each reporting period. The Company recorded a gain from a change in fair value of the call option of RMB137.9 million (US$21.4 million) in the second quarter of 2021, compared to a loss of RMB235.8 million in the first quarter of 2021 and a gain of RMB38.0 million in the second quarter of 2020. The change was primarily due to an increase in the Company's stock price in the second quarter of 2021. Subsequently in July 2021, the Company exercised all the remaining call option using cash settlement.

Equity in Earnings/(loss)of Affiliated Companies

The Company indirectly holds a 20% equity interest in Sweihan PV Power Company P.J.S.C, a developer and operator of solar power projects in Dubai, and accounts for its investment using the equity method. The Company also holds a 30% equity interest in Jiangsu Jinko-Tiansheng Co., Ltd, which processes and assembles PV modules as an OEM manufacturer, and accounts for its investments using the equity method. The Company recorded equity in loss of affiliated companies of RMB0.3 million (US$42.0 thousand) in the second quarter of 2021, compared with a gain of RMB43.4 million in the first quarter of 2021 and a gain of RMB4.2 million in the second quarter of 2020. The loss primarily arose from interest rate swap recorded by the equity affiliate due to a decrease in long-term interest rates in the second quarter of 2021 partially offset by revenue generated from operations. Hedge accounting was not applied for the derivative.

Income Tax Benefit/(Expenses)

The Company recorded an income tax benefit of RMB6.9 million (US$1.1 million) in the second quarter of 2021, compared with an income tax expense of RMB52.2 million in the first quarter of 2021 and an income tax expense of RMB22.8 million in the second quarter of 2020. The sequential change was mainly due to additional 2020 income tax deduction for R&D costs approved by the local tax bureau in the second quarter of 2021. The year-over-year change was mainly due to lower profit generated compared to the second quarter of 2020.

Net Income and Earnings/(loss) per Share

Net income attributable to the Company's ordinary shareholders was RMB66.2 million (US$10.3 million) in the second quarter of 2021, compared with net income attributable to the Company's ordinary shareholders of RMB221.1 million in the first quarter of 2021 and RMB318.0 million in the second quarter of 2020.

Basic and diluted earnings/(loss) per ordinary share were RMB0.35 (US$0.05) and RMB0.35 (US$0.05), respectively, during the second quarter of 2021, compared to RMB1.16 and RMB(0.90), respectively, in the first quarter of 2021, and RMB1.79 and RMB1.64, respectively, in the second quarter of 2020. As each ADS represents four ordinary shares, this translates into basic and diluted earnings/(loss) per ADS of RMB1.39 (US$0.22) and RMB1.38 (US$0.21), respectively in the second quarter of 2021; RMB4.64 and RMB(3.61), respectively, in the first quarter of 2021; and RMB7.16 and RMB6.55, respectively, in the second quarter of 2020. The difference between basic earning and diluted loss per share in the second quarter of 2021 was mainly due to the dilutive impact of share-based compensation.

Non-GAAP net income attributable to the Company's ordinary shareholders in the second quarter of 2021 was RMB274.7 million (US$42.5 million), compared with RMB49.3 million in the first quarter of 2021 and RMB376.1 million in the second quarter of 2020.

Non-GAAP basic and diluted earnings per ordinary share were RMB1.44 (US$0.22) and RMB1.44 (US$0.22), respectively, during the second quarter of 2021; RMB0.26 and RMB0.24, respectively, in the first quarter of 2021, and both RMB2.12 in the second quarter of 2020. This translates into non-GAAP basic and diluted earnings per ADS of RMB5.76 (US$0.89) and RMB5.75 (US$0.89), respectively, in the second quarter of 2021; RMB1.04 and RMB0.96, respectively, in the first quarter of 2021, and both RMB8.46 in the second quarter of 2020.

Because of the dilutive impact of call option arrangement during the second quarter of 2020, potential shares underlying the call option arrangement were removed from weighted average number of ordinary shares outstanding since their issuance date, and changes in income of the assumed exercise of call option, including the change in fair value of the call option, foreign exchange gain/(loss) on the call option, and the issuance costs of the call option were also recorded as the adjustment to the Company's consolidated net income to arrive at the diluted net income available to the Company's ordinary shareholders. Under that situation, the Company implemented the same denominator for both non-GAAP basic and dilutive earnings per ordinary share in the second quarter of 2020.

Financial Position

As of June 30, 2021, the Company had RMB6.52 billion (US$1.01 billion) in cash and cash equivalents and restricted cash, compared with RMB7.04 billion as of March 31, 2021.

As of June 30, 2021, the Company's accounts receivables due from third parties were RMB3.91 billion (US$606.1 million), compared with RMB4.59 billion as of March 31, 2021.

As of June 30, 2021, the Company's inventories were RMB9.88 billion (US$1.53 billion), compared with RMB9.10 billion as of March 31, 2021.

As of June 30, 2021, the Company's total interest-bearing debts were RMB20.15 billion (US$3.12 billion), of which RMB436.5 million (US$67.6 million) was related to the Company's overseas downstream solar projects, compared with RMB17.48 billion, of which RMB458.5 million was related to the Company's overseas downstream solar projects as of March 31, 2021.

Second Quarter 2021 Operational Highlights

Solar Module, Cell and Wafer Shipments

Total shipments in the second quarter of 2021 were 5,203 MW, including 3,976 MW for solar module shipments and 1,227 MW for cell and wafer shipments.

Solar Products Production Capacity

As of June 30, 2021, the Company's in-house annual mono wafer, solar cell and solar module production capacity was 27 GW, 12 GW (940 MW for N type cells) and 31 GW, respectively.

Operations and Business Outlook

Shipments of the Company's large-size products are expected to account for 50% of its total solar module shipments in the second half of 2021, and its annual shipment from sales to distributed generation projects is expected to account for approximately 40% of total shipments. Shipments in the Chinese market are expected to gradually increase in the second half of 2021 and in 2022. We continue to strengthen our global supply chain management to strengthen our business for the long-term and increase the reliability of our services to the U.S market. Our 7GW silicon wafer production facility in Vietnam will start construction soon, and will supply silicon wafers to our cell and module facilities in the United States and Malaysia starting 2022.

With the high and relatively stable production material prices in the second half of the year and the overall increase in customer acceptance of prices, our module production volume are starting to increase in the third quarter.

Third Quarter and Full Year 2021 Guidance

The Company's business outlook is based on management's current views and estimates with respect to market conditions, production capacity, the Company's order book and the global economic environment. This outlook is subject to uncertainty on final customer demand and sale schedules. Management's views and estimates are subject to change without notice.

For the third quarter of 2021, the Company expects total shipments to be in the range of 5 GW to 5.5 GW (solar module shipments to be in the range of 4.5 GW to 5 GW). Total revenue for the third quarter is expected to be in the range of US$1.24 billion to US$1.37 billion. Gross margin for the third quarter is expected to be between 12% and 15%.

For full year 2021, the Company estimates total shipments (including solar modules, cells and wafers) to be in the range of 25 GW to 30 GW.

Solar Products Production Capacity

JinkoSolar expects its annual mono wafer, solar cell and solar module production capacity to reach 32.5 GW, 24 GW (including 940 MW N-type cells) and 45 GW, respectively, by the end of 2021, from previous guidance of 30 GW, 24 GW and 33 GW, respectively.

Recent Business Developments

In May 2021, the maximum solar conversion efficiency of JinkoSolar's large-area N-type monocrystalline silicon solar cells reached 25.25%, setting a new world record for large-size contact-passivated solar cells.
In June 2021, JinkoSolar's flagship Tiger Pro dual glass module received the world's first IEC TS 62804-1-1:2020 certificate issued by DEKRA, one of the world's largest independent inspection companies.
In June 2021, JinkoSolar was ranked Top Performer in PV Evolution Labs' (PVEL) 2021 PV Module Reliability Scorecard for the seventh consecutive time.
In June 2021, JinkoSolar was recognized as an "Overall High Achiever" in Renewable Energy Testing Center's ("RETC") 2021 PV Module Index Report for the second consecutive year.
In June 2021, JinkoSolar's holding subsidiary, Shangrao JinkoSolar Industry Development Co., Ltd. planned to invest RMB315 million of monetary capital to increase capital and shares in Inner Mongolia Xinte Silicon Materials Co., Ltd., a wholly-owned subsidiary of Xinte Energy Co., Ltd. (HKEX: 1799).
In June 2021, the application documents regarding a potential initial public offering and listing of the shares of Jinko Solar Co., Ltd. ("Jiangxi Jinko"), a principal operating subsidiary of JinkoSolar, was submitted to and received by the Shanghai Stock Exchange.
In July 2021, the maximum solar conversion efficiency of JinkoSolar's advanced high-efficiency solar module reached 23.53% and outperformed the previous record of 23.01%, also set by JinkoSolar, in January 2021, after recently setting a test record of 25.25% for large-area N-type monocrystalline silicon solar cells.
In July 2021, JinkoSolar was selected as an "Eco-Leader" by Green Builder® Media for the third time.
In July 2021, the United States Court of Appeals for the Federal Circuit issued a Rule 36 summary affirmance agreeing with the International Trade Commission's conclusion that JinkoSolar's products do not infringe a patent asserted by Hanwha Q CELLS.
In August 2021, JinkoSolar obtained the first photovoltaic module LCA (Life Cycle Assessment) certificate in the Greater China region issued by TÜV Rheinland (China) Ltd., and concurrently passed the Italian EPD certification.