JinkoSolar Holding Co., Ltd. (JKS) Earnings Call Transcript & Summary

Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Company., Ltd. Business Update Conference Call. [Operator Instructions] 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. Stella Wang, JinkoSolar's Investor Relations. Please proceed, Stella.

Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's Business Update Conference Call. We have posted a PowerPoint presentation that accompanies our comments to our IR website at [email protected]. On the call today from JinkoSolar is Mr. Charlie Cao, Chief Financial Officer of Jinko Solar Co., Ltd. and Director of JinkoSolar Holding Co., Ltd. Firstly, I will provide a brief update on our business operations and company highlights, including our technology advancements, long-term business strategy and outlook and then Charlie will be available to answer your questions during the Q&A session that follows. Please note that this 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 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. Now let's move on to the presentation. So in the first slide, I think we demonstrate some operational and financial highlights for the second quarter and the first half. We overcome volatility in supply chain prices and end mark demand, thanks to our excellent marketing network, high-quality products and high effective supply chain management. So in the second quarter, I think we became the #1 in the industry for not only the second quarter and the first half shipments. In terms of our product mix, our high-efficient N-type shipments account for about 50% of our first half module shipment. And we are the first module company in the industry to deliver 10 gigawatts of N-type modules in a single quarter. Financially, our adjusted net income for second quarter was USD 197 million, increased nearly 2.9x year-over-year. As to the end of the second quarter, we generated our net operating cash flow of RMB 5.5 billion, increased roughly 150% year-over-year. Yesterday, we announced a cash dividend with approximately USD 77 million to be distributed, which is about USD 1.50 per ADS. This dividend demonstrates our Board's continued confidence in our performance and outlook and our commitment to enhance our shareholders' value. Now let's move into JinkoSolar's competitiveness. So from the competitive pattern, I think we are in [ indiscernible ] to consolidate our competence and to lead the industry in the following 3 factors perspective. So firstly, as a pioneer of N-type TOPCon technology, we have a very clear technology road map and mass production capabilities for our N-type technology and products. The first half our sales -- TOPCon sales production efficiency has reached 25.5%, and we expect to reach 25.8% by the end of this year. With new technology, including double-sided [ indiscernible ] the contactor technology [ applicable ], we expect our mass produced efficiency next year to reach 26.5%. From the shipment penetration perspective, in the first half, N-type units accounted for roughly 50% of our total shipments. And for full year, we expect to have 60% of total shipments for Jinko. And next year, our shipments of N-type penetration expected to be 80% to 90%, which is higher than the industry average because the N-type can have 25- to 30-watts output higher than standard P-type, so we can command roughly RMB premium that's where we share -- that's the -- and Chinese RMB premium and we believe this premium will maintain as we can help our customers to continue to reduce their and improve their project IRR. I would say from a cost perspective, at the end of last year, we have reached a cost parity between N-type and P-type. And the first half this year because the polysilicon price -- the price of polysilicon at the reduced -- is dropping a lot and the stringing wafer benefit from the thinning wafer is less -- is reducing. So right now, the cost of between N-type and P-type is RMB 0.02, RMB 0.03. But at the end of this year, our target is to reach cost parity between N-type and P-type. In terms of the TOPCon, we believe that in the next 3 to 5 years, we believe the N-type TOPCon still be -- still will become the technology in terms of efficiency, it's cost-effective advantage and it's easy for the industry to be implemented. The second strength for Jinko is our diversified global market layout and our global supply chain. So leveraging our extensive global market network with our localized aftersales service, we have delivered our shipments to over 150 countries and the regions globally. Most importantly for -- I think our -- for the U.S. market, at last year, Jinko had suffered a lot from the U.S. market because starting from the [ WLO and ULOA ], our shipments to U.S. markets reduced that year, we suffered a lot from the U.S. market. This year, thanks to our efforts, including our traceability improvement and our continued communication with CBP and some other efforts, we have seen both the efficiency of customers clearance and our shipments to the U.S. market gradually improved starting from July this year. As we continue to make effective progress, we expect our shipments to the U.S. market to gradually increase in the coming quarters. In terms of our overseas capacity construction, by the end of this year, we will reach an integrated capacity of over 12 gigawatts overseas versus 7 gigawatts last year with -- we will have one -- we will have roughly 2-gigawatt module capacity in U.S. And in terms of the capacity structure, the N-type account for over 75% for the total overseas capacity. And Jinko will have the largest overseas capacity and also largest N-type capacity in the world. We will continuously to strengthen and expand our global industrial chain to provide a premium and high-quality products and the services to our global clients. And thirdly, our -- thirdly, I think our strength of JinkoSolar is we have the largest N-type capacity to serve our customers' demand and to gradually improve our global market share. From the capacity structure, right now, I think Jinko has a relatively competitive capacity structure. By the end of this year, we will have 85 gigawatts for wafer, 90 gigawatts for cells and 110 for modules by the end of this year, over 75% will be N-type capacity. On top of that, we will foster our future competitiveness with the construction of a major production base of 56 gigawatts 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 JinkoSolar in the PV industry that will fully demonstrate our advantages in highly efficient technology in the products and lower investment costs and greater operational efficiency as well as intelligence and smart manufacturing and the traceability capabilities. In summary, we believe the industry will become more and more concentrating in the next 1 to 2 years. And the Tier 2 to Tier 3 players that do not have a technology advancement, supply chain management and global footprint will gradually be obsolete in the next 1 to 2 years. But for Jinko, with long-term R&D and product leadership of global industrial chain footprint and other market network, together as well as our effective and efficient management capability. We are relatively in good position to improve our market share and profitability. That concludes my introduction. So we're now happy to take your questions. Operator, please proceed. Thank you.

[Operator Instructions] Our first question comes from Philip Shen with ROTH MKM. Please go ahead.

I wanted to talk about the dividend. You guys announced a new dividend yesterday. I think it's the first one for and NYSE shareholders. Do you expect this to be regular? Could it be quarterly? Would it be more likely annual? And would it be about the same time next year as well? And what kind of outlook can you give us on the potential for future dividends?

Yes, Philip, this is Charlie. And yes, you're right, it's, I think, the first solar companies to declare dividends to investors. And we think this is the right timing to reward the U.S. investors and Jinko is -- we're in good position and we are the leaders, let's say, the next-generation technology, and we are very confident to a long-term growth as well as earnings. And the USD 1.5 per ADS is pretty -- 5%, 6% is a pretty decent dividend. And going forward and on an annual basis, we will do evaluation, of course, subject to the shareholder, let's say, the [ indiscernible ] And I believe it's going to be kind of the recurring. And -- but the level kind of the percentage will varies based on the earnings each year. But at least for the next year, I'm pretty confident for the short term. And as well as on top of that, we are also evaluating the potential, it's not determined the purchase of ADS in the future because now if you look at our valuation, it's PV is less than 0.66, and we think we need to take actions to -- firstly, to reward the investors. Second one is, we think it's a right timing to share some profitabilities and -- with our investors.

Great. As it relates to capacity expansion outside of the U.S., it sounds like you're going to hit 12 gigawatts. I was wondering if you could walk us through the polysilicon sources for the 12 gigawatts? And does the 12 gigawatts also include the 2 gigawatts of U.S. capacity? Do you expect that 2 gigawatts to be done by year-end? Or is that in addition to eventually it's 14 gigawatts maybe by year-end next year?

Yes. For the 12 gigawatts integrated from the wafer to cell to modules, we have the largest overseas capacities and including 2 gigawatts solar module capacities, which are under construction and are expected to, I think, go to operations by the end of this year. And we -- I think we are in a good position and very advantage with our peers, and that is we have separate standalone overseas integrated capacity. And we have a very, I think, complicated and traceability systems, which has been improved in the last, I think, 6 months. And our modules have been going through this very smoothly. And on the -- it's not only for the capacity, right, 12 gigawatts, and we have built up probably, I think, resilient supply chain, including the polysilicons out of China. And we roughly have and over 20,000 metric tons. And for the overseas compass -- overseas polys to support the 10 gigawatts target for the U.S. market.

Great. Shifting over to CapEx and funding. Can you give us a sense for CapEx and funding for '24? And is there an update on the timing of the capital raise in China?

Thank you for your questions. And for '23, this year-end, we are expecting to spend RMB 15 billion to RMB 20 billion on CapEx and capacities to reach roughly, let's say, 85%, 90%, 100% total of capacities by the end of this year. And this year, we estimate the operating cash flow will be around RMB 10 billion. By 2024, the CapEx level will be lower than 2023. And it's around, we estimate around RMB 10 billion. But next year, we estimate the operating cash flow roughly in the range of RMB 10 billion to RMB 15 billion. So which means it's going to -- free cash flow will be either neutral or maybe positive and -- in 2024. And next year, our key focus will be the 28 gigawatts integrated capacities in Shanxi Province. Yes, that's the CapEx estimation for next year.

Okay. Great. And then coming back to the U.S., we talked briefly earlier about the poly. My sense is you have Wacker and Hemlock poly. Are you able to get any OCI poly modules into the country yet? Or if not, do you expect to? And is it required to be able to hit your 12 gigawatts of non-China volume or capacity?

Yes. It's positive for all the 3 major polysilicon producers. I don't want to touch on more details, maybe it's kind of the confidential information. But we are pretty confident and based on our experience and to lock, again, I said, to lock over 20,000 metric tons and 3 -- from the 3 polysilicon overseas producers. Hello?

Sorry [ indiscernible ] and then I'll pass it on. As it relates to U.S. shipments, next year, how many gigawatts do you think you could get into the U.S. knowing what you know today?

Yes, our target 10 gigawatts. And it's a kind of a minimum, yes. I think the 10 gigawatts is a base case.

[Operator Instructions] Our next question comes from Alan Lau with Jefferies.

So my first question is about -- so with the 10-gigawatt of module shipment target to U.S., I would like to know what is your expectation on the ASP in the U.S. market because it used to be $0.35 or $0.40 in the U.S.? But in a recent RE Plus Conference since they are some decline in that price. So I would wonder what is the module price you're expecting for next year? And how much of order has been signed? And also, how does it correlate with polysilicon side? Because to my understanding, overseas polysilicon are still trading at a higher price than China.

Yes, yes, you're right. Let's say the U.S. market, I think, the market prices are a little bit lower compared to maybe 1 or 2 quarters. But there's still a very decent price range. I think sort -- just like you said, $0.35 to $0.40 is a little bit kind of the demand is slower. But the utility is pretty, pretty strong, very good. And the 10 gigawatts, the majority is utility-scale projects. And we're expecting to get all the orders by the end of this year. And we have roughly 50%, 60% done already for the U.S. market. And for the polysilicon, the overseas polysilicon price is different pricing mechanism, let's say, with China -- China is still relatively expensive. But compared to the end marketing module price in the U.S., we believe U.S. market will deliver a very decent earnings next year for Jinko.

So just to clarify, we have already signed 50% of the 10 gigawatts, which means that the order book has already reached 5-gigawatt. And then the price for utility -- for these utility orders are still in the range of $0.35 and $0.40, right?

Yes, you're right, you're right. It's kind of the -- we typically follow the market price, right? The market price is in the range of $0.35, $0.40, depending on different projects. So we are in that range.

Yes, that would be very impressive. And so I would like to learn more about the polysilicon contracts that you're entering into. So whether it's linked to the market price when you deliver the modules or it's locked in already now, or it's based on some index at that time, like PV or PV Insights? How do you structure your supply contracts for polysilicon?

Different supply contract has different mechanism, but it's not the fixed price and it's based on some kind of the index. But the index is not 100% linked to China, right? It's a different market, different mechanism. But the index typically is some kind of index linked to the poly price out of China.

Understood. And so my next question is in relation to the cash dividend. So I think after the announcement last night, a lot of investors are curious on -- because the company has actually have the operating cash flow that sometimes might be negative, but it's clearly improving in the second quarter. So the commitment of the company in paying out cash dividends, does it mean that JinkoSolar is confident that in the following quarters or even in 2024, the company will deliver positive free cash flow?

You mean the Asia company or the U.S. company?

U.S. because investors are concerned on like the company is having negative free cash flow, but it's distributing dividends.

I mean, the U.S. -- and let's talk about -- firstly, the Asia company, right, all the assets for the key -- all the manufacturing assets, right, integrated everything in Asia companies for the manufacturing business. And I just said, this year, we estimate the operating cash flow will be RMB 10 billion. But we spent RMB 15 billion to RMB 20 billion on capacity expansions. But we did convertible bonds, right, in April this year. So it's sufficient cash. And on top of that, Asia company typically will declare 20% to 30% net income as dividend and the U.S. companies, the U.S. companies is holding 58% of Asia companies. And so the U.S. company will get the cash dividends. So we declared USD 1.5, it's a cash. We very close to the amount we -- U.S. company received from Asian companies, I think, in May this year for the cash dividend for the Asian companies.

So my last question is in relation to technology because I've noticed that you have put in a very compelling comparison between TOPCon and BC technology in your presentation. So it's interesting that you expect a couple of years later BC technology may -- it's cost may be comparable with TOPCon. So can you share about your technological road map as to the next steps for TOPCon and also BC technology going forward? And do you expect to sell BC products in premium markets like some of your peers like Maxion, thus?

We have worked here road map for the products -- TOPCon-based products. And efficiency by the end of this year, we have reached to 25.8%. And starting -- I think starting second quarter, maybe third quarter, our efficiency will reach to 26.5%. And in 2025, our target is 27% to 27.5%. And we are going to, firstly, to adopt the, let's say, it's called double-sided poly technology. Now the TOPCon is one side. And next year, we are going to adopt the double-sided poly. And we are also optimistic for implementation from some kind of the metallzation, let's say, technology. And for the BC, it's -- we believe it's kind of the platform, right? The BC can be integrated with TOPCon as well as HJT. And we have some kind of small production, R&D production lines already on the BC. But BC, we're seeing now it's kind of the more niche market for the and particularly the side, the efficiency is relatively higher. But the production is relatively, I think, complicated. The cost is not so economic makes sense. But we are still optimistic for the, let's say, integration of the TOPCon with BC technology in the future. So it's -- but it's not the plan, let's say, for next year, and it's possible in the future. But at this stage, we don't believe it's economic making sense for -- particularly for both, I think, the DG markets and as well as the utility. And our peers doing the HVBC right. HVBC, it's kind of -- from the efficiency side, we don't see even front -- for the front side output. We still believe if the TOPCon versus -- N-type TOPCon versus P-type BC, it's -- we still -- we think the TOPCon is better. N-type TOPCon is better for the DG as well.

So my final question is on the premium. Do you think it will stay -- remain a 1 plus cent of premium [ indiscernible ] for TOPCon?

Yes, yes. And the fundamental thing is, let's say, now the -- let's say, the standard 108, the size of the modules need to -- it's -- the P-type is 55 -- 550 watts, right, for each piece of the modules. And N-type, we are able to deliver 580 watts. So it's a 30-watt per piece is difference for the N-type. By next year, we believe it's going to be expand to, let's say, 40, 45 watts for the N-type versus P-type. And we believe the partner can deliver additional values to our customers, and it's making sense to me, let's say, the premium USD 0.01 to USD 0.015.

Our next question is a follow-up from Philip Shen with ROTH MKM.

Just wanted to kind of pull back a little bit kind of at a higher level. I wanted to just check in with you on the purpose of the call. This is not something that you guys do regularly. And so what's the key message that you want investors to take away from today?

Yes. I think the purpose of the call is kind of the business update as well as we are declaring a dividend, the first Chinese based solar companies. I think investors are wondering what has happened to Jinko. And the second one is from technology side, there is a kind of a very hot topic in recent weeks versus for the BC versus TOPCon, HJT whatever. So we want to highlight, we believe that TOPCon will dominate -- is dominating -- dominate -- is dominating the market in the next 3 to 5 years. And there's a lot of the road map based on the platform, the TOPCon technology. And we are going to -- from an R&D perspective, we have finished the double-sided poly the technology and will be adopted to, let's say, the TOPCon platform next year. And next year, our focus is on the 28 integrated capacity in Shanxi Province. It's a brand-new, very complicated, digitalized and the factories and the facilities will significantly improve our automation technology and -- as well as the efficiencies, including the labor efficiencies. We estimate the new facilities next year to be ready, is going to be -- even from a cost perspective will be lower than around 8% to 10% with our existing most advanced capacities. And on top of that, we are doing pretty good on the U.S. market, and there's a lot of discussions on the [ indiscernible ] on the modules in recent 6 to 9 months. And we -- I think we have more learning curve and capabilities to make sure our -- the overseas operations comprise as well as to get more market shares in the premium markets. So Philip, that's overall, I think is the purpose of that.

Great. Thanks, Charlie. Yes, I think people appreciate that. And then in terms of module pricing, I think we talked through U.S. pricing. But we're going through a big cycle -- down cycle here. And I wanted to understand your view of how this plays out? You guys are ramping capacity. There's a lot of other capacity. Pricing is very low in Europe and many other places. So how does this down cycle end? And what's the timing as to when it ends? And from an industry structure standpoint, how do you expect the industry to evolve? Do you expect a number of companies to exit the business? Or what's the -- can you give us a road map as to how you and your team see the current down cycle evolving and when it ends?

I think this cycle is kind of mini cycle. It's not the big cycles. In history it's 2 or 3 cycles. In the history it's for solar industries under the backdrop of the solar is not getting the parity, but now it's totally different stories. And from my perspective, I think solar, the industry growth is 100% sure. And even next year, we have estimated the global installation this year may be 400 gigawatts, next year reach to 500 gigawatts. And if you look at the business models and a couple of years ago, it's -- solar is kind of 10% to be -- to a big company -- to be business, now it's kind of DG the market. It's taking different countries, 30% to 50%. There's a lot of business models for the more -- let's say, the solar plus the storage, solar plus VIP way whatever, solar plus transportation. Even in China, we are talking about the installation solar on the sea. So there's a lot of business models and -- for the solar industries. And for the short term -- and first, I think, after the mini cycles and -- the Tier 1 companies will get more stronger. And I strong believe particularly for the participants, the newcomers or Tier 2, Tier 3 companies, they are going to be phased out in these mini cycles because if you look at the -- when we look at the Jinko, we are managing a very international companies. We deliver products over 180 countries through 100 -- over 100 sales centers. And we have very strong capabilities to doing international productions and deliveries. That is very difficult. And each year, we invest over RMB 5 billion on R&D for the R&D activities. And we have very strong and lean supply chain teams. So it's a different competitiveness landscape. If you look at the top -- the Tier 1 companies, which is Tier 2, Tier 3 companies. And the capacity is really, you're right, a little bit more. And by the end of this year, we estimate 900 gigawatts to 1,000 gigawatts capacity. But the structure is kind of -- if you break down the capacity in 100 gigawatts, 1,000-gigawatt capacities, around 50% is P-type-based capacity and to be phased out in the next 2 years. And N-type is roughly 50%. And even for the N-type, the different companies that produce the N-type TOPCon products, the output -- the yield rate is totally different. So the market will be -- continue to be challenged for the supply -- the supply for the high-inflation capacities. So that is why Jinko, we are very confident we are taking the lead on the market shares because we have strong capabilities on N-type R&D and capacities. So -- but the competition, because of the little bit more capacities, I think the competition will be getting more and more. But after the, let's say, the mini cycles phase out capacities, Tier 2, Tier 3 companies as well as newcomers, we think the ecosystem will get more healthy, particularly for the top companies.

So when do you think that is? Do you think that happens in the back half of '24? Do you think it's the early part of '24? Or do we have to wait until '25? And then coming back to the pricing question, when do you think pricing -- module pricing stabilizes outside of the U.S.?

For the global -- let's say, excluding U.S., U.S. is a very different supply chain, different production, different markets because of the uncertainties -- I mean, as a whole market uncertainties from the implementations of yor FLPA right, uncertainties from the [ anti-securities ] right, the results and the impact of the supply chain. So I believe U.S. will be -- the supply will be -- continue to be very tight. And I think -- and the cost of the project developers andthe cost in the U.S. market, they are all likely to partner with Jinko -- the companies like Jinko, we have very strong capabilities and we locked down the...

Charlie, sorry to interrupt. I'm asking about module pricing outside of the U.S., not in the U.S. Like when...

Yes, I know the question -- so I think it's -- for the U.S., it's totally different. But outside of U.S., I think it's already stabilized, RMB 1.2, RMB 1.15. It's kind of -- by the end of this year, I think, has been stabilized. And we -- I don't see significant room to continue. The module price will be weak. Second one is, there is anticipating the poly price, some kind of recovery in the recent 2 or 3 months, but expect the poly price will go down starting from November. So that is some of the reasons why the module price has not been -- has not rebounded, right? And I believe the module price is a very good price for the developers. And I think not only in China, all the countries out of China. And I don't see the trend or the downside for the module price.

Okay. Got it. You talked a lot about N-type. Can you give us an outlook for the tandem research that you're doing? When would you expect to bring a tandem sell the market on a commercial basis?

Sorry, can you repeat your question? Sorry.

Yes. So you've talked a lot about N-type, you're the leader in N-type. But as it relates to the next generation beyond N-type TOPCon, my sense is we probably have to move to a tandem cell. And so meaning crystalline silicon paired with a thin film or a something like that. How close are you guys to commercializing that? That's probably in the next 2 or 3 years away? Or do you think you're 5-plus years away?

I think it's -- I think after 5 years, but we are -- first we are, internally, we are positive for the long term, the multi-junction right. The TOPCon plus the [ indiscernible ]. So let's say, the multi-junction solars. But in R&D perspective, it's going to be reached 32%, 33% even higher efficiencies. But the stability is, right, it's kind of the issues. And the -- of the technology available to make the mass production for the multi-junction solar cells is still a big challenge. So it's not short term, it's not short term. We believe it's kind of 3 years time frame -- after 3 years, it's possible.

Okay. Got it. I have more questions. I'll ask one more, and maybe I'll pass it on again. As it relates to the U.S. shipments, because of the anti-circ AD/CVD moratorium ending in June, does that impact your shipments at all because you're -- your thought to not be circumventing. My guess is you have no issue shipping through the whole year of 2024? Or do you think there's a greater concentration of your '24 shipments in the first half of '24 versus the second half?

We are not -- the result is very positive for Jinko, right? We announced circumventing. And so I don't see any of the impact for Jinko shipments for 2024. And I think it's going to be relatively stable each quarter next year and it's not back half concentrated for the 10-gigawatt shipments in next year.

Our next question comes from Brian Lee with Goldman Sachs.

This is Grace on for Brian. I just have one question. I just want to circle back on the dividend. Just curious why now you think it's a good timing to announce the dividend? Like, i.e., what are you seeing in the underlying business? Or what has changed between now and your 2Q earnings call that makes you feel comfortable to announce this dividend? And also since you mentioned share buyback, can you talk about your capital allocation strategy going forward?

Yes, yes. And it's not because the third quarter, second half year earnings is better than the first half year of this year that -- and we declared dividend. It's -- again, the U.S. company is holding 58% of the Chinese in Asia companies. And typically, the Asia companies declared dividends in each May or June. And this year and -- the Asia companies declare a dividend, It's around, I think $70 million, $80 million attributable to the U.S. companies -- U.S. holding companies. And so -- but the U.S. holding companies typically get cash through some approval process. And on top of that, I think I said we think the U.S. company is kind of the Invesco companies and the majority assets is Asia companies. But the U.S. company has some kind of private equity investment for some good companies for solar industries focus on the equipment, the new materials, et cetera. And -- but we think now the U.S. company standalone has sufficient cash positions and it's the right time to declare dividend to return to investors.

Our next question comes from Rajiv Chaudhri with Intrinsic Edge Capital Management.

I have a few questions. The first one, I'll start with the dividend itself. So what you're really saying is that the dividend paid out this year is based on the earnings of the previous year, right? And Chinese companies typically pay out 25% to 30% of the earnings -- of the year in dividends the following year. So what we got in the $1.50 was really 25% to 30% of the earnings that we had last year. And so my question is, this year, it looks like your earnings are going to be probably 4 or 5x what they were last year. So just based on that kind of calculation, would it mean that the dividend next year if you were to pay out based on the same rule of formula, like 25% to 30%, and then the Invesco pays out everything in dividend instead of buying back stock. If the assumptions are similar, are we looking at a dividend that would be $6 or $7?

I understand YOUR questions, and we are going to -- again, we are going to evaluate on an annual basis. You're right. And we have very, very strong earnings this year even for next year. And Chinese company typically declare 20%, 30% dividends as well. And next year, the U.S. company are supposed to get more cash dividend from the Asia companies. But we need to evaluate allocation, how to allocate the total dividends from Asia companies. It may be some kind of the dividends continuously. And some allocations to the investment fund, we continue to invest on the trend of supply chain equipment, new materials companies. On top of that, we may consider, let's say, buy back some shares. So it's not calculation and we need to evaluate each year.

Right, right. But my question was if those assumptions were to stay the same, then the dividend -- I mean if you were to allocate all of it to dividends instead of doing a share buyback or using it for some other corporate purpose, then the dividend would basically scale up proportionately with earnings, which it's looking like 5x last year's earnings. So it would be a $6 to $7 kind of a number. I'm just asking if my logic is correct?

It's -- I don't believe it's a kind of 4 or 5x. If you look at our earnings next year, Asia companies, right, it's roughly $3 billion, right? This year, you can look at the projections, right? maybe I think it 2x -- sorry, maybe 2x, maybe 3x or whatever, but it's not 5x. But for sure, it's kind of at least double, right?

Right. Okay. Okay. Let me move on to my next question, which is on gross margin. And in the second quarter, you had stated that there was an inventory reserve taken because you had written down the polysilicon inventory. Excluding that write-down of the polysilicon inventory, the gross margin would have been around 20%. And you had also told us that gross margin would be sequentially up in the third quarter compared to the second quarter. So what kind of gross margin are we looking at in the second -- in the third quarter? Is it -- what kind of number is it above 20%?

It's -- we have not finalized the accounting book. But I think second half year, particularly in the third quarter, we're expecting some gross margin expansions. It's better-than-expected cost structures, and we have more shipments percentage on the N-type, which has better earnings, and we have relatively more shipments quarter-by-quarter for the U.S. markets.

Right. So just to be clear, when you say that the gross margin will improve, you are talking about improving from 20%?

No, I'm talking about improving from the second quarter, the number. Second quarter is the base.

The second quarter is the base. Okay. But assuming that there's no inventory write-down in the second -- in the third quarter, then the base would be 20%, right?

Yes, you're right, you're right. But you need to get everything together.

Right. Okay. Okay. You mean we don't know whether there will be a write-down in the third quarter as well, for example. Is that what you're saying?

No. Write-down, I think I don't believe a significant write-down in third quarter or fourth quarter. But when we look at the margins, we combine everything, including the inventory write-downs, including the, let's say, logistic costs, and we combine together. So...

Right. But is it fair to say that the rate at which the price of polysilicon has come down so far in the third quarter is greater than the rate at which module prices have come down? I don't mean in terms of percentages. I mean, in terms of per watt.

Yes. No. But -- it's a very complicated calculation. We need to finish the book. But it's not purely the polysilicon. And I think -- again, I said, we have more shipments on N-type. And N-type, we have -- we are progressing pretty good and getting from cost structure relatively getting better and better. And we continue to , let's say, the streamline and the improvement in production efficiencies as well. So it's a kind of combination, and we are expecting better cost structures in the second half year.

Right. Okay. Just moving on to EBITDA and operating cash flow. I just want to reconcile 2 numbers, Charlie. One is that you have said that the EBITDA in the first half of the year was USD 1.3 billion. And you are also saying that operating cash flow is going to be RMB 10 billion for the full year. What is the difference between operating cash flow and EBITDA?

We -- operating cash flow and versus EBITDA is kind of the tax, right? The tax payments, let's say, the interest expenses payment as well as also we have more and more shipments on the let's say, one more higher shipments. Our working capital will increase as well, including the inventory, accounts receivable and et cetera. And so you can -- you cannot just simply, let's say, simply do the calculations and EBITDA is equaling, let's say, the operating cash flows.

I see. Okay. Okay. So you are taking out taxes and working capital requirements and the operating cash flow. But what you're also saying is that based on the operating cash flow assumptions, you still expect that next year, operating cash flow should be higher -- equal to or higher than the capital spending.

Sorry. So whats your question?

Yes. So my question was that based on your definition, the operating cash flow next year will be RMB 10 billion to RMB 15 billion, which is still higher than the CapEx for next year.

Yes. Yes, you're right. Yes. That's a key message. Yes.

Okay. The next question is, you have talked about how the Shanxi capacity that is coming on next year is going to be 8% to 10% more efficient than your best capacity right now for type. And so -- and you've also said that it is also going to reduce your working capital requirements from 40 days to -- sorry, in the work in process from 40 days to 7 days. And I'm curious that those are very big shifts. That will shift down your total inventory-oriented working capital, will it not?

Yes, yes, right. I think about it's kind of the brand new capacities. It's 28 gigawatts and accounting 25%, our total capacity is not overall capacity integrated together, right? So it's going to be improved our working capital and cash conversion cycles, but it's not all the capacity improves to that level. It's kind of the new capacity around 25% of our total capacity and to drive the efficiency improvement.

So one other question is that, typically, the way you have done your planning for capacity, the module capacity that you end up with at the end of the year and is typically equal to your target for the next year. So for example, this year, your target is 70 to 75 gigawatts of modules and roughly, that was the module capacity you had at the end of last year. And this year, you are planning to end with 110 gigawatts of modules. Is it reasonable to think that that's the kind of module target you are hoping to -- module shipments you're hoping to target next year?

Yes. We are doing the business plan next year. And you're right. When we do the capacity, if you look at the capacity, it's typically preparations for next year. So it's for sure next year, it's over 100 gigawatts. But detailed numbers, we are evaluating and is going to release in the next earnings call.

Right. Charlie, have you set a date for the next earnings call?

Do you mean the timing?

Yes. For the third quarter, yes.

I think so. I think by the end of October, next month.

This concludes our question-and-answer session as well as our conference for today. Thank you for participating. You may now disconnect.