Business Context and Reporting Period
Company: JinkoSolar Holding Co., Ltd.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2012
Business Overview: JinkoSolar is a vertically-integrated global solar power product manufacturer based in China, producing silicon wafers, solar cells, and solar modules. The company also engages in solar power project development and system integration services. As of December 31, 2012, the company had an annual production capacity of approximately 1.2 GW for silicon wafers, solar cells, and solar modules.
Key Financial Metrics
| Metric (in thousands) | 2012 (RMB) | 2012 (US$) | 2011 (RMB) |
|---|---|---|---|
| Revenues | 4,794,768.4 | 769,613.4 | 7,384,951.4 |
| Cost of Revenues | (4,562,531.3) | (732,336.8) | (6,235,100.2) |
| Gross Profit | 232,237.1 | 37,276.6 | 1,149,851.2 |
| Gross Margin | 4.8% | 4.8% | 15.6% |
| Operating Expenses | (1,465,724.3) | (235,264.9) | (833,965.5) |
| Operating Loss | (1,233,487.2) | (197,988.3) | 315,885.7 |
| Net Loss | (1,543,816.1) | (247,799.6) | 273,325.9 |
| Net Loss Attributable to Shareholders | (1,542,422.1) | (247,575.8) | 273,342.8 |
| Cash and Cash Equivalents | 279,130.0 | 44,803.5 | 433,851.0 |
| Total Debt (Short-term + Long-term) | 2,412,630.8 | 387,253.9 | 2,355,532.1 |
Note: US$ amounts are converted at the rate of RMB 6.2301 to US$1.00 as of December 31, 2012.
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased by 35.1% to RMB 4.79 billion (US$ 769.6 million) from RMB 7.38 billion in 2011. This was primarily driven by a 51.1% drop in the average selling price of solar modules (from RMB 8.7 to RMB 4.3 per watt), partially offset by a 19.9% increase in sales volume.
- Profitability Collapse: The company swung from a net income of RMB 273.3 million in 2011 to a net loss of RMB 1.54 billion in 2012. Gross margin contracted significantly from 15.6% to 4.8%.
- Operating Expenses Surge: Operating expenses increased by 75.8% to RMB 1.47 billion. This increase was largely due to non-cash charges, including:
- Provision for bad debts: RMB 412.5 million (US$ 66.1 million).
- Provision for advances to suppliers: RMB 227.1 million (US$ 36.4 million).
- Impairment of long-lived assets: RMB 65.5 million (US$ 10.5 million).
- Write-off of equipment prepayments: RMB 44.2 million (US$ 7.1 million).
- Working Capital: The company reported negative working capital as of December 31, 2012.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management believes current cash, expected operating cash flows, and available bank quotas are sufficient to meet requirements for the next 12 months. However, due to substantial debt maturities and the potential exercise of put options on convertible senior notes in May 2014, the company may need to raise additional funds through equity or debt financing, which could be dilutive or restrictive.
Material Risks and Contingencies
- Internal Control Weakness: Management identified a material weakness in internal control over financial reporting as of December 31, 2012, concluding that disclosure controls were not effective.
- Trade Remedies: The U.S. Department of Commerce imposed anti-dumping duties (24.48%) and countervailing duties (15.24%) on JinkoSolar's products. The company recorded a provision of RMB 9.1 million for these duties in 2012. There is also a risk of similar tariffs from the European Union.
- Supplier Litigation and Prepayments: The company terminated supply agreements with Hoku Materials and Wuxi Zhongcai due to adverse developments. It fully provided for RMB 129.8 million (Hoku) and RMB 93.2 million (Wuxi Zhongcai) of outstanding prepayments. Litigation with Wuxi Zhongcai is pending.
- Customer Credit Risk: Accounts receivable turnover days increased significantly, particularly in Italy (421 days in 2012 vs. 91 days in 2010). Provisions for doubtful accounts reached RMB 673.7 million.
- Regulatory Compliance: The company faces potential penalties for changing the use of proceeds from a bond issuance without prior regulatory approval, though a bondholder meeting ratified the change in April 2013. Additionally, the company has not fully paid statutory social security and housing funds for all employees, with an estimated unpaid amount of RMB 154.8 million as of year-end.
Investor Verification Checklist
- Internal Controls: Verify the remediation plan and timeline for the material weakness in internal controls over financial reporting.
- Debt Maturities: Assess the company's ability to refinance or repay approximately RMB 2.25 billion in short-term borrowings and RMB 167 million in long-term borrowings due within one year.
- Trade Tariffs: Monitor the finalization of U.S. anti-dumping/countervailing duties and the status of potential EU investigations, as these directly impact the primary export markets.
- Receivables Quality: Review the aging of accounts receivable, particularly in Europe, and the adequacy of the RMB 673.7 million provision for bad debts.
- Supplier Litigation: Track the outcome of pending litigation with Wuxi Zhongcai regarding the RMB 93.2 million prepayment.
- Regulatory Penalties: Confirm the status of regulatory filings regarding the change in use of bond proceeds and potential fines from PRC authorities.