Business context and reporting period
JinkoSolar Holding Co., Ltd. filed this Form 20-F for the fiscal year ended December 31, 2018, not for the fourth quarter alone. The filing provides annual results and does not provide a clear standalone Q4 income statement or cash-flow value. JinkoSolar is a vertically integrated solar-products manufacturer; modules generated 96.2% of 2018 revenue. Financial statements are prepared under U.S. GAAP and reported primarily in RMB.
Key financial metrics
Amounts below are RMB unless otherwise indicated; 2018 U.S. dollar equivalents are provided by the company.
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | 25.04 billion (US$3.64 billion) | 26.47 billion |
| Gross profit / margin | 3.51 billion / 14.0% | 2.99 billion / 11.3% |
| Operating income / margin | 644.9 million / 2.6% | 325.3 million / 1.2% |
| Net income attributable to ordinary shareholders / net margin | 406.5 million (US$59.1 million) / 1.6% | 141.7 million / 0.5% |
| Operating cash flow | 614.5 million | Used: 177.1 million |
| Investing cash flow | Used: 3.93 billion | Used: 2.43 billion |
| Financing cash flow | 3.97 billion provided | 2.62 billion provided |
| Cash and cash equivalents at year-end | 3.10 billion | 1.93 billion |
| Restricted cash and restricted short-term investments at year-end | 377.1 million and 4.06 billion | 833.1 million and 3.24 billion |
| Current assets / current liabilities | 22.85 billion / 24.14 billion | 19.61 billion / 19.96 billion |
| Short-term borrowings, including current portion / long-term borrowings | 7.10 billion / 1.95 billion | 6.20 billion / 379.8 million |
- Solar-module shipments rose 14.1% to about 11.17 GW, while module revenue fell 6.1% to 24.09 billion.
- Year-end total assets were 35.85 billion, total liabilities 27.40 billion, and shareholders’ equity 8.45 billion.
- Capital expenditure payments were 3.88 billion. Outstanding equipment purchase commitments were 3.71 billion, including 2.06 billion due in 2019.
Material changes versus 2017
- Revenue decreased 5.4%, primarily because lower module selling prices more than offset higher shipment volume. Management reports a 17.6% decline in module average selling price.
- Gross profit rose 17.5%; gross margin improved to 14.0%, reflecting lower manufacturing costs and a 209.7 million benefit from reversal of U.S. countervailing-duty deposits. Management states gross margin excluding that benefit was 13.2%.
- Operating expenses increased 7.6%. General and administrative expense rose to 779.4 million, including a 152.5 million loss on disposal of property and equipment; R&D expense increased to 366.6 million.
- Interest expense, net, increased to 295.7 million. Government subsidy income declined to 52.2 million from 147.9 million.
- Cash from operations turned positive, but included 1.26 billion of project-asset development costs classified as operating cash flow. Management says operating cash flow excluding that increase would have been 1.87 billion.
- Short-term and long-term borrowings increased. Outstanding ordinary shares rose to 156.9 million from 132.1 million, following a February 2018 ADS offering and private placement.
Outlook, commentary, risks and unusual items
- Management said Chinese demand fell sharply after the May 2018 policy change that reduced subsidies and constrained new projects, but later stabilized. It expected further policy details in 2019 and described long-term growth potential as costs decline and markets approach grid parity.
- As of March 31, 2019, 65% of expected 2019 module shipments were secured by orders. Management targeted year-end 2019 capacity of 15 GW for wafers, 10 GW for cells and 15 GW for modules; these are targets, not reported results.
- Management acknowledged negative working capital at year-end, but believed cash, operating cash generation and available bank facilities would cover working-capital and capital-expenditure needs for at least 12 months from April 10, 2019.
- Major risks include price competition and oversupply, dependence on government policy, trade duties and tariffs, silicon-supply and customer-credit exposure, foreign-exchange movements, and substantial debt and refinancing needs. Overseas markets generated 73.6% of revenue.
- JinkoSolar guaranteed JinkoPower financing obligations of approximately 4.07 billion at year-end. Separately, recorded guarantee liabilities to related parties were 92.4 million. A default by the guaranteed party could expose JinkoSolar to additional losses.
- U.S. trade measures included Section 201 safeguard duties and anti-dumping/countervailing duties; administrative reviews could change applicable rates. The company recorded a 209.7 million CVD reversal benefit in 2018.
- Contingencies disclosed include Singapore customer arbitrations over allegedly defective modules and 2019 patent litigation brought by Hanwha Q CELLS in the U.S., Germany and Australia. The company disputed the claims; it said a probable liability was not indicated and losses could not be reasonably estimated.
- The filing estimates unpaid PRC social-insurance and housing-fund contributions of 560.2 million at December 31, 2018. It also discloses the South African customs demand of approximately ZAR573.1 million; the relevant South African entities had been divested by year-end.
- ASC 606 adoption increased reported 2018 revenue by 27.6 million and net income by 23.4 million versus the amounts without adoption; management described the overall transition impact as immaterial.
Important facts for investors to verify
- Confirm the standalone Q4 2018 results from the relevant quarterly release: this annual filing does not provide clear quarter-only financial values.
- Reconcile module average selling price: the filing cites RMB2.14 per watt in one disclosure and RMB2.16 in its year-over-year discussion.
- Check liquidity quality and restrictions: cash, restricted cash, restricted investments, negative working capital, unused credit facilities and debt maturities are not interchangeable measures of available liquidity.
- Assess operating cash generation after the 1.26 billion project-asset cash-flow classification and the funding required for the 3.71 billion equipment commitments.
- Review the size, terms and renewal of JinkoPower guarantees; the 4.07 billion guaranteed financing amount is distinct from the 92.4 million recorded guarantee liability.
- Track the outcome of U.S. duty reviews, the Singapore arbitration, Hanwha patent proceedings, and the South African customs dispute.
- Reconcile other potentially inconsistent filing disclosures, including whether the 2018 foreign-exchange result is a gain or loss; the audited statements report a 33.7 million gain.