JinkoSolar Holding Co., Ltd. — FY2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017. This is an audited annual report, not a quarterly filing; the supplied filing text does not provide standalone fourth-quarter results. Financial statements are prepared under U.S. GAAP. Unless otherwise stated, amounts below are RMB.
Business context
JinkoSolar manufactures and sells photovoltaic products, principally solar modules, through a vertically integrated production chain. In 2017, module sales represented 96.9% of revenue. The company reported annual capacity of 8.0 GW for wafers, 5.0 GW for cells and 8.0 GW for modules. It disposed of its China downstream solar-project business in 2016; 2017 results therefore primarily reflect manufacturing and continuing overseas projects.
Key financial metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | RMB26.47 billion (US$4.07 billion) | RMB21.40 billion |
| Gross profit / margin | RMB2.99 billion / 11.3% | RMB3.87 billion / 18.1% |
| Operating income / margin | RMB325.3 million / 1.2% | RMB1.35 billion / 6.3% |
| Net income from continuing operations | RMB142.2 million | RMB990.2 million |
| Net income attributable to ordinary shareholders | RMB141.7 million | RMB1.83 billion |
| Operating cash flow | Use of RMB177.1 million | Use of RMB1.80 billion |
| Capital expenditures | RMB2.59 billion | RMB4.04 billion |
Module shipments rose 57.3% to 9,792.2 MW, while the average module selling price fell 21.3% to RMB2.62 per watt. Cost of revenue increased 33.9%, outpacing revenue growth. The 2016 comparison is affected by a RMB1.01 billion gain on disposal of discontinued operations; FY2017 had no such disposal gain.
At year-end, cash and cash equivalents were RMB1.93 billion, restricted cash RMB833.1 million, and restricted short-term investments RMB3.24 billion. Current assets were RMB19.61 billion versus current liabilities of RMB19.96 billion, indicating negative working capital of about RMB355 million. Short-term borrowings, including current maturities, were RMB6.20 billion; long-term borrowings were RMB379.8 million. The balance sheet also reported RMB308.7 million of bond payable and accrued interest. Management said available liquidity, expected operating cash generation, bank facilities and the February 2018 equity proceeds were expected to cover working-capital and capital needs for at least 12 months from April 24, 2018.
Material changes and management commentary
- Revenue increased 23.7%, chiefly on higher module volumes, but gross profit fell 22.7% as selling prices declined amid industry oversupply. Attributable net income fell from RMB1.83 billion to RMB141.7 million.
- Operating expenses rose 5.8%. Selling and marketing costs increased with shipping and warranty costs; R&D expense rose 62.4% to RMB294.1 million. G&A expense declined, partly reflecting asset-disposal gains and reversals of doubtful-account provisions.
- Foreign-exchange results shifted from a RMB208.8 million gain in 2016 to a RMB114.3 million loss in 2017. Net interest expense declined 31.7% to RMB245.5 million, in part after debt repayments and note repurchases.
- Operating cash flow remained negative, while investing activities used RMB2.43 billion and financing activities provided RMB2.11 billion. Cash and cash equivalents declined by RMB573.1 million during the year.
- Management said polysilicon prices had declined in 2018 and expected gross margin to improve in the near future; this is forward-looking commentary, not quantified guidance. No formal numerical earnings or margin guidance is provided in the supplied text.
- After year-end, the company raised approximately US$71.1 million net in a February 2018 ADS offering, alongside a US$35 million private placement to entities held by the chairman and CEO. It also agreed to supply NextEra up to 2,750 MW of modules over approximately four years and planned a Jacksonville factory, expected to begin production in Q3 2018 and reach full capacity in H1 2019.
Risks, contingencies and unusual items
- Guarantees and related parties: JinkoSolar guaranteed Jiangxi Jinko Engineering’s financing obligations of RMB5.84 billion (about US$897.9 million) at year-end. The filing also reports RMB148.2 million of guarantee liabilities to related parties. Jiangxi Jinko Engineering is related to the company’s chairman; verify guarantee terms, fees, counterparty capacity and exposure if the borrower defaults.
- Trade measures: U.S. duties and the Section 201 safeguard measures could raise costs or reduce demand. The company recorded RMB12.1 million of preliminary U.S. duty provisions in 2017; several tariff reviews remained pending. The planned U.S. factory was intended to reduce exposure to import tariffs, but construction and ramp-up were risks.
- Legal and tax matters: SARS demanded approximately ZAR573.1 million (US$42.4 million) from the South African subsidiary over customs matters. Management disputed the demand and assessed the potential consolidated exposure as immaterial (less than RMB70,000). The Wuxi Zhongcai prepayment litigation remained pending; the RMB93.2 million balance had been fully provided for in 2012.
- Supplier, inventory and receivable risks: The five largest silicon suppliers represented 72.5% of silicon purchases by value, and the largest represented 23.9%. Inventory valuation provisions were RMB313.7 million in 2017. Customer credit, supplier advances and collection timing affect liquidity.
- Commitments: Manufacturing-equipment purchase commitments totaled RMB3.31 billion, including RMB1.59 billion due in 2018. The company reported negative working capital and reliance on short-term bank borrowing; management’s liquidity assessment depends in part on credit availability and cash generation.
- Other unusual items: Warranty accrual estimates were revised, resulting in a RMB117.2 million reversal of prior-year liabilities, while 2017 warranty utilization increased to RMB114.1 million, mainly from a defective batch of supplier materials. The company also completed equipment sale-leaseback financing transactions and reported deferred losses.
The auditor issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting; management and the auditor considered controls effective at year-end. The filing separately warns that the auditor, based in China, was not subject to PCAOB inspection at that time.
Investor verification priorities
- Confirm current repayment schedules, covenant headroom, available undrawn facilities and the quality/accessibility of cash, given negative working capital and substantial restricted balances.
- Review the RMB5.84 billion related-party guarantee, its maturity and collateral, and assess Jiangxi Jinko Engineering’s ability to service its debt.
- Track module selling prices, polysilicon and other input costs, shipment volumes, inventory provisions and whether the expected margin recovery materialized.
- Verify the final impact of U.S. and other trade measures, the U.S. factory’s construction and ramp-up, and the economics and delivery obligations of the NextEra agreement.
- Assess related-party receivables, including amounts due from Jiangxi Jinko Engineering and Sweihan, and reconcile collection performance with operating cash flow.
- Monitor the SARS dispute, Wuxi Zhongcai litigation, employee-benefit underpayments disclosed at RMB484.8 million, and equipment commitments and leaseback obligations.