JinkoSolar - Earnings Call - Q1 2020
June 15, 2020
Transcript
Operator (participant)
Welcome to today's first quarter 2020 JinkoSolar earnings conference call. Please note that all participants will be in listen-only mode for the first part of this call, and afterwards there will be a question-and-answer session. Now, I'm pleased to present Ms. Ripple Zhang. Ms. Zhang, please begin.
Ripple Zhang (Head of Investor Relations)
Thank you, Operator. Thank everyone for joining us today for JinkoSolar's first quarter 2020 earnings conference call. The company's results were released earlier today and available on the company's IR website at www.jinkosolar.com, as well as on Newswire Services. We have also provided a supplemental presentation for today's earnings call, which can also be found on the IR website. On the call today from JinkoSolar are Mr. Chen Kangping, Chief Executive Officer; Mr. Charlie Cao, Chief Financial Officer; and Mr. Gener Miao, Chief Marketing Officer. Mr. Chen will discuss JinkoSolar's business operations and company highlights, followed by Mr. Miao, who will talk about the sales and marketing, and then Mr. Cao, who will go through the financials. They will all be available to answer your questions during the Q&A session that follows. Please note that today's 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 involving 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. It's now my pleasure to introduce Mr. Chen Kangping, CEO of JinkoSolar. Mr. Chen will speak in Mandarin, and I will translate his comments into English. Please go ahead, Mr. Chen.
Kangping Chen (Chairman and CEO)
谢谢 Ripple。各位早上好，感谢大家参加今天的电话会议。
Ripple Zhang (Head of Investor Relations)
Thank you, Ripple. Good morning and good evening to everyone, and thank you for joining us today.
Kangping Chen (Chairman and CEO)
一季度公司组件出货量 3,411 兆瓦，不考虑出售海外电缆带来的影响，营业收入 $1.03 billion，毛利率 19.7%。各项指标均符合经营预期和业绩指引。因为新冠疫情的影响，一季度光伏产业链受到了来自原材料供应和物流运输等主要挑战。凭借高效的协调和管理能力，我们仍然顺利实现了一季度出货量的历史新高。因为中国的疫情得到了很好的控制，国内工厂已经在 3 月全面恢复正常运营。
Ripple Zhang (Head of Investor Relations)
Total shipment of solar modules during the first quarter was 3,411 megawatts, excluding the impact of the disposal of overseas solar power plants. This quarter generated total revenues of $1.03 billion and a gross margin of 19.7%, always in our guidance range for the quarter. The COVID-19 pandemic impacted the solar industry, creating numerous challenges, from difficulties obtaining supplies of raw materials to logistics and transportation disruptions. Despite all these challenges, we are still successfully achieving the highest historical shipments in the first quarter, which we believe demonstrates our strong ability to execute and incorporate flexibility to carefully navigate and adapt to a difficult global economic environment. Thanks to containment efforts across the country, all our factories in China have reached full production in March.
Kangping Chen (Chairman and CEO)
二季度，海外需求成为主要的挑战。疫情导致大多数国家出现不同程度的物流滞后和项目推迟。我们的马来西亚工厂迅速采取措施保障员工的安全和健康，并遵守当地政府的防疫管理。有效的应对使我们的生产在4月底已恢复正常。我们同时将健康和安全管理的措施复制到了美国工厂，有效地保障了生产的正常运营。面对全球需求的明显下滑和近期的原材料价格下跌，我们不断地协调生产、物流和销售，在积极获取新订单的同时严格控制库存。过去的几个月，我们始终没有放松对员工安全的保护，都是从中国向美国和马来西亚工厂运送防疫物资。希望在这个特殊的时期，与所有员工、客户、供应商以及其他合作伙伴共度难关。
Ripple Zhang (Head of Investor Relations)
The major challenges so far during the second quarter have been overseas demand. The pandemic has impacted logistics to varying degrees and caused project delays in most overseas markets. In Malaysia, we immediately implemented measures to ensure the health and safety of our employees while at the same time complying with government containment measures. This rapid response has brought our production back to normal safely by the end of April. We replicated these health and safety measures for our employees in the U.S. and were able to keep production running smoothly throughout the pandemic. With the global demand falling significantly and the price of raw materials declining as a result of the pandemic, we focused our attention on coordinating production, logistics, and sales to ensure we could fulfill new orders while carefully controlling inventory levels.
Shipments of epidemic prevention materials continue to be made from China to our Malaysia and U.S. facilities. We have been doing all we can to care for our employees, clients, suppliers, and other business partners during this challenging time.
Kangping Chen (Chairman and CEO)
近日，中国工信部就光伏制造行业规范条件公开征求意见，计划将光伏新建产能的门槛提升，以促进新技术的应用，同时将现有产能指标要求强化，以促进产业整合和加速落后产能出清。政策在加速推动新技术的产业化应用，利好龙头企业做大做强。另外，提升光伏产出发展的特高压建设和消纳空间扩容的政策也在近期出台。我们认为，疫情后各个国家都会更加关注能源本地化和能源安全问题。由于光伏在新能源中的竞争力持续增强，叠加疫情期间产业链价格下跌带来的全球范围内的加速评价，预计不少国家都会出台光伏振兴的计划，利好光伏新能源在后疫情时代的长期渗透力。今年，广义的相对过剩使得落后产能加速退出市场，能够降低终端度电成本的应用加速推广。不具竞争力的企业相继退出市场，一线企业的市场份额集中度从而进一步提升。我们预计，相较原来的市场预期，今年全球的装机需求受疫情影响下会下降约 25%。我们全年的签单和目前的订单执行情况都保持良好，并维持全年的出货量指引不变。
Ripple Zhang (Head of Investor Relations)
Recently, China's Ministry of Industry and Information Technology began seeking public opinion for its draft standard conditions of the PV manufacturing industry. The draft consultation will be used to raise the standards for new-built production facilities in order to promote the application of new clean technologies. Under these new standards, all existing production facilities will be required to implement industrial integration and accelerate the replacement of outdated equipment and infrastructure. This will help accelerate the industrial application of new technologies and will benefit and strengthen leading manufacturers as they expand to scale. In addition, policies governing the construction of ultra-high voltage projects and grid absorption capacities expansion will support the long-term development of the industry.
We believe governments around the world will increasingly refocus their focus to energy security and localization, especially after the COVID-19 pandemic, due to the continued enhancement of the competitiveness of solar energy over traditional energy, and the acceleration of grid parity caused by the fall in the price of the industrial chain during the epidemic, which will result in more countries implementing policies to support solar energy and will drive its deeper penetration in the post-pandemic era. In 2020, excess supply in the market will rapidly drive outdated production capacity out of the market and accelerate application of technologies that will better reduce levelized cost of energy. Smaller manufacturers will find it harder to compete and will exit the market, which will create an opportunity for larger global players to expand their market share.
We expect global installation to fall by around 25% compared to estimations at the beginning of the year due to the impact the coronavirus pandemic is having. Our order book for the year remains strong and shipments rolling out, allowing us to reaffirm our guidance on total solar module shipments for the full year 2020.
Kangping Chen (Chairman and CEO)
面对疫情，公司花了更多的精力做内部生产管理方面的调整和外部的沟通协调，从而进一步完善了危机应对管理，提升了信息共享的效率。随着落后产能的迅速出清和高效产品的加速推广，行业组件产品快于预期地迈向了500瓦时代，更高功率和更大尺寸的终端产品不仅对组件环节的品质和电池环节的工艺设置了更高的门槛，也对企业从研发到量产的产业链整合能力提出了更高的要求。研发对增强我们的竞争力至关重要，我们将继续凭借专业优质的研发团队、行业领先的科研平台和完善高效的产品开发体系，去持续更新能为客户带来最佳收益的产品，并充分发挥前沿产品快速量产的优势，从而引领行业的发展。
Ripple Zhang (Head of Investor Relations)
Faced with the COVID-19 pandemic, we made adjustments to our internal production and management processes and facilitated the greater flow of information across our external network, which further improved the efficiency of our crisis management response and information sharing. As outdated capacity is removed from the market and with accelerated adoption of high-efficiency premium products by downstream partners, standards for PV modules and components entered the 500-watt ultra-high efficiency era earlier than expected. These ultra-high efficiency products also set higher standards for wafer quality and cell technology that have been replicated across supply chains, all the way from R&D to the mass production of modules. Technology remains central to strengthening our competitive edge in the market.
We will continue to lead the industry in offering innovative products that will generate solid returns on investment for our clients by leveraging our highly skilled R&D team, industry-leading research platform, and ability to rapidly mass produce newly developed cutting-edge products.
Kangping Chen (Chairman and CEO)
近期，我们发布了最高功率可达 580 瓦的新产品 Tiger Pro，正是 N-type 的高效率高功率产品，引领新一代行业标准，助力全球平价上网更广泛的应用。疫情加速了行业的技术革新，龙头企业的产品竞争力得以深刻体现。同时，作为全球最大的组件供应商，我们产品的开发和迭代会充分考虑项目开发商、工程承包商、设计院，甚至下游的供应商。这使得我们在以市场为导向、有效地提升产品竞争力的同时，也有利于规避技术风险。总之，疫情对行业整体不可避免地带来了一些负面影响，但我们依然对疫情后公司的持续发展和市场份额的进一步提升充满期待。
Ripple Zhang (Head of Investor Relations)
Recently, we launched a new Tiger Pro series module with maximum power output of 580 watts. This breakthrough will set new industry standards for power generation and efficiency and will support a wider array of installation scenarios as the globe accelerates towards grid parity. The pandemic is, in effect, raising technical standards for the industry. The competitiveness of leading players' products will drive further innovation in clean energy technology. As one of the world's largest solar module manufacturers, we are developing and adapting our products for project developers, engineering contractors, and design institutes, as well as downstream suppliers. Their feedback has been key to assisting and mitigating technical risks when building our market-oriented products, which strengthens our competitive positioning. In short, the pandemic has adversely impacted the industry, but we are still on track to continue generating growth and expand our market share.
Kangping Chen (Chairman and CEO)
产能方面，我们的单晶硅片产能已于今年 4 月份达到 18 吉瓦，电池产能截至一季度末 10.6 吉瓦，其中包括目前市场上总共效率最高的 800 兆瓦超高效 N 型电池产能。组件产能截至一季度末 16 吉瓦，另外有大约 9 吉瓦的高效组件新产能在二季度陆续投产。今年，我们会在产能的成本和管理等方面持续地做精益化的提升。
Ripple Zhang (Head of Investor Relations)
On capacity side, our in-house Mono wafer production capacity reached 18 gigawatts in April. Cell capacity reached 10.6 gigawatts by the end of the first quarter, including 800 megawatts of ultra-high efficiency N-type cells that have the highest conversion efficiency currently on the market. On the module side, module capacity was 16 gigawatts by the end of the first quarter, with an additional nine gigawatts of the new high-efficiency capacity expected to gradually be put into production in the second quarter. We will continue to make further refinements to managing cost and efficiency in 2020.
Kangping Chen (Chairman and CEO)
revenue between RMB 11 billion-RMB 11.8 billion, gross margin between 16%-18%. The full-year module shipments expectation for 2020 remains unchanged, between 18-20 GW.
Ripple Zhang (Head of Investor Relations)
Before turning over to Gener, I will introduce our guidance. Based on our current estimates for the second quarter 2020, total solar module shipments will be in the range of 4.2-4.5 gigawatts. Total revenues will be in the range of $1.1 billion-$1.18 billion, and gross margin will be in the range of 16%-18%. We maintain our guidance on the total solar module shipments for the full year 2020 to be between 8-20 gigawatts.
Thank you, Mr. Chen. The total shipment of solar modules reached 3,411 megawatts, the historical high in Q1 despite the challenges COVID-19 created for our sales and production. Over the past few months, we have been carefully monitoring industrial developments, real-time market trends, and first-hand client feedback, which provided us with a detailed understanding of how the pandemic is impacting our clients and allowed us to offer better support. At the same time, we launched the emergency response mechanism developed from our experience facing previous challenging and unpredictable market turbulence, which provided us with a flexible and pragmatic tool to navigate during the crisis. The impact of the pandemic is expected to shrink global market demand by approximately 25% in 2020 to 110 to 120 gigawatts. Nevertheless, our high-quality products remain in strong demand and reaffirm our guidance of annual shipments in the range of 18 to 20 gigawatts.
With our order book for the year growing and shipments rolling out, we continue to drive growth. The China market was oversupplied in Q1. Some of the delayed projects from 2019 are now under pressure to complete installation before the June 30 deadline, which is helping to stabilize module prices lately. New bidding rounds for utility plants in 2020 are expected to start construction in the third quarter, reaching peak installation in Q4. In 2020, grid capacity for solar power connection will reach 48.45 gigawatts. Ultra-high voltage projects are being extensively promoted by the government as a strategically important source of energy integration and power transmission from China's west to the coastal regions over the long run. According to the latest policy from China's NDRC, each province is required to set the lowest non-hydro renewable generation ratio, ranging from 5% to 25%.
In addition, reforming policies in electricity trading and distributed power trading pilot will also improve solar power utilization efficiency, accelerating the diversification of China's energy mix. The distribution market in the U.S. has slowed during the pandemic shutdown in March, while the construction of large-scale power plants still continued as planned. Given the situation, the U.S. Department of the Treasury announced that ITC for renewable investment would receive a one-year extension. Just a few weeks ago, the government of Virginia signed a bill requiring the state to achieve 100% carbon-free power by 2045. A number of large-scale renewable energy projects continue to be adequately funded from global financial institutions despite energy markets facing unpredictable turmoil. Many European countries have begun easing travel restrictions since May. Economies there are bouncing back, and businesses are getting active again. Portugal awarded a 1.15-gigawatt solar auction in 2019.
In early 2020, Portugal announced another solar auction for 700-800 megawatts to be carried out within the year. The Netherlands launched a 10-year net metering program to support residential solar and lower annual electricity costs by 9% from 2023-2030. According to the regulator, homeowners who are willing to install PV systems will benefit from a reasonable investment return. Germany also lifted the 52-gigawatt cap for subsidies of small-scale solar projects. The market is expected to recover strongly in 2021. The economic stimulus package, which includes renewable energy, will soon be having a significant positive effect across the whole Europe. Turning to Asia, the lockdown in India since March 24. Travel restrictions have greatly impacted the flow of personnel and materials. The extension of the lockdown prolonged these restrictions, which have further impacted public transportation project suspension, bidding, and power plant operations.
Recently, customs, banks, and other institutions began gradually returning to work. Several large utility companies, such as SECI and NTPC, have extended the bidding deadline for PV power generation projects. In April 2020, SECI extended the bidding deadline for solar projects and wind solar hybrid projects totaling 8.7 gigawatts. In Vietnam, the lockdown has been lifted, which resulted in PV projects getting back on track. The Deputy Prime Minister of Vietnam issued a policy in April to encourage the development of solar power projects. According to the Decision 13, new FITs for all three types of solar energy systems and projects, namely floating, ground-mounted, and rooftop, will be lowered. The pandemic in Japan has gradually eased, and the Japanese government terminated the state of emergency on May 25. PV installations still continue, but at a much slower pace, with completion of large-scale projects delayed into 2021.
Markets in Asia, such as Australia, Singapore, Malaysia, and the Philippines, have slowly kicked off. The Brazilian market continues to be significantly impacted by the pandemic, which has affected approximately 70% of the installations. The market downturn has forced many small installers and distributors to halt operations and some large-scale projects to delay until 2021. The Middle East and Africa region began opening up in June. Some businesses are reopening, and construction activities are returning with limited labor mobility. In conclusion, we are confident in long-term growth prospects of the PV industry despite all the short-term challenges. Going forward, JinkoSolar will continue to adapt our products and services to the needs of customers who are increasingly demanding high-quality products, stable supply, and a strong brand recognition. The pandemic will accelerate the removal of outdated capacity and leave only the strongest standing.
We were recently recognized as a top performer for the sixth consecutive year in the PVEL/DNV PV Module Reliability Scorecard and were one of the only two global manufacturers to have been recognized as a top performer every year since 2014. Being recognized as a top performer once again reflects our dedication and commitment to the research and development of high-quality PV products. Speaking overall, the obsolete capacity in the solar industry is inevitable, but high-efficiency PV products remain in short supply. Competitive products underpin the market added value and overall sustainable development. As a leading market player, JinkoSolar has always been customer-oriented, focusing on optimizing power plant design and reducing LCOE. Recently, we launched our latest Tiger Pro series, reaching a maximum power output of 580-watt peak. It took place via online live streaming with approximately 200,000 people from all over the world participating in the event.
Not only did the Tiger Pro series gain significant exposure from this, it also acted as a milestone for the PV industry. As the industry turns a page, we will strengthen our position as the supplier of choice with the lowest LCOE, strongest system compatibilities, and overall economic value. With that, I will turn it over to Charlie.
Charlie Cao (CFO)
Thank you, Gener. Results in the first quarter were in line with our guidance. Key financial indicators, including total revenue, gross margin, and net income, have increased significantly year over year. This is due to the continued increase in the integration production level. By the end of March, we closed the sale of the two solar power plants with a combined capacity of 155 MW in Mexico, which reduced the total debts by about $421 million.
Mono wafer capacity reached 18 gigawatts in April, which will support our expected total shipments of 18-20 gigawatts for the full year. Going into the details, excluding the sale of the overseas solar power plants, total revenues were $1.03 billion, an increase of 25% from the first quarter of 2019. Gross margin improved to 19.7%, compared to 16.6% in Q1 last year. EBITDA was $100 million, compared to $49 million in Q1 last year. Non-GAAP net income was $32 million, significantly increased year over year. This translates into non-GAAP diluted earnings per ADS of $0.65. Excluding the sale of overseas solar power plants, total operating expenses accounted for 12.6% of total revenues, compared to 11.9% in the fourth quarter of 2019 and 12.5% in the first quarter of 2019.
The sequential increase was primarily due to an increase in shipping costs as a percentage of total revenue associated with a higher percentage of shipments to the overseas markets in the first quarter of 2020. Moving to the balance sheet, our balance of cash and cash equivalents were $670 million, compared to $895 million at the end of last year. Accounts receivable turnover days were 66 days, compared to 94 days in Q1 last year. Inventory turnover days were 110 days, compared to 120 days in Q1 last year. Total debt was $1.8 billion, compared to $1.9 billion last year, in which $162 million was related to international solar projects. Net debt was $1.1 billion, compared to $1 billion at the end of Q4 2019.
Total CapEx for 2020 is expected to be around $350 million, which is used for the 5 gigawatt second phase of mono wafer capacity and additional new 9 gigawatt module capacity. This concludes our prepared remarks, and we are happy to take your questions. Operator.
Operator (participant)
Thank you. So ladies and gentlemen, we'll begin a question and answer session. If you would like to ask a question to the speaker, please 01 press on your telephone keypad. To cancel, please press 02. Our first question is from Philip Shen at Roth Capital Partners. Please go ahead.
Philip Shen (Managing Director, Senior Research Analyst)
Hi everyone, thank you for the questions. The first one is on pricing. We calculate an implied module ASP of about $0.30 per watt in Q1 on a blended basis for you. And I think based on your guidance, the pricing might be closer to $0.262 for Q2.
So this is just maybe a 13% sequential decline. Are we accurate with these numbers? Perhaps you can comment on what we might be missing. Specifically, how much in Q1 did you have from module-only revenue, for example?
Yeah, so it's Gener. Thanks for the question. Yeah, for the Q1, the ASPs compared with Q1 and Q2, we are seeing because of market turbulence and also the pandemic impact, the market price dropped by around, let's say, 10%. So if we look into our Q2 pricing, so yes, I think we are around that range as well. So compared with the Q1 ASPs, Q2 ASP, we are expected to drop by approximately a high single-digit range.
Okay. And then how do you expect that blended pricing to trend in Q3? Do you expect another drop as well? And then do you see the stability more in Q4?
What do you see ahead? Thanks.
Yeah, so for them, our strategy is always to follow the market. So we are not against the market. So when we see the market price is dropping, definitely our pricing will drop. That's our strategy. I think everyone will follow that, not only Jinko. So the number-wise, it's hard to define right now what's the exact numbers for Q3. It's too early to talk about the Q3 final pricing. But from the observation of the market price side, we did feel the expectation from all the customer ends that they expect the market price to continue to drop compared with Q2. But actually, when we look into the whole year pricing, I still believe there will be some bounce back at late Q3 or even early Q4 because expected strong demand in China rush by the year end.
There will be a kind of shorter supply by that time.
Okay. Thanks, Gener. And then from a housekeeping standpoint, can you share what the CapEx and depreciation was in Q1?
Charlie Cao (CFO)
Yeah, Philip, the depreciation, the cost roughly per quarter, roughly $40 million. And the CapEx is roughly $100 million for the first quarter.
Philip Shen (Managing Director, Senior Research Analyst)
Great. Okay. Thanks, Charlie. And then one bigger picture question in your prepared remarks. You commented that the draft MIIT policy should drive capacity lower. Can you comment a little bit more on how you expect this policy to work and how do you expect this to impact the industry? I can see marginal capacity expansion going away, but was wondering if you could just comment more on what you see as the impact of this policy and when you expect it to be made official. Thanks.
Charlie Cao (CFO)
So you're talking about ITCs, right? No, I'm talking about the Ministry of Industry policy to force the industry to have higher efficiencies in the capacity expansion.
You mean the China manufacturer, let's say, industry standards thing, right?
Philip Shen (Managing Director, Senior Research Analyst)
That's right. Yeah. Yeah.
Charlie Cao (CFO)
Well, I think this is a national standard, which is continuing to encourage the latest technology adoptions. And there's a lot of threshold, which is the minimum threshold. And if the industry participants want to expand the capacity. And I think all in all, I think it's a very positive for the industry consolidations, and particularly the tier one companies, given their technology advantage and will lead the capacity expansion to meet the anticipated sustainable growth in the future. And for the tier two, tier three companies, it's under pressure. And it's not only from the customer perspective, right?
A lot of tier one companies are leading the product, and we are promoting over 500-watt modules, and tier two, tier three companies, they are under pressure, and from the supply perspective, the government wants to build policies, which is a positive for the leading companies, but negative for the tier two, tier three companies.
Philip Shen (Managing Director, Senior Research Analyst)
Okay. Thank you very much. I'll pass it on.
Operator (participant)
Thank you. Our next question is from Tony Fei at BOCI. Please go ahead.
Tony Fei (Analyst)
Hey, thanks, Management. This is Tony from BOCI. I have two questions. First is regarding on the order book front. So among the 4.2-4.5 gigawatt shipment target for Q2, could you give us some color regarding how much of that will come from domestic orders and how much from overseas? And how about that mixed movement in the second half, maybe?
Charlie Cao (CFO)
Yeah.
You're talking about a Q2 number, right? I will assume your question is mainly about the China mix during the Q2 and also the rest of the year's shipment plan, right? From my observation, the Q2 number for the shipment mix, China will occupy not a significant number. The number range we are looking at is around, let's say, 10%-15%. However, it will rapidly go up, especially when the China market starts to boom by the second half. We expect the ratio will be higher. Even by the peak time of the Q4, we are expecting the number could be even 30%, even plus. For the total year, yeah, our target China market will still take a pretty, let's say, a fair ratio compared with all the other regions we are having.
So approximately one quarter of our total shipment is expected to ship in China.
Tony Fei (Analyst)
Okay. Great. And my second question is regarding the financials. So looking at your results in the Q1, actually, all the revenue and the gross profit are quite in line with your previous guidance. But the net profit was tracked by the change in fair value of some derivative products. So in the second quarter, actually, we are seeing the RMB is still weaker year on year. So should we expect more kind of losses or fair value change in the quarter? Thank you.
Charlie Cao (CFO)
Okay. The change of fair value is in two parts. One part is linked to our international projects and the interest swap. And that is a significant negative impact in the first quarter because of the very low, even close to zero, the U.S. Treasury rate.
I think it's a long time. The long-term, the U.S. Treasury rate is rebounding to the standard level. For the currency, the currency forward currency to lock our sales orders. Because the RMB is expected to be depreciated in the first quarter, particularly given the recent tensions between the U.S. and China. Now it's and the RMB is stabilized and relatively appreciated. We don't expect significant impact in the second quarter. For the financial instrument, I mentioned the two items. We don't expect significant impact in the second quarter.
Tony Fei (Analyst)
Okay. Great. Thanks for passing it on.
Operator (participant)
Thank you. Once again, ladies and gentlemen, as a friendly reminder, if you'd like to ask a question to the speaker, please press 01 on your telephone keypad. To cancel, please press 02. Our next question is from Brian Lee at Goldman Sachs.
Please go ahead.
Brian Lee (Managing Director and Senior Clean Energy Analyst)
Hey, guys. Thanks for taking the questions. Maybe just to follow up a little bit on an earlier question, just on the gross margins. You're guiding down about 250 basis points at the midpoint for the second quarter versus the first quarter. Pricing really started falling in late March and April. So we've heard from other companies that a lot of that volume could flow through more into Q3 as opposed to real-time into Q2. So is it fair to assume gross margin is down again sequentially in Q3? And then how should we think about the cadence from there?
Charlie Cao (CFO)
The decline of gross margin second quarter reflected the slowing, the weak demand, particularly from the international markets in the second quarter. And as we discussed that the ASP is downward trend. And given the market situation, especially, the ASP is continuing downward.
However, from the cost perspective, we are improving at the same time. So, given the third quarter, I think the second half year, the gross margin continues to be under pressure, but we are trying to achieve relatively stable gross margin compared to the second quarter, and because particularly from the end and we rapidly expand our capacity of mono wafer, and we are expecting to improve our integrated production costs and throughout the challenge period, which will offset the negative impact of the ASP downward in the second half year.
Brian Lee (Managing Director and Senior Clean Energy Analyst)
Okay. That's helpful. Then, Charlie, just a question around the inventory. I know in past years, you typically have a pretty big move-up in inventory from 4Q to 1Q. It seemed a little bit bigger this year, and at the same time, accounts receivable was pretty flat.
So if this was just a shipment timing issue, I would have thought they kind of moved together. So are you seeing some cancellations on modules? Are you having to kind of remarket those? Or can you give us some sense of what's happening between the AR and inventory balances here to start off the year?
Charlie Cao (CFO)
Because we target 18-20 gigawatts, right? Each quarter, on average, we are planning 4 gigawatts or 5 gigawatts. So the inventory levels will be by nature. By nature, the inventory levels will increase slightly quarter by quarter. And the first quarter, the inventory level is relatively higher because last time we discussed because of China's supply challenge. And we have 400-500 megawatts shipped to the second quarter.
And throughout the second quarter, given the challenge of international demand, we proactively manage our operation and including control the inventory levels. And we face some order cancellations or delays. But we swiftly shift our productions, particularly to the customers or new customers and regions with less impact from the virus. So in general, I think the inventory levels will be a very healthy level. And by given the target, 18 gigawatts, 20 gigawatts, and we are expecting the inventory level will increase a little bit throughout the next two quarters.
Brian Lee (Managing Director and Senior Clean Energy Analyst)
Okay. Fair enough. Thanks a lot. Thanks.
Charlie Cao (CFO)
Thank you.
Operator (participant)
Thank you. So ladies and gentlemen, if you'd like to ask a question to the speaker, please press 01 on the telephone keypad. To cancel, please press 02. Our next question is from Carl Liu at CICC. Please go ahead.
Carl Liu (Managing Director)
Hey. Hey, Charlie. Thanks for taking my question.
I have two questions. The first, could you please give us some color on the order visibility in the third quarter and the fourth quarter? And so how would we see if we can see further, if the project which delay or something cancel in the second quarter due to the coronavirus, will it move to the second half or maybe first half in the next year? So how we look at these things. And the second question is that we are seeing some strong demand in mainland China that's coming from the double glass modules and maybe in other way of high efficiency. So could you give us some more color on our maybe the product mix, what we will have in maybe the second quarter? How was our mix coming from the high efficiency modules? And how was it from maybe the remaining normal efficiency modules?
Can we have a percentage on that? Thank you.
Charlie Cao (CFO)
Okay. So this is Jinko. Thanks for the question. Firstly, about your question about the order visibilities, I think we have built up a very strong order book. I think almost, let's say, three quarters order book has been fulfilled. So we are very confident to achieve our target in 2020. I think that's part of the reason why we keep our guidance in 2020 as 18-20 gigawatt without any change. For the market, for the possible market delay, we have seen some region or some countries has showed tolerance to delay part of the projects into, let's say, two quarters, even three quarters, especially for some regions or countries, especially like India, which was expected to have an installation of over 10 gigawatt in 2020.
But with the current lockdown cloud, we believe the market size will be less than 10, even somewhere around five to six. For sure, those projects have not been canceled. Majority of those projects will get delayed into 2021. And that's why I think in our previous, let's say, especially our previous speaking, we also show our confidence about the strong demand in 2021. That's also part of our reason why we continue to expand our high efficiency capacity. So your second question about the China demand, especially the double glass demand, we see double glass or double glass product has a certain, let's say, advantage, especially in some environment. But personally, I do not see such product become a universal standard or industry standard product yet.
When I look into our Q1 book, we see less than 5% of our total shipment is double glass, which is, let's say, a very few number compared with the total shipment. With China demand picking up by the second half, we believe the ratio will be higher. But honestly speaking, I do not believe such product will become, let's say, a standard product in short term. But in long run, with more technology challenges resolved, and I believe such product has a promising future. Hope that answers your question.
Carl Liu (Managing Director)
Yeah. Yeah. I have two follow-up questions. The first is that, for example, the order from India is delayed for two or three quarters. So will that be renegotiation on our module's price? Or we will order this or ship this on a previous setting price? That's my first follow-up question.
And the second is that maybe I should rephrase my question. So I would just make an example on the double glass modules in China have high demand. But actually, what I want to ask is that we kind of see a kind of structure demand increase in high efficient modules. Maybe in China, it is the double glass. Maybe in the overseas, it's like another kind of product. We also have Swan, right? It's not double glass, but it's more lighter. So in general, how will we see in those high efficiency modules? Will we see much more higher demand growth than the normal efficiency modules? So how will we see that? And the percentage change in the first quarter and maybe second quarter? Yeah.
Charlie Cao (CFO)
Thank you for your follow-up question about project sign, contract sign.
So I think from what I see, over 95% of contracts signed has been honored. And both parties respect the contractual obligations. And we continue with the execution of the contract, even we have some pandemic impact on it. And for sure, very few contracts have to be renegotiated or even canceled because of this we call the force majeure. But we still believe it's not because customer want an arbitrage on the market price change. It's really because of what is happening for their project and/or from their homeland. Your second follow-up question about double glass, we believe the demand in China for the double glass product is increasing. That's very obvious. Sorry to say I don't have that percentage number at hand. We can give you some feedback after our call.
Carl Liu (Managing Director)
Okay. Okay. Thanks, manager. That's all my questions. Thank you.
Charlie Cao (CFO)
Thank you.
Carl Liu (Managing Director)
Thank you.
That's all for today's conference call. Thank you all for your participation.