Q1 2021 Canadian Solar Inc Earnings Call
Ladies and gentlemen, thank you for SAB and my welcome to Canadian Solar is the first quarter of 2021 earnings Conference call. My name is Andy and I'll be your operator for today at this time all parts.
These are in listen only mode later will conduct.
A question and answer session I think on these conflicts is being recorded for replay purposes I would now.
Turning to go live with it because it wasn't Chang IR manager at Canadian Solar. Please go ahead.
Thank you operator, and welcome everyone to Canadian Solar first quarter 'twenty 'twenty 1 conference call.
Please note that we have provided slides to accompany today's conference call.
And on Canadian Solar <unk> Investor Relations website within the events and presentations section.
Joining us today are Dr. Shawn Qu, Chairman and CEO Yang Jong President of Canadian Solar is majority owned subsidiary CSI solar.
Doctor and Cleveland Chan senior VP and CFO.
And if my Laredo, and corporate VP and president of Canadian source wholly owned energy business.
Oh company executives will participate in the Q&A session after management's formal remarks.
On this call Shawn will go through and overview of Canadian Solar strategy, if my and yen respectively reviewed the highlights of the global energy and CSI solar segment, respectively.
It was a free phone who will go through the financial results.
Shawn will conclude the prepared remarks to the business outlook after which we will have time for questions.
Before we begin may I remind listeners that management's prepared remarks today as well as their answers to questions will contain forward looking statements that are subject to risks and uncertainties.
Company claims the protection of the Safe Harbor before looking statements that is contained in the private Securities Litigation Reform Act of 1995.
Actual results may differ from management's current expectation and he projections of company's future performance represents managements estimates as of today.
Canadian Solar assumes no obligation to update these projections and the future unless otherwise required by applicable law a more detailed discussion of the risks and uncertainties can be found on the company's annual report on form 20-F filed with the Securities and Exchange Commission.
Management.
And it will be presented within the requirements of SEC regulation G regarding generally accepted accounting principles or GAAP.
Some financial information presented during the call will be provided on both a GAAP and a non-GAAP basis, but it just goes and certain non-GAAP information management intends to provide investors with additional information to permit further analysis of the company's performance and underlying trends management uses non-GAAP measures to better assess operating performance and to establish operating goals.
Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.
I would now like to turn over the call to Canadian Solar is chairman and CEO, Dr. Shawn Qu Shawn. Please go ahead.
Curious about.
What I'll call and thanks for joining us today.
We started turning to turn and 1 was a strong quarter.
We delivered 3.1 gigawatt of module shipments and 1.1 billion and U S dollar euro revenue and sovereignty and 49% and gross margin.
We also achieved net income of <unk> 3 million and U S solar and our diluted EPS of <unk> 36.
Our results came in towards the high end of our guidance, our deliver a good balance of growth and profitability.
How long do think IP, but they are focused on execution to make.
And.
Well Q1 remained Charlie.
Child and June quarter.
<unk> continue to execute our strategy and strengthening our long term competitive advantage yes.
Now, let's turn to the slide 3 of our presentation.
Over the past several quarters.
We have embarked on a.
Transformational journey true accelerates the demand for battery and storage service at <unk>.
Including the recent strategic partnership and <unk>.
And that agreement twice covered that tonnage.
This partnership will help us stride and pain our capabilities being on.
And the official intelligence and machine learning to forecast and manager and a true demand and execute real time power trading and desk and decision.
Battery storage assets.
This means our battery storage solutions will deliver higher value to our customers by bringing in higher revenue.
These tools will help us expand our storage solutions being true non capacity and market to offer a service SaaS like Brooklyn, and say regulation and other and salary surveys.
And also market on Patricia opportunities.
We think these advanced capabilities well it gives us a significant and long term capability capacity and competitive advantage.
Battery storage asset gain shares of their overall energy mix.
These tuck on outages, well make merging battery storage.
And your investable at scale and even more attractive to investors.
And importantly.
And they want to make and empower grid more reliable.
More efficient cleaner and smarter.
Yeah edition, we are rapidly expanding global storage project development efforts.
And we've found that virtually all our solar project and the development, Okay co host and storage facilities.
And we have dial so Julian the first quarter of trade and in China and 1.
This approach has helped us nearly double our energy storage pipeline to almost 17 gigawatt hours during the quarter.
This allows us to further.
The centralized and boost the value of our total project pipeline.
As solar and battery storage and utilize the same piece of land and the same.
And interconnection points.
Of our total storage and pipeline 1.2 gigawatt hour of the storage pipeline.
On the storage project currently under construction.
The big takeaway here, yes, all storage and initial tariffs and both of our Anuja both of our business segments.
And as fast.
And with further growth.
Expected.
Now please turn to slide 4.
Stay on the topic of tech knowledge on new and pipe Hydro Joshua.
H J G and solar cell lines of 250 megawatts is now fully up and running well.
We produced our first H day to yourself in Q1, and currently have achieved conversion efficiency of well over China and football and 5% with more improvements targeted by our in house CSI and solar H J T Research Institute.
Scientists.
And in support of our H J T cell research and production, we have brought them online and you figure it out of our 250 megawatts and tight.
You've got 40 and lines, we plan to start deliberate all on.
And our H J T.
On a molecule and Q3 of this year.
Each will help further improve on our pricing power and brand recognition.
This will make Canadian solar and the first global solar module brands to deliver H J P and solar modules of large wafer price and half comp sales.
And well make and.
Another important innovation leadership milestone and fast.
Yes.
Finally, let me say I feel worse about our supply chain and our strong commitment to human rights.
Modern slavery and include enforce the labor is on.
Crime and a violation of fundamental human rights.
Canadian solar.
A fully committed to ensuring that modern slavery does not take place anywhere you are busy and yet including our supply chain.
We expect all of our third party suppliers contractors and other busy and partners to act similarly to prevent modern slavery.
We do not tolerate and and parties directionally and indirectly and engaging in more than just the name right.
We reasonably believe that there is no forced labor involved.
And yet and we will make further efforts on.
And our suppliers.
I would encourage you to review our anti bot and instead of our policy, which is available on Canadian solar <unk> Investor Relations website under the governance section.
With that let me turn over to East now and well talk about the performance of our global and your peers and yet you smell. Please go ahead.
Thanks Shawn.
I'm proud to report that in Q1.
Mobile or 90 day, LIBOR, 471, and medium voltage and revenue.
And 24% and gross margin.
And we achieved nearly 500 megawatts of project sales and Japan, India and the U S.
We also continue to grow our project pipeline, both in solar and battery storage projects, which will imports out and future success.
Today, and how you'd like to spend a bit more time to work through the global energy business to help the market understand better our business drivers.
Please turn to slide 5.
Canadian Solar is 1 of the few.
<unk> solar and storage project development platforms and the world.
We compete with the state on all the states back to utilities as well as the small local developers and.
And we have been a couple of times I would on unique competitive moat.
Over the past decade, we have developed built and connected to the grid over 5.7 gigawatt of solar projects across 20 plus countries.
And by the end of this year, we expect to add another 1 and I hope and Gigawatts to our track record.
And this had projects currently under construction.
Moving to slide 6 please.
We have also grown our total solar pipeline to 'twenty, 1 and people with including our China pipeline, which is now part of CSA silver.
Of the 21 Gigawatts of total by Glenn normally 6 Gigawatts breaks and operation and construction are in backlog.
And those 6 gigawatt, 95% net contracted projects, which provides significant visibility into our project development business.
So far we.
We have a 100% track record delivering and brakes and Butler.
Canadian solar global on energy East.
And it's often seen as a volatile business.
This is true if you only consider on quarterly revenue profit.
And what about if you looked at our global pipeline, we had a pretty stable business, because we have on large and growing backlog and a highly valuable clean and R&D assets.
The value of these cash flow generating assets do not change on a quarterly basis.
For example.
Announced last month that we started construction on the 143 megawatts of solar projects in Japan.
During the earlier development phase these projects encountered numerous challenges on experienced some delays.
However, our team force Hubbard and now we are building 1 of our crown Jewel solar assets. The 100 megawatts. So Michael for the project has a 20 year feed and tariff authenticity and easier.
And what city to the U S dollar cents per kilowatt hour.
This is around 10 to 15 times higher than the global average PPA price.
Meanwhile, our project, helping to meet the lights, and we're doing and Japan that was devastated by the earthquake and coupons.
11.
So the latest kind of happened, which is normal and project development, but our backlog of projects is very solid.
Please turn to slide 7.
In terms of specific markets. It is worth reminding everyone that we have a strong presence and low risk high growth markets, such as the U S and the European Union.
As you know many of these markets have very ambitious goals to reach net zero emissions and Tom.
Hum pass or are in the process of passing legislation that will and call that should go to the growth of our business and.
In Japan the Mark.
And it gets has transitioned from a subsidized feed and Pat if market to and options market.
We have adjusted Accordingly, and continue to win and many of the recent options we.
And we have a competitive advantage and the attractive yet and this market and also I still have a significant portion of our growth sometimes development that have secured many high feed and pellets.
We also continue to make measuring growth in Latin American markets, such as Brazil.
Mirroring our success in Japan, we recently and said that distraction on there, but it's easy and participation pardon putting them on a select.
And some projects or IPA.
Although that is mutually some patents each risk in these countries, we cannot really secure and inflation protected ppas, we should shield us from muscle dependency on risk.
Although our contracted projects across the world are secured by long term ppas with either investment grade Counterparties automobiles bankable why don't you.
Please turn to slide 8.
I would expert this expands the pool solar development and value chain.
<unk>, we have been more focused on the development and execution stages off and monetizing projects either a notice to proceed MTB automated commercial operation date or C O D.
And how wouldn't want a day source. So these projects have depending on implications on our financials as you can see on this slide.
Our goal has been to optimize and maximize project evaluation accelerated I sort of turn on and minimized risk capital exposure. This remains our goal.
In the meantime, we are also increasingly focusing on the solar operation stage to capture the long term returns of these projects, including expanding on our operations and maintenance offerings.
Monetize and our projects and the long term ownership operating cash sexual vehicles on it.
Recently working on energy trading platforms.
Please turn to slide 9.
Looking forward, our confidence and I went and global energy business.
And on the fleet growth drivers.
Firstly, it is our traditional bread and butter developmental sales business.
Our goal remains to grow and we're seeing some volume by 25% CAGR over the next 5 years.
After the market growth.
Secondly, we are expanding our services platform, particularly on lean operations and maintenance on them.
And expect to significantly gain market share.
We have over 2 gigawatts up operational projects and the long term O&M agreements and an additional 2 gigawatts of free extend their contract.
Our target is to operate the Manitoba 11, Gigawatts of projects by 2025, which will include both projects developed by ourselves and that's what our third party projects.
Thirdly in addition to building and selling and the brakes with at below we are also looking to optimize our project and monarch decision on our strategy and build investment vehicles that will help maximize the value of our assets.
Meanwhile, we intend to retain ownership of these projects over the longer term through and obviously.
Thanks.
We expect to reach out and this 1 gigawatt of combined net ownership of solar power.
Our projects by 'twenty 'twenty, 1 by 2020.5.
Note that this is a combined net number and that the gross price of display should be at 1.3 and 4 gigabytes.
By retaining projects for the long term and captured an additional 11 through on them and I said management services, we expect the spun out a base of a stable long term cash flows.
We estimate that by 2020.5 regarding on cash flows will account for roughly half of that cash flow generated by the global energy business.
Please turn to slide 10.
And again when that keeps this go to establish and localize vehicles.
These vehicles allow us not only to participate in the long term value creation of these projects, but crucially they will help us optimize and maximize the value of these assets, particularly when compared to individual projects safety studies.
You're familiar with the Canadian solar infrastructure fund, which we own 15% and <unk>.
As the largest release Steuben protection on on the Tokyo stock exchange.
I mentioned, Brazil earlier on another 1 and suspected and eat them.
We believe it's 1 of those vehicles countries more than 1.5 gigawatts of gross total assets under management, we can 5 years.
Finally, turning to slide 11, and importantly, we are doing a great deal of work on utility scale battery storage.
Our teams have been actively developing and both BB plus battery storage to colocate it projects as well as a standalone and battery storage projects over the past few years.
And we are now up and it's simply expanding our business globally.
As Joe mentioned, we now have a 1.2 gigawatts hour subtle storage products, Inc. On selection and recently doubled I would've thought its pipeline and early 17 gigawatt hours.
On the technology side, we are exploring on the plug and new technologies to capture more value for the aesthetics through AI and machine learning.
As power market and the regulation across the world to the new thing and I'll, let yourself at least on tomorrow, we expect greater market participation of battery storage assets and the future.
It will also become a key driver of the global clean energy transition.
So far what advanced but on your external PDP and the U S market. However, we see huge opportunities and other parts of the wireless as well.
Now, let me pass it onto young who will talk more about the Canadian solar and CSA solar business.
Please go ahead.
Thank you Ismael.
In Q1, and the CSI solar deviation, we delivered 3.1 gigawatts of solar module shipments and $695 million and revenue and 9.7% and gross margin.
While this performance is lower than we thought we would have like.
Managed to deliver.
The higher and what we had expected.
As we all know by now 2021 has been the <unk>.
<unk> story.
Let me start on some positive news.
Please turn to slide 12.
Solar glass prices and not on lead back to normal but right now they are below the pre inclination every face.
Unfortunately, this was more than offset by polysilicon prices.
And have tripled over.
Over the past 12 months.
This is very unusual as we can see.
And that the total polysilicon supply and the market is more than enough to satisfy and market demand and the <unk>.
And with that well over 200 gigawatts of wafer and cell capacity are competing for less than 200 gigawatts of polysilicon supply.
Meanwhile, we're seeing greater.
Specular speculative polysilicon treating activities by intermediate intermediaries, which is also contributing to the higher polysilicon price.
In terms of foreign exchange, we continue to see unfavorable currency fluctuations, although less negative than in previous quarters.
And shipping costs.
While we saw a strict lift improvement followed by another increase in transportation costs up to the Suez Canal event.
It is important to put these supply chain pressures into broader perspective.
Despite the long lead times for solar glass capacity expansion price has declined just as dramatically as they had initially increased.
Swinging the industry from shortage to overcapacity over the course of just a few months.
This demonstrates that supply side crashes.
Particularly in the manufacturing industry tend to be short lived and are not sustainable.
Particularly in the case of polysilicon.
As current manufacturer gross margins are hating approximately 60%.
Of course that doesn't change the fact that short term.
It remains painful for module manufacturers, which is why we have taken several measures to lessen the impact of supply side pressures.
Please turn to slide 13.
During Q1, we continued to lease prices in fact Q1 asps are nearly 10% above Q4 of last year, which is the largest quarterly module price increase and the recent history of our business.
This is also in addition to a modest price increase and Q4.
Obviously, it is still less than the party price jump.
There's still a significant increase and as long as poly price stay high module prices will not come down either.
We will continue to take price on and we're willing to give up some volume in order to protect margins.
With that said our capacity utilization rate remains at 1 of the highest levels and the industry based on our based on our channel checks.
Longer term, we continue to see very strong global and market demand for solar energy low.
<unk> demand was soon exceed 200, gigawatts a year and is on its way tours and the 300 Gigawatts Mark.
Existing markets are growing and new markets are coming on line.
However in the near term, we are seeing greater price elasticity of demand and search and utility scale projects may be delayed to next year. If module prices do not come down and this is natural and should be expected of a well functioning market that adjust to higher prices.
In the meantime, we continue to monitor supply chain developments, while positioning the company for longer term growth.
With that let me pass it on to people, who will go through the Q1 financials in more detail.
Please go ahead.
Thank you Yan.
Please turn to slide 14.
We delivered a Q1 revenue of $1.1 billion towards the high and of our guidance.
We achieved 5% growth over the last quarter, and a 72% of year over year.
Gross margin came in at 17, 9%.
Q1 benefited from higher margin product sales in Japan and China.
Near double digit percentage increase and solar module asps quarter over quarter.
This was offset however by lower shipment of volume recognized as revenues as well as higher raw material costs.
Selling and distribution expenses increased by 31% quarter over quarter, mainly driven by higher international transportation costs.
G&A expenses were down 4% quarter over quarter due to lower impairment charges and a tighter cost controls.
Total operating expenses were up 9% quarter over quarter.
The foreign exchange and that impact was negative 7 million U S dollars.
Mainly caused by the strong U S dollar versus a year.
Income tax expense was $14 million in Q1.
And there to a benefit of $2 million and Q4, 2020.
The higher tax expenses were driven by an increase and pretax income on pumps.
From high tax jurisdictions, such as Japan, and the increase of certain non tax deductible attempts.
Net income to shareholders was $23 million or 36 cents per diluted share.
Now turning to the cash flow and our balance sheet on slide 14 slide 15.
While we focused on maintaining strong working capital and conserving cash and we've.
We made on exception this quarter, 2 bureau, and hold inventories than usual.
And you know our Q1 balance sheet inventories elevated it by $238 million.
And as we manage our working capital to raise inventory in selective markets for short term.
As a result, we consumed $83 million and operating activities.
Q1, Capex was $110 million.
We currently expect full year capex to be around 650 million slightly lower than what we previously guided.
We are committed to managing our capex and will remain flexible to grow our business in response to opportunities.
Our total cash position remains strong at a $1.5 billion.
Giving us the flexible cash position to fund the Capex this year and other long term investments.
Total debt increased 5% to 2 points 3 billion, mainly due to the increase in non recourse debt used to finance.
Finance all of of solar projects.
Net debt to EBITDA in Q1, excluding restricted cash.
And up slightly but remains at a healthy level of 3.4 and 5 times.
Now, let me pass it back to Charles who will conclude with our guidance and our business outlook Shawn.
And.
Thanks Oliver.
Turn to slide 16.
Factory and everything and we just covered but on <unk>.
On a quarter of Chinese Jennie O. What we expect the total module shipment to be and a range of 353 and 7 gigawatt the income.
And approximately 88 megawatts module shipments to our own project.
Total revenue for the second quarter.
<unk> to be in a range of 1.4 to 1.5 billion U S dollar.
Gross margin.
And expect to be between 9.5 to 10, 5%.
For the full year, China and to NOI.
We reiterate total shipments to be and a range of avian trying to gigawatt and project sales to be in.
And the range of 182.
2.3 gigawatt.
We also expect.
Battery storage shipment, while China, and China wants to be right now and your day to 860 megawatt hour.
And total revenue guidance for China agenda, and what remains unchanged and is expected to be in the range of 5.626 billion U S. Dollar.
Our guidance reflects the continuous <unk>.
Short hedge on and price increases on certain raw materials during Q2 of this year.
Partially offset by higher shipments.
To be recognized as revenue.
It also reflects a greater contribution from battery storage revenue.
And I solar which will be recognized more materially from Q2 onward.
On a global and you decide on our guidance reflects a lower gross margin contribution.
The expected different sales mix.
Finally, please turn to the slide 7.
17.
We have submitted the listing application and documents to the provincial Securities regulatory authority for the China listing of our Tsi and solar subsidiary.
The document and.
Under GAAP.
We view as per usual procedures. So we remain on track.
However, as usual.
And the IPO, it's always subject.
Capital market conditions.
With that I would now like to open the call to your questions operator.
Thank you yes.
It's true.
Ask a question you will need to press star 1 on your telephone.
A question and Steve.
Keith.
And so on pilot.
Once again, please press star 1.
Good question.
First question comes from the line of Brian Lee of Goldman Sachs.
And you saw it.
Hey, Hey, everyone and thanks for making the time and taking the questions I.
I guess, just if as we think about it.
Picture here I just wanted to understand your thought process you are raising prices. It sounds like you had that slide up there.
And do you expect module.
Asps to move up through the next several quarters.
At the same time, you're cautioning a little bit.
If the module prices and other inflationary pressures are 2 great you could start to see some demand slippage.
And you're reiterating your guidance for the year, So just putting all that together and I'm trying to reconcile are you seeing any projects.
Michigan out any customers, saying, we know we're going to do projects and a different timeline later then.
The original timeline or is that something you anticipate and the second half and.
Can you maybe quantify a bit like how much more.
Would the cost of our system, let's say you don't need to move up from here is it 10% 15%.
Before you start to.
Actually see some of those project delays or cancellations start to materialize I just want to understand what.
And what the puts and takes out here.
Alright, thank you.
Oscar and true.
And as I've described.
Well, Brian well you raised a question that everybody sits back and expecting loans. There that are I can tell you.
I think on the bigger picture.
We have to say that there are a lot of projects right now on reach and list. So they actually are waiting this supposed to be built this year, they're supposed to be built and the first half of this year, but there are bleeding and amount of the waiting list.
Some of them May just you.
You know postponed into next year, but a lot of them that they need to be built anyway.
So from.
And this is quite different in terms of the module price increase impact too.
2 the project returns and or the decision of whether or not they want to start construction. This impact changed from market to market and also from project to project. So I can give you..1 example in China on the in the average province.
Price increase of 20 percentage in the past months actually reduce the project return by 1% a 100 basis points.
This is the impact however in a different provinces and numbers are different.
So in another markets things can be different right in the U S market you have a lot of a sunk cost or develop and face.
And so the penalty is heavy so they still have to <unk>.
And with a lot of the project needs to carry on needs to ice plants right.
In the in Japan, because of the PPA price is high so the module price increase it's becomes a moderate and also if you're looking to Latin America.
Erica things are different and that can be more difficult in Europe, you have a lot of projects that don't have PPA or the ppas and negotiated after construction. So they come week. However, it does not mean Oda project in Europe.
And you know they don't build this year. So it seems they have different projects projects with Ppas project, we'd sunk cost.
So things are different.
But as I sat at.
And at a high level first half the volume the installation basis small so the more demand is actually putting up for second half.
So we're still expecting that the demand for the second half.
And will increase even though with the increasing module price.
And also for Canadian solar I want to remind everybody that in terms of branding in terms of our global presence in terms of channel in terms of selling force sales force, we're not anything less than our competitors. However lead the reiterated.
And new volume target, our target is not higher than our competitor. So even though we're actually and that is based on our capacity. But also you know I don't think we're anything left in terms of setting volume. So so comparatively der target I don't think we're over aggressive.
And I also want to remind that as I mentioned in my statements that earlier that.
And with our I somehow I believe.
Moving to second half.
The shipping cost has a chance to be more stabilized and even coming down a little bit.
COVID-19 situation improves so that's my expectation and.
And secondly, we the silicon price I want to.
Mentioned that.
First of all the motivation of speculation.
Sure.
You know stocking stocking silicon.
<unk> has significantly been reduced I don't think there's many people and the market that are very keen on investing their money and today's silicon price our inventory. So that part has been the primary force on.
And behind the shortage of silicon.
People are saying that 30% of silicon capacity and the first half of Q1 was disappeared.
From the consumption. So this is a this is the information and I received and also moving into second half you will see more significantly more bigger wafer and sooner we for our coming into the market. So that will help to increase the utilization rate of silicone material.
So and so somehow we're expecting somehow the silicon prices will be stabilized or even.
Making the turn.
And I didn't turn and that it's also possible so uh huh.
Maybe there's another possibility that the Chinese government may take action.
And they already took action for steel industry and they just took action in the coal industry. Just today. So we don't know what happened with silicon, but that might be a chance. So so.
So I think we still have the capacity that that will support our 18 to 20 gigawatts of target and.
And so are we.
We think we still have a good chance to to hit the target to hit the guidance.
That's why we maintain the guidance.
And I answered your question.
Yes, no that's great I appreciate it.
The Fuller context there.
Maybe 1 more question from me and I'll pass it on.
As we think about the model and the forecast here for Q2.
And a half to 10, 5% gross margin.
Can you help us with the split I'm, assuming module gross margin is lower than that and then the energy gross margin will be higher than that to average to the 95 to 10 and a half but can you give us some rough sense of the Delta and.
And then secondly are the revenue guidance for Q2, 1 and 1 point forward and 1.5 billion.
Rough split between what you're expecting on module.
<unk> revenue MSS vs CSI. Thanks.
Thanks, guys.
I think.
Well, hi, crush strength moving forward.
And I think it's better to have this question.
No no no. This is about <unk> come on.
CSI Q and nature.
Okay.
In terms of gross margin.
Most of the gross margin contribution at this time, yes from CSI is solar.
The.
And is your global and nature.
Gross margin are true for this quarter is lower.
And then this number however, the most of the revenue contribution.
Sure true, yes from the.
And the CSI and solar side, and that's why and what you'll see here.
Yes, some more and less the CSI solar diet on gross margin now in terms of revenue contribution I guess that weyerhaeuser and most of the revenue contribution for Q2 come from Tsi and solar.
And.
And.
And the small portion.
Small portions.
50, and 20% come from the global energy piece and yet.
Okay. Thanks, so much guys I will pass it on.
Your next question comes on line on T V.
Judy.
You saw the headline and silicones.
And so evening, everyone Shawn that those comments you just made in terms of the gross margin and with CSI solar side. It sounds like that if that's the case I mean, that's essentially what gross margins were and <unk> was around that 9.9 and a half level right. So does that mean that you think you can hold margins flat.
And CSI solar and <unk>, despite all of the all the cost inflationary pressures we've seen.
While.
We are.
The.
ASP the module price in Q2 also increased.
However.
There are some well actually from the CSI and solar high we expect the performance.
Q2 is better than Q1, our latter Yang to elaborate too.
Yes.
They are 1 of I mean, the first thing this week and increasing prices and customers overtime and starts to accept that and and you'll be surprised to see that in some markets and some projects actually how much do they can they can take in terms of module price on it.
On a lot of the cases, it's just very inconvenient and it takes time for them to convince their bosses and or their lenders. So it just takes time, so on overtime and the price increase and improve.
And situations and secondly is in Q1, we actually do have a lot of impact from the low price orders, we signed last year and in Q2 and that amount to reduced so that also helped.
And and in second half we expect.
And so the the impact from carryover aging low priced contract we signed from last year and we will further be reduced to almost nothing. So this is an important factor on improving our property and over other factors.
This is true but again.
Sure sure volume I.
And remember that back in last year and November Rd and cars.
We think with all of these.
And favorable supplier side.
Trends.
We target too.
Achieve low teen gross margin.
So on and solar and there and we target to make it back to a mid tier and in Q2 and also and I ask that in November now.
Indeed, the manager to have the cash.
Q1 sales.
Our solar Guangzhou also orange and 1 at all.
And that number although with and also heart right now for Q2.
It looks on it's going to be low teens, rather than mid teen and.
And.
As you all know by now and that this is due to.
Maybe I expected.
Price increase in the supply channel phone call and Seneca to have them and house and 2 of the chemical material.
Looks like Oh.
Our Q2.
Q2 of CSI solar performance, well still be better than Q1, so we're still improve.
And it didn't.
Really reach didn't reach the target.
You mentioned back in November.
We did manage to make improvement and we believe we will continue to improve in Q3.
Yeah, No I mean, given all the cost side, but I think that that's a win and if you could even have improvement and <unk> I guess my my follow up is it staying on the on that side.
Volumes in the back half of the year, we're gonna be.
And just doing the math and almost double what they were and the first half.
How much can that help you push margins up to the mid teens and on the module business and the second half do you think.
Well I.
And <unk>.
I think I've explained.
Sure.
And our confidence on that.
On the volume side for a second half.
And on.
On the other hand, as I said, the shipping cost improvement and also pricing improvement will continue helping us to improve our margins.
So and silicon price, we believe is not sustainable.
And this and also in second half we will.
And also have Ah.
And more volume of.
Uh huh.
On to 10.
The bigger way for modules that are coming on line and our and including our <unk> lines. So we also have a plan to actually increase our.
Non module sales in second half so those will help us improve our margin.
Great and if I could squeeze 1 more.
Also the volume itself as you know the volume itself.
And if we maintain the same.
Gross margin for the mall and inquiries and they won't help thank you.
Help us walk lawfare and fixed costs.
Yeah, absolutely that was kind of low.
We've got a true and <unk>.
Last 1 for me was just I noticed that some of the capacity targets you guys had on ingots and wafers and cells about by year end has been reduced.
But your Capex is was only reduced a little bit I'm just wondering.
Is that capacity.
And you're pushing into basically 2022, and it's going to come on line and just what are the puts and takes on that front.
Yeah.
Wow.
And pushed it out.
Reduced the capacity and target by the end of the year.
The capex spending kilowatt and already spent and Q2.
Some scheduled payments however, this well.
Well bye.
Bye.
And with using some of their capex.
And that capacity expansion and Todd.
<unk> and careful.
And you kind of passed well and to be lower.
A lot of hand.
And I decided to pull some of the money into strategic bulk of some of the raw materials.
We believe that's a good decision this is low for us.
To help.
Help too.
Lessen the impact of the and material increase in Q2, and we are seeing.
Seeing none.
Good and resolved could you back on.
Yes.
Thanks Mark.
And reallocation of money.
Gotcha, Thanks, everyone.
Thank you.
Next question is from the line of Peter Shen of Roth Capital Partners.
Uh huh.
Hi, everyone and thank you for taking my questions first 1 is on polysilicon.
I know you guys have talked a lot about it already but.
And you're forecasting.
When do you expect poly pricing to come down and.
And I think and you mentioned that there could be some kind of action by the Chinese government on the polysilicon industry could you elaborate more and can you talk about it.
Those comments are just speculation or do you have some insight that that could be coming and could you share.
And some details about it in terms of timing and so forth. Thanks.
Hello.
It is my personal opinion based on you know.
And so are our people.
Inflammation.
Because or you can call that a speculation.
And that's a possibility.
So in terms of the silicon price 1 is going to come down and I really can tell you that but I can tell you.
And I already gave you the fact that it's not sustainable and the motivation for speculation on that.
Silicon stock now disappeared because price is too high.
And so and.
And these do we expect the silicon price will be stabilized and we the chance if something happens or you know.
Somehow.
And it may go down and even.
Now I can not so I can say.
Okay. Thank you guys and then as it relates the module pricing and I know people have talked about this earlier, but you know and Q1 I think pricing.
You talked about your increased pricing and double digit percentages.
Versus the prior quarter.
And how much could you raise pricing on modules on our global average.
And Q3 versus Q2 and maybe.
I don't think he was rescued too specifically, but how much good module price increase Q2 versus Q1 as well.
Well.
I cannot simply give you at an average price.
Really changes from market to market and when.
On the price goes up you have some regions some markets.
We will have to face more difficulties a while some other markets.
And actually a few less and even within the same market you have different type of projects we will have.
They will have to.
Take different level of heat so.
And.
So I think there's a.
Still a potential for module price to go up while the demand remains strong. So there are many reasons reason number 1 is.
There is a big weakness.
Projects, possibly building Q1, and Q2, there are out there and are waiting, but a lot of them are majority of them cannot moving into next year. So some will but I would say on a lot of the moves have to be built this year and particularly in some markets as I sat and U as in China and and.
Japan and also a day already give you..1 example, right 20% of module increase in China and in Miami.
<unk> problems.
And reduce the project and returned by 1% by 100 and basic point.
So is still like it even today it still like 7% of return so so theres still room for module price to go up.
And I can't give you exact number but I think care.
And my expectations module in the second half of the I think our customers more customers, who are willing to accept a module price increase because they're running out of time.
And the volume I would say demand level and second half will be strong.
Great Okay as it relates to the Chinese IPO process.
Looks like requirements for new listing some are being tightened.
Listening is becoming more difficult.
I know Shawn you talked you gave us a slide and talk through it but when you as you look at it now do you think it's more likely that the IPO happens in 2020, 2 or do you have confidence that it could have.
There's a high probability that it could happen in 'twenty 1.
Oh waiver and do you why aren't you.
And also this question.
And Phil can you repeat the question again.
Yeah.
Yes, do you think are the IPO process for China, China, the China listing is going to be more likely in 'twenty, 1 or 'twenty 2 given some of the difficulties or the increased requirements for new listings.
And the timing for those listings and.
And by Chinese the Chinese government.
She was Hershey.
I haven't heard the new requirements of listing.
What happened there was a dip.
S P.
Peak time Oh.
Slower.
Now several months ago, I guess, you were referring to some a report about our CSR, so you're asking the sort of party.
Service provider, such as the financial auditors and legal audit us they have a they won't get more responsibility in the IPO process and.
Some of the companies.
And you've got a very small company decided to 2 are either day light or dropouts and application. So what are in terms of our listing process and requirements haven't Oh no regulation change. So we are in the process of.
Waiting for requests on the questions for review.
For the.
And most likely.
Coming on in March.
Joan.
And then there will be a Bakken and force a Q&A and I think les.
This year we.
We will close.
That page.
Now opt out of post paid you closed out we know that there is a waiting time for.
The final IPO to lunch and.
And that process would take maybe a 3 to 5 months. According to the latest the pace of some other companies that have received approval from the Fox change rather they are still waiting for the go ahead from C. S. ICD.
So just very quickly equivalents. Thank you do you think it's more likely in 'twenty, 1 or 2020 to the IPO.
It's more likely towards the end of 'twenty 'twenty 1 I.
But there is a possibility and may slip into beginning of 2020.2.
Great. Thank you very much I'll pass on.
No fair enough.
And I will go on to speculate the IPO process.
We remain on track and.
The next step will be.
Further application and I review on our questionnaire and home centers and.
And then the.
The IPO yourself or be subject low capital market condition.
And as you know.
So.
Okay, and they put out a flight and and they're further speculation.
Too much.
Crush strength right now.
I appreciate it thanks.
Thank you next.
Next question is from the line.
Colin Rusch Oppenheimer.
Please go ahead.
Yeah.
Thanks, so much guys.
Could you talk a little bit about the Utah utility scale business and who the off take agreements are really going to end up gain with we're seeing a significant amount of interest from corporates and wanted to lower their emissions profiles and I'm wondering what the dynamics are on rather than targeting and utilities for the offtake agreements that there might be.
And some pricing opportunities for you guys with some of these projects to filter up to corporations.
Yeah, Hi, Corey and a second question is on public PPA versus private Ppas, and some corrective and merchant.
Good day.
And the project based on merchant trading our latter yes now 2.2.
And so this class strength you smell.
Thank you, Sean and thank you, calling for making the gross and I'm very happy to receive a question on on that wasn't needed.
Isn't it.
Look I think you'll have the 2 and a very good point and.
It truly depends from country to country and that regulation of each country in the U S. My personal opinion on this that as time moves on utility circle and Avi.
Retaining more projects and on making less ppas.
And you can see that on that would it be nonetheless put on.
<unk>.
Our business model is that is that it's growing there too. So we are seeing more utilities coming and asking us for developing projects for them and then signing ppas and on the other hand, we see <unk>.
Many corporations willing to sign Ppas.
Ppas now the tenants on those.
<unk> told you that is that many of them are still done with hub and I'll let him.
It is a long process to negotiate the ppas to make sure that they are solid and bankable.
So there will be at the transition period, but we see them coming heavily in Europe for instance is just starting.
And so we are negotiating on workforce once they are there and as you have started and in some other markets low like Australia for instance, it's way more come on.
So I think that he said subsystem company unless you wish they didn't on and we see that somebody said that it was opportunity.
That's super helpful. Thanks, and then in terms of where you've been able to raise price quickly and and yes.
By business segment.
Obviously, the channel business has been.
A healthy margin business and you guys is that responded faster and can you pushed prices and that channel a little bit more aggressively.
And then are we seeing some of the larger projects.
Kind of bringing up the rear and terms of indicates that the price and Christmas, but just trying to get a sense of how those price on Christmas or falling throughout the different business segments.
Well, thank you call. It yes, you're right actually we were able to move up the pricing quicker faster.
And the DG market, which is our distribution channel and.
And because of their lead time for appeal.
Actually much shorter it's like a 2 to 3 weeks instead of the.
Anywhere between 4 to 6 months, even longer so that's the utility right and this longer.
And and also their business model actually.
Yes.
Higher space has more and more room for price on.
And so and moving into second half.
Moving into Q2 and second half we already have.
Expecting improvement in this further improvement in this channel because we.
We see that Covid situation, the U S Europe, Japan, Australia, and those markets are actually getting better and that will help the DG market.
And you know significantly.
So.
We expect and that will help us improve our margin overtime.
This year.
Did I answer your question or I missed something.
Thank you I believe he is not that it's no longer on Q.
Thank you.
Alright.
That D C and of like a day session.
Session and I would like to have accomplished that.
The clothing and mics. Please continue.
Okay. Thank you for joining us today and if we are.
Continuous support.
You have and your questions our lactose setup a call. Please commentary on the investor relation team take care and have a nice day. Thank you again.
Thank you ladies and gentlemen.
Today's conference call and thank you for participating even at all disconnect.
Okay.
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