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JA Solar Holdings Co., Ltd. (NASDAQ:JASO)

Q4 2013 Earnings Conference Call

March 17, 2014 8:00 AM ET

Executives

Nick Beswick – Brunswick Group, Investor Relations

Jian Xie – President

Herman Zhao - Chief Financial Officer

Analysts

Edwin Mok - Needham & Company

Philip Shen - Roth Capital Partners

Brandon Heiken - Credit Suisse

Colin Rusch - Northland

Emily Liu - Arete Research

Shawn Yuan - RBC Capital Markets

James Medvedeff - Cowen & Company

Gordon Johnson - Axiom Capital

Operator

Hello and thank you for standing by for JA Solar's Fourth Quarter And Full Year 2013 Earnings Conference Call. (Operator Instructions). Today's conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the call over to your host for today's conference, Mr. Nick Beswick of Brunswick Group.

Nick Beswick

Thank you. Welcome to JA Solar's fourth quarter and full year 2013 earnings conference call. Joining us from the Company today are President, Mr. Jian Xie and CFO, Mr. Herman Zhao.

As stated in the press release, the simplified translation of CNY into US dollars, which is set at RMB6.0537 to $1 is made solely for the convenience of the audience. References to dollars are the lawful currency of the USA. The press release published today provides detailed financial tables for the conversion from CNY to USD.

On this call, Mr. Xie will begin with an overview of the Company's Q4 and full year 2013 results covering business and market developments and outlook. Following that, Mr. Zhao will provide details of the Company's financial performance. After the prepared remarks, we will open up for questions for the remainder of the call. We expect the entire call to last approximately one hour.

Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including statements regarding expected future financial and industry growth, are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially. These statements are made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Factors that could cause actual results to differ include general business and economic conditions in the solar industry; governmental support for the development of solar power; future shortage or availability of the supply of high purity silicon; demand for end-user products by consumers and inventory levels of such products in the supply chain; changes in demand from significant customers; changes in demand from our major markets; changes in product mix, capacity, utilization, level of competition, pricing pressures and declines in average selling prices; delays in the introduction of new product lines; continued success in technological innovations; shortage in supply of raw materials; availability of financing; exchange rate fluctuation; litigation and other risks as described in the Company's SEC filings, including its Annual Report on Form 20-F filed with the SEC.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results. You should not place undue reliance on these forward-looking statements. All information provided on today's conference call speaks as of today's date unless otherwise stated and the Company undertakes no duty to update any information except as required under applicable law.

I'd now like to hand the call over to Mr. Jian Xie.

Jian Xie

Thanks, everyone, for joining today's call. The global solar market improved significantly in 2013 as a result of a more stable price environment, a healthier supply/demand balance and the increased installation activities across key markets. Our momentum continued throughout the year culminating in an encouraging set of results in Q4.

Having successfully transitioned to a sales model encompassing cells and modules in 2012, our focus in 2013 was on geographic diversification making sure we maintained a strong position in key markets, most notably Japan and China as well as across Europe and North America. Increasingly, we also made headway into emerging solar markets in Africa, South East Asia and most recently, South America. As a result we ended the year with a diverse revenue base spanning a wide range of promising markets.

Shipments for the fourth quarter reached 665.5 megawatts, well above the high end of our previous guidance of 550 megawatts and we expect this level of performance to continue into 2014. I'll give you our detailed shipment guidance shortly.

Underpinning our strong shipments has been our continued success in cost reduction and this resulted in an encouraging improvement in margins throughout the year. In Q4, gross margin exceeded 15% and we returned to profitability, producing net income of $23m.

Throughout a challenging period for the industry, our ability to manage our solid balance sheet has been a key differentiator, giving our customers the confidence in the long-term sustainability of our business.

Thanks to stringent cash and debt management, our debt position improved significantly throughout 2013 and we successfully repaid our 2008 convertible bonds in full. In addition, our focus on collecting accounts receivable and executing sales with favorable payment terms produced strong operating cash flow for the full year.

Our balance sheet was a big advantage for us throughout the industry downturn and it will continue to be an important and strategic pillar as the market improves further. The combination of these factors means we go into 2014 with a solid foundation and a positive outlook.

Our focus for the year ahead is on cementing our position in key markets. With robust sales, a healthy supply/demand balance and our continued efforts to maintain a competitive cost structure, we are very focused on the bottom line and we are confident that we can deliver full-year profitability in 2014.

Looking now across our key markets, starting with Europe we maintained the momentum here in Q4 and we go into 2014 with a solid position in most of the largest EU markets and with strong bankable brand.

Alongside Germany, the UK, in particular, was a great market for us again in the fourth quarter. We talked earlier in the year about the potential in the UK rooftop market and in the fourth quarter we also expanded our share of the utility segment. We expect this momentum to continue this year and our focus on conversion efficiency, production quality and superior customer service will continue to be key differentiators for us across the competitive European markets.

We saw tremendous shipment growth in China in Q4 as installers rushed to complete construction of solar projects before year end. China is already the largest solar market in the world and looking to 2014 we are very bullish about our prospects here thanks to government policies aimed at driving even greater solar installations. We are also expecting to improve our product mix in China with a greater proportion of module sales.

Our strong relationships with developers and utility companies put us in a good position in China. In addition to direct sales and module sales, we will increase our focus on project development and EPC services, which I will talk about a little more shortly.

Japan was again a highlight in Q4 and our strong shipments combined with healthy ASPs meant that Japan continued to make a significant contribution to our profitability. Although competition there intensified over the last year, our first mover advantage and our reputation for high-quality, high-efficiency products have enabled us to maintain our leading position as one of the most prominent foreign module suppliers in the country. We have good demand visibility in Japan and expect to continue our strong momentum here.

Turning to North America, after a breakthrough in the US market in Q3, in which our shipments tripled on a sequential basis, we are pleased to have re-established the JA Solar brand as a leader in the high efficiency space. There is some regulatory uncertainty in the US at the moment but we are optimistic that there will be a resolution that may be in the interests of the country's renewable energy strategy and of the overall industry.

In Q4 we also began large-scale shipments to a number of markets in Central and South America, including Chile, Panama and Guatemala, where solar is increasingly recognized as a cost-effective energy source. We expect this region to become a growth driver in the coming quarters and years. Chile, in particular, has a lot of potential for us for solar energy in part thanks to the high local electricity price.

Looking elsewhere, we also expect other emerging markets to become a bigger part of our revenue mix and we have some exciting developments in the pipeline for 2014. Most recently, for example we announced the establishment of a module manufacturing facility in South Africa which is set to go online in Q2 2014.

In addition to focusing on our core competencies in solar cell and module R&D and manufacturing, we have a team focused on expanding our downstream solar project development business in multiple markets. We currently have a utility segment project pipeline of over 400 megawatts in China, with 100 megawatts under construction in Gansu province, 50 megawatts in late stages with approvals obtained, 150 megawatts with development permission obtained and the remainder in the early stages. We expect to finish and connect these 200 megawatts this year. We are on track with permitting and construction to meet this year's target.

In Japan, we are about to start construction of our first 2-megawatt project and we are continuing to work with local developers and banks to develop and finance more projects in Japan. We are also working closely with overseas partners to develop projects across the Americas, Europe, South Africa and the Asia Pacific region. We look forward to sharing more updates with you in the coming quarters.

Turning now to our shipment guidance for the current quarter, we expect total shipments in Q1 to be between 580 to 610 megawatts. The sequential decrease is primarily due to the seasonality in various regions including China. For the full year 2014 we expect shipments to be in the range of 2.7 to 2.9 gigawatts including 200 megawatts of module shipments to our own downstream projects.

At the same time to satisfy the strong demand for JA Solar products, we are going to be expanding both our module capacity and our cell capacity to 2.8 gigawatts. The module capacity expansion will take place in our Hefei and Ningjin facilities while the cell capacity expansion will take place in our Ningjin facility. The expansions are currently underway and are scheduled to be completed during the second quarter of this year. We currently have no plans to increase our wafer capacity and we will maintain it at 1 gigawatt.

To sum up, we go into 2014 with strong confidence. We are optimistic that we will maintain momentum in our key markets while continuing to make inroads in other fast-growing geographies. We are pleased with the sales mix we have achieved having leveraged our core strengths in cells to extend our brand into the module segment. And we will look to complement this in 2014 by growing opportunities for the downstream notably in China and Japan.

Our improved cost structure, and better worldwide pricing environment and our strength in high ASP markets should allow us to maintain a healthy gross margin and consequently we are optimistic that we can achieve full year profitability in 2014.

With that, I will turn the call over to our CFO, Herman for a detailed look at our financials.

Herman Zhao

Thank you, Mr. Xie. Hello, old friends and new friends. It's a pleasure to speak to you all today. As some of you may know, I was the first CFO of JA Solar and was responsible for the IPO and various subsequent follow-on transactions. It's great to be back on the team and I am very optimistic about JA Solar's prospects. With my downstream project development experience and the management team's expertise in manufacturing and R&D, JA Solar is well positioned to further strengthen its leadership position in the industry.

Now I would like to walk you through our financial results for the fourth quarter and fiscal year 2013. In Q4 we shipped 665.5 megawatts of solar power products, above the high end of our previous guidance of 550 megawatts, representing an increase of around 33%, both sequentially and year over year. Within these shipments, modules accounted for around 55% while cells and cell tolling accounted for about 45%.

Full-year shipments increased to 2.1 gigawatts compared to 1.7 gigawatt in fiscal year 2012. During 2013, in total, module and module tolling accounted for 56.6% of total shipments compared to 55.1% in 2012.

In Q4 the geographic breakdown of shipments was approximately 53.2% to China, 31.7% to Asia Pacific, 8.5% to Europe, 5.9% to the Americas and 0.7% to the rest of the world. For the full year, 43.2% of our shipments went to China and 33.6% to Asia Pacific, 15.1% to Europe, 6.4% to the Americas and 1.7% to the rest of the world.

Net revenue for Q4 was $357.3mm, an increase of 23% sequentially. 2013 revenue was $1.2b compared with $1.1b in 2012, representing a year-over-year increase of 6.9%.

Q4 gross profit was $55.3m or 15.5% of net revenue. Full-year gross profit was $125.9m or 10.6% of net revenues. For comparison, our Q3 gross profit was $32.8m or 11.3% of net revenues and the 2012 gross loss was $9m or 0.8% of net revenues. The year-over-year increase in gross margins was primarily due to improved pricing and the demand dynamics, increased utilization and progress in our cost reduction efforts.

Income from operations was $9.7m or 2.7% of net revenue in Q4. This compares with a loss from operations of $5.2m or negative 1.8% of net revenue in Q3. For the full year, loss from operations was $15.1m compared to a loss from operations of $237.9m in 2012.

Interest expenses in Q4 totaled $8.4m compared to $9.4m in Q3. For the full year we incurred interest expense of $47.2m compared to $80.8m in 2012. The significant annual decrease in interest expenses was primarily due to reduction in debt outstanding.

Change in fair value of warrant derivatives in the fourth quarter of 2013 was a positive $14.4m compared with negative $22.9m in the third quarter of 2013 and nil in the fourth quarter of 2012. The change in fair value of warrant derivatives was related to the change in the fair value of certain warrants granted to certain investors in the registered direct offering closed on August 16, 2013.

Other income in Q4 was $0.7m compared to other income of $1.4m in Q3. For the full year, other loss was $2.2m compared to other income of $60.8m in 2012.

Net income for the fourth quarter was $23m and earnings per diluted ADS was $0.32 compared to a loss per diluted ADS of $1.12 in the third quarter 2013.

Non-GAAP net earnings attributable to the Company's ordinary shareholders was $9.1m compared to a non-GAAP net loss attributable to the Company's ordinary shareholders of $14.9m in the third quarter 2013. Non-GAAP earnings per diluted ADS in the fourth quarter of 2013 were $0.16 compared to non-GAAP loss per diluted ADS of $0.37 in the third quarter of 2013.

On the balance sheet side, our cash and cash equivalents at the end of 2013 was $350.2m compared with $313.3m at the end of Q3 and $500.8m at the end of 2012.

Accounts receivable at the end of Q4 were $172.5m compared with $181.3m at the end of Q3 and $284.6m at the end of 2012. Days of sales outstanding at the end of Q4 was 43 days compared with 56 days in Q3.

Total inventory at the end of Q4 was $222.5m, a slight increase from $211.2m at the end of Q3 and an increase from $153.6m at the end of 2012. Inventory turnover days in Q4 was 66 days compared to 75 days in Q3.

Total prepayments to suppliers were $190.9m, a decrease from $239.9m at the end of 2012. Total working capital at the end of Q4 was $216.6m compared to $208.4m at the end of Q4 of 2012.

Total short-term bank borrowings was $172.2m. Total long-term bank borrowings was $411.3m, among which $154.6m were due in one year.

The Company generated a positive operating cash flow of $70.4m in Q4. For the entire year, the Company generated $255.2m of operating cash flow.

Our total CapEx for 2013 was $65m, including $25.4m incurred in Q4. Our CapEx for 2012 was around $85m.

That concludes our prepared remarks. Operator, we are now ready to take the questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Edwin Mok, Needham & Company.

Edwin Mok - Needham & Company

Great, thanks for taking my question. So my first question is probably a little bit more macro. In China, there's -- sorry, in US, there's this talk about a change in tariff for cell makers coming from Taiwan. How do you expect that to have impact or benefit to your business, given that that may have actually have hurt your competitor (technical difficulty) business here. Is there any way you can talk us through what could happen and how could that impact your business?

Herman Zhao

Well, I think that has not come to the conclusion yet, so we don't have a comment on that part of it. But we will closely watch the direction that moves and plan our business accordingly.

Edwin Mok - Needham & Company

Okay, that's fair. And then can you talk a little about seasonality in China in the first quarter? How much has that changed in the first quarter given that over half your business comes from China in the fourth quarter? And your guidance implies you're not actually seeing a lot of decline in first quarter. Are you seeing pick up in other regions such as Japan to make up the difference?

Herman Zhao

Well, first quarter, China is still our major market. To talk about the ASP, I would say quarter over quarter it's pretty flat, not that much changed. And as you know, Q4 last year was quite strong. That because of the old scheme was going to be expired at the end of the year, last year. That's why it gave a big momentum for Q4.

For Q1, so far to us, the momentum is pretty strong. Especially when you compare Q1 this year to last year I think we are in the right path and the business momentum is quite strong.

Jian Xie

So I'll give a little more color on this topic. So in Q1 we have more shipment to other markets to diversify the base. So in China, actually you are correct that the module shipment is a little lower compared with Q4 last year. This is for the industry-wide. But at the same time, our shipment of cells to China market keeps stable. So although our guidance is 600 megawatts for Q1, it's not so much decrease compared with Q4 last year.

Edwin Mok - Needham & Company

Great. Sorry, I've got one last question and then I'll go away. So if I look at your capacity, you know look at your cell capacity and I added addition what you talk about, you are still going to buy some cells from someone to hit your target. Am I thinking of it the right way or you think you have any capacity to basically produce for most of the cell? How do you make the decision about buying cell versus making it yourself? And do you see a need to add additional capacity through this year?

Jian Xie

You're talking about the cell production capacity?

Edwin Mok - Needham & Company

Yes, I'm talking about cell production capacity. If I look at your number that you guys reported in the last year compared to your guidance this year, it seems like you might still need to add more than what you described on the call.

Jian Xie

I think it's quite okay because we -- our capacity is 2.8 gigawatts and, actually, we had some shipment to US that means we need to buy some cells from Taiwan or other suppliers outside of China mainland. So if you think about fully utilizing our capacity I think we can make it.

Edwin Mok - Needham & Company

I see, okay great, that's all I have, thank you.

Jian Xie

Thank you, Edwin.

Operator

Philip Shen, Roth Capital Partners.

Philip Shen - Roth Capital Partners

Hey guys, congrats on hitting profitability in the quarter.

Herman Zhao

Thank you, Phil.

Philip Shen - Roth Capital Partners

Okay, I'd like to start off with Japan. What are your ASPs in Japan for modules in Q4 and what do you see in Q1? We're hearing ASPs maybe a bit under pressure in Japan, maybe as low as $0.63, and how do you expect Japanese ASPs to trend ahead as well?

Herman Zhao

Well, Q4 Japanese ASP was in the $0.70 range and the Q1 this year went down slightly, like around $0.69, so it went down a little bit, not that much.

Philip Shen - Roth Capital Partners

Okay and how do you expect the ASPs in Japan to trend, going forward?

Herman Zhao

I think after April the price of mounting modules will go a little bit further lower because of the FIT cut. So for the high efficiency normal products I believe it will be quite stable.

Philip Shen - Roth Capital Partners

Okay, great, just one more from me and I'll jump back in the queue. In Q4, looking at your SG&A, or specifically your selling expenses, they came in at $40m, were there any one-time expenses in the quarter for selling expenses and how do you expect OpEx to trend going forward?

Herman Zhao

I think the Q4 OpEx, there're a little accounts receivable write down in that number. Going forward I would say the accounts receivable written-down number would be tremendously reduced. I think we have explained even late in 2012 we had some sales related to that accounts reduction and, starting from 2013, we control our credit term quite well, so we don't expect those kind of written down will continue, especially at that level.

Philip Shen - Roth Capital Partners

Okay, great. Herman, can you talk to us about how much the write-down was in the quarter?

Herman Zhao

About 33 -- about 33m

Jian Xie

RMB, that's RMB.

Herman Zhao

RMB, 33 divided by 6, about $5m.

Philip Shen - Roth Capital Partners

Okay, great. Great, thanks I'll jump back in the queue and congrats again on hitting profitability.

Herman Zhao

Thank you, Phil.

Operator

Brandon Heiken, Credit Suisse.

Brandon Heiken - Credit Suisse

Hi, guys, thanks for taking the question. I just wanted to clarify your comments on the Japan market. I believe you said that pricing may be flat, is that even after the expected feed-in tariffs after April?

And if you could talk about the competitive landscape there that you're seeing. I know you have a strong presence in Japan, but if you could talk about what you are seeing with competition there please?

Herman Zhao

I think Mr. Xie just commented, we don't expect the ASP will come down after April's FIT adjustment.

I think your later question was regarding the comment on competition in Japan, our peers present in Japan, right?

Brandon Heiken - Credit Suisse

That's right.

Herman Zhao

Yes, I think basically, as you know, in Japanese market we have some OEM business there, where some distributors are doing the business for us. We also participate some downstream cooperation business there. So to be honest with you, we don't know what our peers do, but we are constantly doing the similar business model what we did in 2013. Besides that, this year what is the difference is we tried to get into a downstream business to expedite our penetration in the Japanese market. That's how we are trying to do our business in Japan.

Brandon Heiken - Credit Suisse

Thanks and can you talk about your expectations for non-silicon cost reduction this year?

Herman Zhao

You mean 2014?

Brandon Heiken - Credit Suisse

That's right.

Herman Zhao

2014, I think Q4 our non-silicon costs are about (technical difficulty). I think at end of 2014 our goal is to reach a non-silicon cost below $0.40. That's a goal we should accomplish.

Brandon Heiken - Credit Suisse

Thanks and for the cost expansion that you've announced, can you talk about how you're doing the expansion, is it with new equipment or are you acquiring existing equipment in the market and what is your strategy with outsourcing going forward? Thank you.

Herman Zhao

Our expansion strategy basically, we're having all the new equipment, as you know, the majority of the equipment that we can get from the domestic market within China. So that's not Company's intention to get from other, I think the intention is to get new equipment from domestic market, not overseas market, that's how we are expanding capacity.

Jian Xie

And by the way we have both the cell and the module expansion this year, for the module capacity we will add more equipment to reach the 2.8 gigawatts capacity and, for the module, we are buying equipment to upgrade our existing lines. So, most of these are on maintenance and upgrade to reach 2.8 gigawatts cell capacity.

Brandon Heiken - Credit Suisse

And did you guys say what the CapEx expectations are this year with the expansion?

Herman Zhao

Yes, the total CapEx for this year is about $130m.

Brandon Heiken - Credit Suisse

Okay, thank you very much, sure.

Operator

Colin Rusch, Northland.

Colin Rusch - Northland

Thanks so much. Can you talk a little bit about the timing on your projects, when you expect to complete these things on a quarterly basis and then how far along you are on monetizing those assets and what the dynamics are around selling them?

Jian Xie

Our projects are in China, so our target is connecting end of Q2 or early Q3 and then we will finish the sale by end of year. So we should recognize the revenue in Q3 and Q4.

Colin Rusch - Northland

Okay and how far along are you with negotiations on those sales you have (multiple speakers)?

Jian Xie

We are almost there with the offtakers.

Colin Rusch - Northland

Okay and how should we think about margin on those projects?

Jian Xie

Sorry?

Herman Zhao

The margin.

Colin Rusch - Northland

How should we think about --?

Jian Xie

Usually, in China the gross margin for the projects business is around 10% based on overall cost.

Colin Rusch - Northland

Okay and do you think you'll see any increase in that with an increased number of buyers being comfortable with the market?

Jian Xie

In terms of offtakers, Colin?

Colin Rusch - Northland

Yes, as you see more and more buyers come into the market, are you expecting any sort of competition for buying these assets?

Jian Xie

Well, China for utility scale is a huge market and also huge player, so for example you have nine big players, utility state-owend company and power producer state-owned company in China and you have some power producer company from Hong Kong, so there are a lot of interesting partner who really want to buy the projects so we do not think in the near term there is a price pressure.

Colin Rusch - Northland

All right, perfect, what is it about --?

Jian Xie

[Multiple speakers] we have a multiple interesting buyers, we just have to evaluate in the overall picture what is the best economic of ours.

Colin Rusch - Northland

Okay, perfect, and shifting gears a little bit, can you talk about your poly-silicon sourcing right now, what you're seeing in terms of trends, both for spot poly as well as your short and medium-term contracts?

Herman Zhao

Poly situation, Q1 around 10% increase quarter over quarter compared to Q4, but at the current level, around $22 per kilogram, so we will see at this level it probably is a little bit stable. Okay and as you know, there are some smaller players and people heard that the price increased a lot. The price did not really increase a lot from the big players and only the smaller players really take this as an opportunity. So that's why we think at current level -- it should be stable at current level.

Colin Rusch - Northland

Okay and then when we look at the non-silicon cost reduction that you're discussing, can you talk about where that's coming from? Which steps and how much of it is coming just from better sourcing and how much of it is coming from efficiency in the factory?

Herman Zhao

It's quite difficult to divide so clearly on this, but in the last year's improvement I believe most of the cost cut comes from the material costs and utilization improvement, so our utilization rate improved from around 50% to 70% to almost 100% in Q4. So that's the two major reasons.

Colin Rusch - Northland

All right, perfect, thanks so much guys.

Herman Zhao

Thank you.

Operator

Emily Liu, Arete Research.

Emily Liu - Arete Research

Hi, congratulations on a very strong quarter. I have one major question. Can you give us your intended geographic breakdown for the modules shipment in 2014 excluding the 200 megawatt of your own project?

Herman Zhao

Okay, the easy one first, 200 megawatt comes from business that's all in China, utility scale. For others, the breakdown we would expect China 40%, Asia Pacific including Japan 30%, Europe around 10%, America around 10% to 15% and the rest of the world 5% to 10%.

Emily Liu - Arete Research

Okay, just let me -- that breakdown doesn't include 200 megawatt of internal projects, no, right?

Herman Zhao

It includes that 200 megawatts, it does include it.

Emily Liu - Arete Research

It does, it does, it does, okay. And if I got it correctly, the US exposure you mention is roughly 20%, 15% to 20%?

Herman Zhao

Around 10%.

Emily Liu - Arete Research

10%, okay. So the US and Europe exposure is pretty similar to the second half of last year, roughly?

Jian Xie

Yes, I think the US market could be a lot bigger if the policy is clear. We are a little cautious to take orders from North America until we see a clear picture.

Emily Liu - Arete Research

You mean the antidumping and CVD investigations?

Jian Xie

Yes, to start with, now we are quite cautious on the orders for the second half of the year. So mostly we do not take orders for after June.

Emily Liu - Arete Research

Okay, after June, all right. And actually I think there is some chatter in the media as well that Japan might initiate antidumping investigation on Chinese products. I just wondered what is your view on that; how likely do you think that would be the case?

Herman Zhao

Well, again the policy part, we have no position to make a comment. All we can do is really closely -- watch for the movement and plan our business accordingly.

Emily Liu - Arete Research

Okay and just a quick follow-up, the CapEx plan for this year $130m, is it fair to assume that most of it will be spent during the first half of the year?

Herman Zhao

Yes.

Emily Liu - Arete Research

Okay, all right. Okay, thank you, that's all.

Herman Zhao

Thank you.

Operator

Mahesh Sanganeria, RBC Capital Markets.

Shawn Yuan - RBC Capital Markets

Hi, this is Shawn Yuan asking for Mahesh, thank you for taking my questions and congrats on the great quarter. First, this quarter, the cell and module shipment split is around 45/55 and since you guys will be adding more module capacity next year and it will match in the cell capacity, I'm just wondering is there any change in the shipment profile between cell and module for 2014?

Herman Zhao

Good question. I think the total expectation for module will be a 2 gigawatt. So 2 gigawatt module, which is around 70% of our guidance number, the rest will be cells.

Shawn Yuan - RBC Capital Markets

So 70%, okay.

Herman Zhao

So 2 gigawatt module and the rest will be the cells.

Shawn Yuan - RBC Capital Markets

So actually that's a significant increase in module shipments as you (multiple speakers). Okay, got it and then one more question on the -- more general question, because we all know about the NEA's target of 14 gigawatt installment in China for 2014 and 60% of that is distributed generation, and based on our conversation and a lot of companies also expressed their concerns about possibly the DG target was too optimistic what are your thoughts there?

Jian Xie

Yes, well the number for this year, some people say 10 gigawatts and someone says 14. I think 10 gigawatts is what we understand is the target number and 14 is cap. If it's 10 you will get 6 gigawatts for DG, it's quite a challenge really to reach 6 gigawatts for DG projects. I think, number one, there isn't a quite successful business model or mature business model in China in the DG market not like what in the American solar business model. So everybody's still trying to find out what is the mature or success of this model to get into the DG market, so it's quite a challenge.

But for our year, we will do some China project for DG, target will be 10 to 20 megawatt for 2014, so that's why we do not have a very aggressive number, okay. And we will actively participate in DG as EPC and a solution provider.

Shawn Yuan - RBC Capital Markets

Okay, that's very helpful, thank you very much.

Operator

James Medvedeff, Cowen & Company.

James Medvedeff - Cowen & Company

Good evening folks, thanks for taking my question. I wondered if you could share with us your module and cell ASPs in Q4.

Jian Xie

You mean Q4, right?

James Medvedeff - Cowen & Company

Yes.

Jian Xie

Okay, our Q4 ASP module, we talk about $0.65 roughly and the cells were $0.37 ASP.

James Medvedeff - Cowen & Company

So the module ASP has it shifted down or was this a geographic situation?

Jian Xie

I think that's a --

James Medvedeff - Cowen & Company

I'm sorry, let me re-ask my question. Was the module ASP influenced by a change in geographic mix or not?

Jian Xie

I think the answer is yes, okay, so the geographical shipment changing of course ASP will change.

Herman Zhao

In Q4 we had more shipment to China and less shipment to other market, so percentage was higher in China, so that means our ASP on modules is a little low compared with Q3.

James Medvedeff - Cowen & Company

And that's the only reason, otherwise ASPs are stable in Q4?

Jian Xie

Actually they should be a little higher, if you can tell the price market by market.

Herman Zhao

So you could compare to Q3, actually the ASP only drop by $0.01 roughly.

James Medvedeff - Cowen & Company

Okay and then on the cost side, can you say what your silicon cost per watt is and the $0.43 of non-silicon, that's for modules, what was the non-silicon cost on cells piece?

Jian Xie

$0.11.

Herman Zhao

Yes, $0.11, blended it's $0.11.

James Medvedeff - Cowen & Company

$0.11 on cells?

Jian Xie

Because we have a mono and multi. Yes, blended is $0.11.

James Medvedeff - Cowen & Company

Okay and plus $0.43 for non-silicon for modules, so that's $0.32 for modules only?

Herman Zhao

About $0.43.

Jian Xie

Can you repeat your question one more time?

James Medvedeff - Cowen & Company

The $0.43 of non-silicon costs for modules includes the $0.11 for cells, correct?

Jian Xie

You got it, yes, included.

James Medvedeff - Cowen & Company

Okay and then your silicon costs per watt?

Herman Zhao

$0.10.

Jian Xie

$0.10.

James Medvedeff - Cowen & Company

Thank you. Congratulations on the strong quarter and have a good year. Thank you.

Jian Xie

Thank you very much.

Operator

Gordon Johnson, Axiom Capital.

Gordon Johnson - Axiom Capital

Thanks for the question and congratulations on a good quarter. Can you guys -- I guess going back on a question previously asked, can you guys talk about the projects in China that you expect to get done this year? Do those projects currently have permits?

Herman Zhao

Yes, we've already got all approvals for the 200 megawatts of project.

Jian Xie

Hi, Gordon, let me give you color on that. Among the 200 we try to finish this year, 100 megawatts is under construction, the other 100 we've got a full license already.

Gordon Johnson - Axiom Capital

Okay, that's extremely helpful. And I guess another question I had around that, one of your competitors mentioned that the margins on projects in China are 15% to 20%, it seems like you guys are suggesting the margins in China on projects are 10%. Can you help us understand what the difference is there, are you guys being a little conservative or maybe is the competitor being a little aggressive?

Jian Xie

Because this year there is FIT cut in China, so that means that sales price for the project will decrease by about 5% to 10%. Last year, we had a 1 yuan RMB FIT price, but this year most of the projects will only get RMB 90 cent per watt FIT, so we have taken a conservative view on this and think 10% to 15% is a reasonable gross margin for the projects business.

Herman Zhao

Gordon, I think Mr. Xie just to clarify. I think previously he said 10% and he's just upped it 10% to 15%, so it really depends on project. The lower ones are 10%, the higher one is 15%, to clarify that.

Gordon Johnson - Axiom Capital

Okay, so you guys are being a little conservative, that's helpful. And then I believe you guys have some benefit this year from retainage revenue, or potential retainage revenue that I think some may not be including in their models. Can you talk a little bit about that if possible?

Herman Zhao

Thank you that's a good question. I think currently we have unrecognized the retainage around $17m. Among this $17m we would expect 40% to 50% to be recognized within one year. Does that answer your question?

Gordon Johnson - Axiom Capital

Yes, that's helpful and then I guess just lastly, there seems to be some, I guess, confusion around, even on our part, around ASPs in Japan. I just want to be clear, you guys said your ASP in Japan right now is around $0.69 and you expect that to be flat through the year?

Jian Xie

That is right.

Gordon Johnson - Axiom Capital

Okay, thanks a lot. Thanks for the questions and congratulations.

Herman Zhao

Thank you Gordon.

Operator

Ben Kallo, Robert W. Baird. Please ask your question.

Herman Zhao

We are here. Either we can't hear your questions or -- do you guys hear any of the things from him, we can't hear anything?

Operator

No, sir, we're not getting a response from the participant so I've released the line. We are now approaching the end of the conference call. I will now turn the call back to Mr. Jian Xie for his closing remarks.

Jian Xie

Thank you, everyone, for joining us today. We are pleased with your interest in and support of JA Solar. If you would like to arrange a meeting with us or if you have questions, please contact us via our IR firm, Brunswick Group, and they will be able to help you. Their contact information is on today's press release. Thank you again for your continued support and we look forward to talking with you in the future.

Herman Zhao

Thank you, everybody.

Operator

Thank you for your participation in today's conference, this concludes the presentation. You may now disconnect, good day.

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