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Yingli Green Energy Holding Company Limited (NYSE:YGE)

Q1 2011 Earnings Call

May 20, 2011 8:00 am ET

Executives

Arthur Chen - Legal Counsel

Miao Liansheng - Chairman and CEO

Bryan Li - Director, VP and CFO

Wang Yiyu - CSO

Stuart Brannigan - MD of Yingli Green Energy Europe

Robert Petrina - MD of Yingli Green Energy Americas

Darren Thompson - MD of Yingli Green Energy Europe

Analysts

Jesse Pichel - Jefferies

Dan Ries - Collins Stewart

Maheep Mandloi - Credit Suisse

Paul Clegg - Mizuho

Shawn Lockman - Piper Jaffray

Sam Dubinsky - Wells Fargo

Colin Rusch - ThinkEquity

Operator

I would like to welcome everyone to the Yingli Green Energy Holding Company Limited first quarter 2011 financial results conference call. (Operator Instructions)

Now I would like to transfer the call to the host for today's call, Arthur Chen, in-house Legal Counsel of Yingli Green Energy.

Arthur Chen

Thank you, everyone, for joining us today for Yingli's first quarter 2011 financial results conference call.

The first quarter of 2011 earnings release was issued earlier today and available on the company's website at www.yinglisolar.com. We have already provided a supplemental presentation for today's earnings call, which can also be found on our IR website. I hope you've all had a chance to review it by now.

On the call today from Yingli Green Energy are Mr. Miao Liansheng, Chairman and Chief Executive Officer; Mr. Bryan Li, Executive Director, Vice President and Chief Financial Officer; Mr. Wang Yiyu, Chief Strategy Officer; Mr. Stuart Brannigan, Managing Director of Yingli Green Energy Europe; Mr. Robert Petrina, Managing Director of Yingli Green Energy Americas; and Mr. Darren Thompson, Marketing Director of Yingli Green Energy Europe.

The call today will feature a presentation from Mr. Miao, covering business and operational developments. And then Mr. Li will take you through a discussion of the company's financial performance. After that, we will open the floor to questions from the audience.

Before beginning, Yingli Green Energy's management team would like to remind audience that this presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as a mandate, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates and similar phrases.

Such statements are based upon management's current expectations and current market and operating conditions and the relative events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond Yingli Green Energy's control, which could cause Yingli Green Energy's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties or factors is included in Yingli Green Energy's filings with the U.S. Securities and Exchange Commission. Yingli Green Energy does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise except as required under applicable law.

I'd now like to turn the call over to Mr. Miao Liansheng.

Miao Liansheng

Hello, everyone, and thank you for joining us today. First, I will share with you our business performance in the first quarter. And then I will hand the call over to Mr. Bryan Li, our CFO, who will take you through our quarterly financial results.

In the first quarter of 2011, we experienced a sudden demand slowdown in Europe, primarily caused by the uncertainties relating to solar policy changes in Italy as well as severe winter season conditions in Germany. However, despite a lower-than-expected shipment in this past quarter, we remain confident to accomplish our full year shipment guidance of 1.7 GW to 1.75 GW by reinforcing our continuously optimized global sales strategies.

Although solar policy changes in the European countries have caused short-term market fluctuations, in the long run we continue to view Europe as one of our most important markets. Approximately, one-third of our European customers have been working with Yingli for more than three years, bringing growing demand for our products year-on-year.

For example, we commenced our business relationship with WIRSOL SOLAR AG in 2008 with small volumes. By 2010, our shipment to WIRSOL increased by almost 20 times from 2008, and we see even stronger demand from WIRSOL in 2011.

We believe our existing customers in Europe have demonstrated experience to weather market dynamics, proven capabilities to tackle challenges of low demand cycles, strong technical innovations at system level by offering competitive solar power solutions to end users and successful penetration into new and emerging markets in and beyond Europe. We plan to continue to enhance our long-term strategic cooperation with these customers to further solidify our market position in Europe.

As a result of policy changes, demand in Europe is shifting from ground-mounted segment toward roof-tops. Our major customers continue to tune their business strategies and align their resources to benefit from this market transition. To ensure we are well positioned for new opportunities created, we also continue to select and build relationships with new customers with proven track records of technical and operational excellence in accessing the roof-top segment.

In order to further support our penetration into the roof top market, we have established regional fulfillments centers to enable fast and flexible delivery combined with localized pre and after-sales services to customers.

We continue to execute effective marketing strategies to broaden and deepen our brand engagement with end users, and we continue to innovate based on customers needs and position our product portfolio to adjust the growing demand for high-efficiency PV modules from the roof-top segment.

In the emerging markets, we have been systematically consolidating our leadership throughout the past quarter. In the U.S., we continued to win new customers and diversify our geographic mix. Our customer pool proved to be extensively diversified to drive demand for a record quarter with shipment of more than 50 MW, a five-fold increase from the first quarter of 2010.

In China, we have established a solid market position through continuous involvement in a series of solar initiatives such as the Golden Sun Program. We are growingly more confident in the Chinese government's signaling that it is considering raising the accumulative PV installation targets to 10 GW by 2015 and 50 GW by 2020. We strongly believe that China will quickly evolve into one of the largest and most important solar markets in the world.

In addition, we are penetrating frontier markets through sustained efforts. We're progressively building seasoned sales forces, which are capable to cover established as well as emerging markets. We are establishing subsidiaries in markets with long-term potential such as Southeast Asia, South America and the Middle East, and we are leveraging existing customers' off-grid expertise and strong channel building capabilities.

On the research and development front, we have established our leadership position in the domain of n-type solar cell production through successfully commercializing Project PANDA and launched the high-efficiency Yingli Solar Panda module. Currently, the average conversion efficiency rate of the PANDA cells has been stabilized at 18.5% on commercial production lines. We are expecting to bring this rate up to 18.7% by the end of this year through further optimizing our manufacturing processes.

As I mentioned on the conference call last quarter, in addition to our expenditures on continuously enhancing cell manufacturing, we have also been optimizing the manufacturing process through all the vertically-integrated value chain. Recently, we have made initial progress in the crystal growth techniques deployed in ingot casting. We expect this new technical innovation will facilitate further cost reduction opportunities in commercialization.

Thank you. I will now hand the call over to Bryan who will take you through the financial results for the quarter.

Bryan Li

Thank you, Mr. Miao, for giving us such a comprehensive and encouraging speech. And I would like to once again welcome everyone taking time to join us today. We are pleased to present our results for the first quarter of 2011. Later on, we will provide guidance for the second quarter and the full year 2011.

Now please open the presentation slides and turn to Page 4. I will walk you through some highlights of the first quarter of 2011 as well as the second quarter and the full year 2011 guidance

In the first quarter 2011, we have reached a total revenue of $527.3 million, gross profits of $144.1 million and a non-GAAP net income of $61.6 million. As a result, EPS on a non-GAAP diluted basis was $0.38.

I'd like to highlight here that we have been able to once again maintain industry-leading margins. Our overall gross margin was 27.3%. Operating margin was 16.5%. The net margin on a non-GAAP basis was 11.7%.

Looking forward into the second quarter of 2011, we expect to deliver certain delayed orders in the second quarter of 2011, and we expect the shipment in the second of 2011 will increase by more than 30% over the first quarter of 2011

Based on current market and operating conditions, estimated production capacity and forecasted customer demand, the company reaffirms its photovoltaic module shipment target to be in the estimated range of 1.7 GW to 1.75 GW for the fiscal year of 2011, which represents an increase of 60.1% to 64.8% compared to the fiscal year of 2010.

Let's turn to Slide 11 and Slide 12 for a summary of key operating metrics in the first quarter of 2011. Total net revenues were RMB3.5 billion, equivalent to $527.3 million in the first quarter of 2011 compared to RMB4.1 billion in the fourth quarter of 2010. The decrease was primarily due to decreased PV module shipment as a result of the policy changes in Italy and a colder winter in Germany this year.

In early of March of 2011, the Italian government announced that it was planning to reduce feed-in tariffs for solar power system as an effort to impede overheating of its solar market. As the Italian government did not announce, it's finalized a new policy until early May. Uncertainties relating to the proposed policy change led to delays in solar power projects in Italy.

In addition, the severe weather condition in Germany this past winter also had a negative effect on market demand for solar products in the first quarter of 2011.

Gross profit was RMB943.7 million, equivalent to $144.1 million, in the first quarter of 2011 compared to RMB1.3 billion in the fourth quarter of 2010. Overall gross margin was 27.3% compared to 32.9% in the fourth quarter of 2010 and 33.3% in the first quarter of 2010. The decrease in gross margin quarter-over-quarter was primarily due to an increase of outsourced cell production and the polysilicon spot price as well as a slight decrease in average selling price. Excluding the temporary impact of outsourced cell production, gross margin for our in-house module production was approximately 30% in the first quarter of 2011.

Non-silicon cost in this quarter was approximately $0.73 per watt, a continuous improvement from $0.74 for the fourth quarter of 2010. Looking forward into the next quarter, we expect to see a low-to-mid single digit decrease in ASP after considering the level of unit material cost. We currently estimate our second quarter 2011 gross margin to be in the range of low-to-mid 20s.

Operating expenses were RMB375.5 million, equivalent to $57.3 million, in the first quarter of 2011 compared to RMB394.3 million in the fourth quarter of 2010. Operating expenses as a percentage of total net revenues were 10.9% in the first quarter of 2011 compared to 9.7% in the fourth quarter of 2010.

As a result, operating income in the first quarter of 2011 was RMB568.2 million, equivalent to $86.8 million, compared to RMB943.5 million in the fourth quarter of 2010. Operating margins were 16.5% in the first quarter of 2011 compared to 23.2% in the fourth quarter of 2010.

Interest expense was RMB130.5 million, equivalent to $19.9 million, in the first quarter of 2011, flattish to RMB130.6 million in the fourth quarter of 2010. As of March 31, the company had an aggregate of RMB10.2 billion, equivalent to $1.6 billion, borrowings, middle-term notes and convertible notes, representing an increase of 8.5% from RMB9.4 billion as of December 31, 2010.

Foreign exchange gain was RMB61.2 million, equivalent to $9.3 million, in the first quarter of 2011 compared to a foreign exchange loss of RMB62.9 million in the fourth quarter of 2010. The foreign currency exchange gain in the first quarter of 2011 was primarily attributable to the appreciation of the euro against the RMB.

Income tax expense was RMB76.8 million, equivalent to $11.7 million, in the first quarter of 2011, a decrease of 36.9% from RMB121.7 million in the fourth quarter of 2010.

Our effective tax rate for the first quarter of 2011 was 15.2%, down from 16.1% in the fourth quarter of 2010. The applicable income tax rates for our major operating subsidiaries, Tianwei Yingli, Yingli China, Fine Silicon and Yingli Hainan were 12.5%, 15% and 25% respectively.

As a result of all factors discussed above, net income was RMB368.3 million, equivalent to $56.2 million, in the first quarter of 2011 compared to RMB522 million in the fourth quarter of 2010.

Before we move on, I would like to discuss with you a simple non-GAAP reconciliation. In the first quarter of 2011, three non-GAAP items were added back to the GAAP figures, including $2.2 million share-based compensation expenses, $1.3 million non-cash interest expenses and $1.8 million amortization of intangible assets arising from the purchase price allocation.

In aggregate, these three items negatively impacted the diluted EPS by $0.03. As a result, on an adjusted non-GAAP basis, net income was RMB403.6 million, equivalent to $61.6 million, in the first quarter of 2011 compared to RMB565.9 million in the fourth quarter of 2010. Adjusted non-GAAP diluted earnings per ordinary share and per ADS were RMB2.51, equivalent to $0.38, in the first quarter of 2011 compared to RMB3.53 in the fourth quarter of 2010.

Moving on to the balance sheet, as of March 31, 2011, Yingli Green Energy had RMB6 billion, equivalent to $922.1 million, in cash and restricted cash compared to RMB6.5 billion as of December 31, 2010. As of March 31, 2011, working capital representing current assets less current liabilities was RMB2.9 billion, equivalent to $446.7 million, compared to RMB3.1 billion as of December 31, 2010.

Through one of its operating subsidiaries in China, the company has completed the insurance of the second tranche of RMB1.4 billion, equivalent to $213.8 million, RMB-denominated unsecured five-year medium-term notes on May 12, 2011, which bears a fixed annual interest rate of 6.15%.

As of the date of this conference call, the company had approximately RMB7 billion in unutilized short-term lines of credit and RMB919.1 million committed a long-term facilities that can be drawn down in the near future.

Now, I would like to open the call to the questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Jesse Pichel from Jefferies.

Jesse Pichel - Jefferies

Yingli targeted strong customers and developed an R&D initiative several years ago rather than sell spot panels. And this gave you a pretty strong brand and impended technology today. So now there are many tier-2 competitors that don't have high-efficiency panels and they don't have strong relationships with these customers that have forced to drop the price more aggressively to sell out all the capacity if they don't.

And one of your competitors just talked about this earlier in the week. How does Chairman Miao think that this will end up, and how will Yingli maintain margins in this environment with these tier-2 companies aggressively pricing?

Miao Liansheng

The company actually expected this to be happening very early, as early as 2008, this market transition. And we already have the judgment. We already had the estimate that the market will transit from ground-mounted to roof-tops.

So we made a lot of efforts in brand marketing and developing high-efficiency solar cells and modules. In the future, let me emphasize that there are two areas that the company will continue to make efforts in.

The first front is R&D and cost reduction. The company will value this as a key competitiveness. The second one is to further develop in new and emerging markets and to provide differentiated products and services for the customers. We already have a set up warehouse for customers for a more timely response to our customers' needs.

So in general, although the company is facing a pressure on its margin, the pressure should be less than anticipated. And as to some other competitors, I would like to congratulate whomever could do a better job than Yingli.

Bryan Li

And one thing to implement is we always believe with our solar system, it's not simply an industrial product, but also a capital product. Its investment opportunity was 25-year longer tenure rather than personal commodities.

So when the customers decide who they are going to procure the module from, they will have to think about the credibility. They will have to think about the quality and the technical migration possibility for each of the suppliers to be able to finally come into a conclusion.

So it's not simple as you cut a price and then a customer would be happy to accept. Otherwise, there will be the different pricing in the markets. I at the end, the investors will evaluate the risk and the return for each of the products by using their financial model.

Operator

(Operator Instructions) Your next question comes from the line of Dan Ries from Collins Stewart.

Dan Ries - Collins Stewart

Bryan, in your presentation, you said that gross margin might be low-to-mid 20s in the second quarter. Given your comment, the ASP might be down mid-single digits. Are you implying that your costs will be relatively flat sequentially, and is this impact of purchased cells? How will cost trend and what is the impact of the purchased components versus the company-made modules?

Bryan Li

We currently model in a mid-to-high single-digit decrease on the ASP for the second quarter. And we also see that shipments will increase more than 30% over the first quarter. And for the cost trend, it will be flat-to-down in the second quarter, given the efficiency of the production is getting further increased and also the cell efficiency is targeted to increase in the second quarter.

So we currently expect the gross margin in the second quarter would be in low-to-mid 20s range.

Dan Ries - Collins Stewart

What do you think the company-made modules would be versus the ones you make with purchased cells?

Bryan Li

Yes, for the company-made modules, for gross margin it will be down from the first quarter level if you compare on the same basis of the in-house produced modules by a couple of percentage.

The outsourcing is really flexible strategy. We'll determine if we are going to use the outsourcing strategy and to what extent we're going to outsource the cells and depending on the market situations and also the pricing situations. So it's not easy to answer.

Operator

Your next question comes from the Satya Kumar from Credit Suisse.

Maheep Mandloi - Credit Suisse

Hello, this is Maheep on behalf of Satya. My question was regarding the PANDA cells? What amount of PANDA shipments did we see in Q1 and what it'd be for Q2? And what would be the ASP in Q2 and for the rest of the year?

Arthur Chen

Could you repeat your question again?

Maheep Mandloi - Credit Suisse

What was the PANDA shipment in Q1 and what would we see in Q2 and the rest of the year? And what the pricing difference would be vis-à-vis the regular modules?

Bryan Li

The PANDA shipment in the first quarter is slightly above 15% in the total metrics due to the ramp-up status. And since we've reached the full capacity for the PANDA for the 300 MW PANDA lines, so we expect the PANDA shipments will start getting increased quarter-over-quarter. And for the full year, we are currently targeting approximately 25% of the annual shipments would be coming from PANDA.

And in terms of the price, the PANDA modules enjoy a 5% to 10% premium over the traditional multi-crystalline modules given the higher efficiency.

Operator

Your next question comes from the line of Paul Clegg from Mizuho.

Paul Clegg - Mizuho

You talked about several different cost pressures. Did polysilicon cost actually rise during the quarter for you, and how much of your poly were you getting from your in-house production and where do you expect that the trend throughout the year?

Bryan Li

In the first quarter, we saw the blended cost of polysilicon rose by mid-single digits from the fourth quarter of 2010, because most of the first quarter's production was procured in the fourth quarter of 2010 where the poly cost stays at a higher level.

Our internal polysilicon plant is ramping up well. And according to our expectations in the last quarter's conference call, we are currently seeing the whole plant will be up and running and reach the full capacity in early Q3 of this year.

We have already stopped producing the in-house polysilicon from our internal polysilicon plant. But in the terms of the volume, it's still in the ramp-up stage. So it's not significant compared to the total polysilicon needs in the first quarter of 2011.

Paul Clegg - Mizuho

And when do the costs on that plant get to be the same as your purchase costs or better than your purchase costs?

Bryan Li

Currently in the ramp-up stages, it was roughly $65 per kilo.

Operator

Your next question comes from the line of Ahmar Zaman from Piper Jaffray.

Shawn Lockman - Piper Jaffray

Hello, this is Shawn for Ahmar. Just wanted to ask you some quick questions about your cash flow from ops. Can you give us that number and then also your CapEx during the quarter?

Bryan Li

Our operating cash flow in the first quarter was close to breakeven in the first quarter. It's because of the Italian banks. And for the CapEx, we spent approximately $100 million in the first quarter.

Shawn Lockman - Piper Jaffray

In terms of the reiteration of your full year guidance, can you talk just a little bit about what gave you confidence at this stage that you'll be able to achieve that given the push-outs that we've seen in Q1 and just what you're seeing in the market?

Wang Yiyu

I think as Bryan mentioned during the beginning of the call, from the slide we provided, you can see our company has been well positioned within the European market. We have a very good and strong position in U.S., China, also emerging markets, but also we don't have too much pressures from the short-term risk markets like Italy. Actually you can see our exposure to Italy is at a quite reasonable level.

So besides that, we have a very strong customer base in Germany, plus our high-premium product, PANDA, which if put all this together, we strongly believe we can achieve annual output.

Operator

Your next question comes from the line of Sam Dubinsky from Wells Fargo.

Sam Dubinsky - Wells Fargo

Just in terms of Italy, following your subsidy plans, have you actually seen demand improve at all?

Bryan Li

In terms of Italy, in terms of the certain change in the policy, you have to remember that there was a large pipeline of projects that were ready to go in Italy. So now, as there has been more clarity on the policy, we're starting to see movements in terms of those projects. It will take time to build up through the year.

In terms of the roof-top market, again, it takes a little bit longer because you've got a chain right through down to the end user. But again, we see back from our customer base in Italy, but also through Germany, where we have subsidiaries there, they're starting to see some movement now in Italy.

Sam Dubinsky - Wells Fargo

Where are spot cell and spot poly ASPs today? I know you guys are purchasing obviously some spot cells and where is the spot market for poly today?

Wang Yiyu

The spot poly we buy today is from our long-term suppliers, because every year they have a spot volume which is additionally from the production line. Currently the price range now is from $60 to $70. And we expect it can be below $60 at the end of Q3.

Sam Dubinsky - Wells Fargo

What about cells?

Wang Yiyu

Currently the cell price, if you buy spot, is in the range from $0.80 to $0.85. These are for committed large volume.

Sam Dubinsky - Wells Fargo

$0.80 to $0.85 per cell?

Wang Yiyu

$0.80 cents to $0.85 cents per watt at a cell level.

Sam Dubinsky - Wells Fargo

If poly pricing falls in the 50s this year, do you guys plan to continue with the poly plant or you'll postpone that?

Darren Thompson

For the poly plant, as you know, we are currently running 3,000 metric ton plants towards the full capacity. And that is the plan we are having now, and we don't have any other plans to further expand poly plant beyond 3,000 metric tons.

Operator

The next question comes from the line of Jesse Pichel from Jefferies.

Jesse Pichel - Jefferies

Bryan, I am trying to get a view of where you think gross margins could look in the second half. And given that one of your big polysilicon contracts is structured at a discount to spot price, do you think your gross margin can be stable in the second half or could actually improve a little bit? What should we be thinking about it?

Bryan Li

For the most conservative case scenarios, we expect the second half gross margin will be in the low-20s range. But there are a couple of upsides we are working very hard to deliver on.

One is the sales price. As we have commented earlier, for the photovoltaic modules, it's not simply a commodity. It's an attractive investment opportunity with 25-year warranty. And so the brand will matter when the customer decides the pricing range for the inception.

So we are working very hard and our marketing team is spreading our marketing efforts in different regions, and they're not only covering the new customers, but also the existing customers as well as the commercial banks to have a deeper acknowledgement of any sort of brand modules and to deliver more confidence and the lower interest rates to our customers.

We are working on the ASP front. And also on the poly, and Yiyu has commented earlier that we currently see the poly costs has a great potential to fall below 60, towards 50 through the end of this year. So that further provides the upsides to the gross margins.

And then third is our internal R&D process on the cell efficiency front and the module efficiency front and also the ingot growing front and to combine them together to deliver a higher production efficiency on the modules to further help us reduce the cost for the upsides of the gross margins.

Jesse Pichel - Jefferies

Bryan, in the prepared remarks, you mentioned or Chairman mentioned wafering or ingot technology that was potentially higher efficiency. Is this something that's in-house developed or is it a new piece of equipment that's available on the open market? Could you give us a little bit more color on that?

Liansheng Miao

It's a 100% in-house developed technology.

Jesse Pichel - Jefferies

And what type of efficiencies or improvements should that allow or cost improvements should that development allow?

Liansheng Miao

It should be pretty good. We'll let you know once we have the exact figures.

Jesse Pichel - Jefferies

Does chairman think that the capacity expenses in China have halted at this time? And is he hearing about equipment cancellations for new cells or wafer capacity being cancelled?

Liansheng Miao

We didn't hear about any cancellations of such orders. But if this situation continues, I would expect such cancellations to happen.

Jesse Pichel - Jefferies

Does he hear about any consolidation in the industry? What will happen with all of this tier-2 capacity?

Liansheng Miao

Well, the market has its own rules, but we didn't pay much attention to our tier-2 or tier-3 companies, because we are focusing on developing our own unique technologies and our own advantages, especially for our high-efficiency module such as PANDA module, which provides higher efficiency and better quality, and it's in very good demand. So we are focusing on things like this.

Jesse Pichel - Jefferies

Bryan, you've taken your cash position up to RMB1 billion by tapping the local market there with the bonds. What is your intention with this cash? Is it to appear more bankable, or might this be used to help finance your customers' purchases? On a side bar, is it true that the Chinese government will give you money to finance your customers and give them longer days to pay?

Bryan Li

Yes, it's an interesting question. For the RMB1.4 billion cash we raised from the recent medium-term notes, roughly 30% would be used to repay the existing bank loans which was with the covenants or higher interest rates. And the remaining 70% will be used for the working capital purpose and the other operating purpose at the company's discretion.

We could use that money for: number one, to further support our operating cash flows, and it's a reserve in the current heightened liquidity markets in China as a cash reserve. And secondly, we also consider, depending on the market evolvement, to roll out the next era of expansion projects if we see it's necessary.

Thirdly, we were also asked by our customers for the project finance opportunities and to support the downstream projects. I don't think we will use our own cash to support such kind of idea, but rather help our customers to bridge through the domestic banks in China who have the strongest relationship with Yingli to help the customers get an opportunity in the project finance from the Chinese banks with lower interest rates and longer tenure.

Jesse Pichel - Jefferies

Has that started yet? We heard one of your competitors giving a project a very long term.

Bryan Li

I not sure which competitor you refer to and whether they are using their own balance sheet to finance the project. But that's not our intention. We won't use our own balance sheet. But we are helping our customers to negotiate with the domestic banks for the project finance idea.

Operator

At this time, we only have time for one more question, and that question will come from the line of Colin Rusch from ThinkEquity.

Colin Rusch - ThinkEquity

Can you tell us how you're making the decisions on when to purchase cells and when to dial back on that, and what sort of triggers we should be looking for as you make those decisions?

Bryan Li

You mean the interest rate?

Colin Rusch - ThinkEquity

No, cell purchases and the outsourcing strategy. You've mentioned that you're going to be assessing the market going forward on whether to make cell purchases or not. Could you let us know what criteria you're looking at to make the decisions to buy cells or to not buy cells?

Bryan Li

Assuming the order market conditions that we expected and are moving as we expected. And then first of all, we will try every single effort to ship 100% of our internally-produced modules. So that's number one.

And then if we see there are additional needs on Yingli Solar branded modules, then we will consider depending on the market situation if we want to outsource the cells and to satisfy our customers' demand. But it will also depend on if we can source sufficient solar cells from qualified vendors and with the quality assurance and also the pricing concern.

Colin Rusch - ThinkEquity

And then you previously guided to a 1,000 metric tons of poly production this year. Can you give us an update on what your expectation is in terms of cell production? And if you're behind schedule on that work, what's holding you back?

Bryan Li

Yes, the poly plant is currently on a schedule of ramp-up. We currently expect the poly plant will progress into the full capacity in the early part of Q3. And in terms of the annual production for this year, we expect somewhere between 1,000 to 1,200 for this year.

Operator

And that concludes our call for today. Now I'd like to transfer the call back to Mr. Arthur Chen for closing remarks.

Arthur Chen

Thank you. If you have any additional questions, please feel free to contact Bryan, Miao Qing or anyone else from our Investor Relation's team. Thank you and good bye.

Operator

Ladies and gentleman, thank you very much for your participation in today's conference call. You may now disconnect. Have a wonderful day.

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