Trina Solar's (TSL) CEO Jifan Gao on Q1 2016 Results - Earnings Call Transcript

| About: Trina Solar (TSL)

Trina Solar Limited (NYSE:TSL)

Q1 2016 Results Earnings Conference Call

May 26, 2016, 8:00 am ET

Executives

Yvonne Young - Investment Relations Director

Jifan Gao - Chairman of the Board, Chief Executive Officer

Teresa Tan - Chief Financial Officer

Analysts

Patrick Jobin - Credit Suisse

Justin Clare - Roth Capital Partners

Vishal Shah - Deutsche Bank

Gordon Johnson - Axiom Capital

Sheng Zhong - Morgan Stanley

Frank He - Goldman Sachs

Pavel Molchanov - Raymond James

Ben Xu - Cowell and Lee

Kislaya Gautam - Linden Advisors

Mohana Kumar - ICC Bank

Paul Strigler - Esplanade Capital

Stephen Roth - GLG

Operator

Good morning. My name is Julia and I will be your conference operator today. Thank you for standing by and welcome to the Trina Solar first quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. [Operator Instructions]. As a reminder, today's conference is being recorded.

I would like to turn the meeting over to your host for today's call, Ms. Yvonne Young, Trina Solar's Investor Relations Director. Please proceed, Yvonne.

Yvonne Young

Thank you, operator. Good day to everyone and welcome to Trina Solar first quarter 2016 earnings conference call. This is Yvonne Young, Trina Solar's Investor Relations Director. With us today are Trina Solar's Chairman and CEO, Mr. Jifan Gao and Chief Financial Officer, Ms. Teresa Tan.

Before I turn over the call to Mr. Gao, may I remind our listeners that in this call, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that's contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission.

For those of you unable to listen to the entire call at this time, a recording will be made available via webcast for 90 days at the Investor Relations section of our website at www.trinasolar.com.

And with that, it's my pleasure to turn the call over to Trina Solar Chairman and CEO, Mr. Jifan Gao for our first quarter 2016 opening remarks. Mr. Gao will speak Mandarin. I would translate his speech into English. Mr. Gao, please go ahead.

Jifan Gao

[FOREIGN LANGUAGE]

Thank you, Yvonne. Good morning, everyone and thank you for joining our Q1 2016 earnings conference call.

[FOREIGN LANGUAGE]

I am happy to report that we are off to a good start this year. We are continuing to make impressive year-over-year progress in both our module and downstream business. Our revenue and net income increased 46.4% and 91.3% respectively. We shipped a total of 1.42 of modules this quarter, compared to one gigawatts in Q1 last year. This was driven by demand and our strong sales effort in key markets including the U.S., China and India. I would also like to highlight that we saw a twofold sequential rise in Europe after we shifted our strategy in the region.

[FOREIGN LANGUAGE]

Our downstream business continues to expand around the world. We came very close to topping the one gigawatts milestone as we connected a total of 101.7 megawatts of utility scale projects to the grid this quarter. Notably, we launched five new solar projects in the U.K. that totaled 24.3 megawatts. We also made exciting progress in Japan during the quarter as we further expanded our presence by co-investing with GE on a 14 megawatts utility-scale DC project. We were further awarded an EPC contract on this project, demonstrating our experienced end-to-end capabilities.

[FOREIGN LANGUAGE]

This quarter we continued our core mission of innovating technology in high-efficiency cells and delivering high-quality products. Our R&D team recently set a new world record of 23.5% for IBC cells. We have also commercialized our advanced PERC cells with analyzed capacity of 200 megawatts in this quarter showing our ability to translate lab research to practical consumer products.

[FOREIGN LANGUAGE]

While making a positive impact on our bottom line, we remain committed to reducing our environmental footprint along with our achievements in the SVTC's Solar Scorecard and the BMES report. This quarter we earned Silver status in the corporate social responsibility performance survey conducted by EcoVadis. We achieved a solid year-on-year improvement in our overall score and we are now ranked in the top 13 of all the business assessed by EcoVadis globally.

[FOREIGN LANGUAGE]

We are proud of this achievement. Looking ahead, the competition in the solar market is getting tougher and we will stay focused on improving our products and services, driven by business development of new technology. We will continue to strategically position Trina Solar for long-term sustainable and stable growth.

With that, I would like now to turn the call over to Teresa, our CFO, to review our operational and financial results and provide our Q2 and 2016 guidance. Thank you.

Teresa Tan

Thank you, Mr. Gao and hello, everyone. Today I will first update you on the two segments of our business, the module manufacturing business and the downstream business and I will discuss our financial results.

As Mr. Gao mentioned, Q1 was a great quarter and we had a strong start to the year. Our Q1 total shipments grew 38.7% year-over-year to 1.42 gigawatts. We shipped 40.2% of our modules to the U.S., 23.7% to China, 16.8% to rest of Asia, 11.1% to Europe and 7.7% to Japan. Our Q1 shipments to the U.S. increased 172.4% year-over-year to 550.8 megawatts benefiting from the strong foundation that we built in 2015. This brings our total modules shipped to the region to near four gigawatts.

China remained the second largest market with external shipments nearly doubled on a year-over-year basis in a traditionally weak quarter. Particularly, we have made further progress in executing our product strategy in China and we are seeing orders increased for our monocrystalline modules and 1,500 voltage solar modules.

We continued our strong growth momentum in India, thanks to our extensive sales network that we have established in the region over the past years. Shipments to India increased 53.1% sequentially and we are up twofold on a year-over-year basis.

In Europe, we saw a sequential increase in shipments, which was primarily due to our decisions to withdraw from EU price undertaking in December of last year. ASP in the region dropped as expected. We have continued our penetration into the Turkish market and the emerging markets with growth potential.

Turning to manufacturing capacity. As of March 31, 2016, our annualized in-house capacity for ingots was 2.3 gigawatts, wafers was 1.8 gigawatts, capacity for cells increased to 4.3 gigawatts and modules capacity increased to 5.6 gigawatts. In addition, we are on track to expand our overseas manufacturing capacity in select markets. We acquired a cell factory in the Netherlands and also brought our factory in Thailand online as scheduled.

Now let us take a look at our downstream business. As Mr. Gao mentioned earlier, we connected a total of 101.7 megawatts of utility scale solar projects to the grid this quarter, consisting of 24.3 megawatts in the U.K. and 77.4 megawatts in China, of which 50 megawatts was in Xinjiang and 27.4 megawatts was Yunan. As of March 31, 2016, the company had a total of 967.3 megawatts of solar projects in grid connected operations, 920.8 megawatts in China, 42.3 megawatts in Europe and 4.2 megawatts in the U.S. The 920.8 megawatts project in China consisted of 722.9 megawatts of utility projects and 197.9 megawatts of DG projects. As discussed in the past, we will look for opportunities to monetize our solar projects in grid connected operations both in China and in oversea regions.

Now let us take a look at our financial results. In Q1, net revenues were $816.9 million down 15.1% sequentially and up 46.4% year-over-year. Gross margin was 17.1%, compared with 19.1% in Q4 and 18% in Q1 of last year. The sequential decrease in gross margin was mainly due to Q1 lower ASP and lower contribution from our downstream business, while the year-over-year decrease in gross margin was because the decline in ASP outpaced the cost reduction of the company.

Operating expenses for Q1 was $94.9 million, down 6.9% sequentially and up 33.3% year-over-year. Operating expenses in the quarter included an accounts receivable provision of $6.0 million.

Other operating income in Q1 was $3.3 million which represents electricity income generated from solar power project assets reported as current assets on the balance sheet, prior to the sale of those projects. As a result, operating income in Q1 was $44.8 million and operating margin was 5.5%, compared with 8.5% in the fourth quarter of 2015 and 5.2% in the first quarter of last year.

EBITDA for Q1 was $86.2 million compared with $105.8 million last quarter and $61.2 million in the first quarter of 2016. Net income attributable to ordinary shareholders for Q1 was $26.6 million compared with $41.7 million in the fourth quarter of 2015 and $13.9 million in the first quarter of 2015.

Now let us take a look at the balance sheet. At the end of Q1, our cash balance including cash and cash equivalents and restricted cash was $621.1 million. Our total bank borrowings at the end of Q1 were $1,516.7 million consisting of $933.2 million in short-term borrowings and $583.5 million in long-term borrowings.

Short-term borrowings included $708.9 million and $224.3 million for our module business and our downstream business respectively, while our long-term borrowings consisted of $73 million for our module business and $510.5 million for our downstream business. Our borrowings increased as we expanded our business in the downstream business.

In terms of CapEx, our total CapEx on a balance sheet basis for Q1 2016 was $61.7 million, of which $22.2 million was related to downstream business and $39.5 million was related to module business.

Finally our guidance is as follows. For Q2 2016, we expect our total shipments of solar modules to be between 1.5 to 1.6 gigawatts, of which 40 to 50 megawatts of PV modules will be shipped to the company's downstream project. For full year 2016, our guidance for total module shipments remains to be between 6.3 to 6.55 gigawatts. However, the shipments to the company's downstream project is reduced to 220 to 260 megawatts from previously 450 to 550 megawatts. Revenues for those would not be recognized.

We are also revising our 2016 guidance to connect 400 to 500 megawatts of downstream PV power project to the grid around the world, mainly because of the low visibility of installation targets in China this year. The total grid connection target consists 15% to 20% DG project in China.

With that, operator, please open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question is from Patrick Jobin from Credit Suisse. Please go ahead. Your line is open.

Patrick Jobin

Hi. Good evening. Thanks for taking the questions. My first question, just do you have any thoughts about the pricing and margin outlook? Given the capacity expansion that's occurring across the industry, do you expect ASP pressures to continue to outpace cost reductions that you saw in Q1? And I have a follow-up. Thank you.

Teresa Tan

Sure. From price perspective, globally it is very confident to us that the price ASP reduction on a going forward, is on a downward trend. The pressure on ASP is not specifically for one market, but globally in all markets and we continue to see the pressure. And at the same time we continue our efforts to reduce our cost in our manufacturing process. However, the reduction pace compared with the ASP downward trend is pretty consistent, I would say, for the rest of the year, so that we could see the margins for manufacturing process will remain relatively stable in mid-teen range as we are looking forward, Patrick.

Patrick Jobin

That's very helpful. And then my second question is in regards to your downstream business and the assets that you have built. Can you update us on your plans to either monetize and sell the downstream assets? Is it contingent upon continued resolution of the feed-in-tariff subsidy payments within China or curtailment? Just any thoughts on timing? And then can you elaborate on the comment about limited visibility for demand within China this year? I guess you are alluding to the feed-in-tariff step down next month. And then just a separate question, any updates on the take-private status at this point? If you can just provide us an update? Thank you.

Teresa Tan

Sure, Patrick. As far as demand, as we have previously discussed in the last earning call and we continue to believe in such a way that the demand for the second half of the year will be lower compared to the first half of the year, especially in China market. And we believe that because of this change that the demand and as well as our sales, the growth will be nowhere compared to previous years.

The second half usually it is higher half of the year, but this year it is little different, mostly because of the dynamics that have changed in China as far the product that is given from timing perspective by the Chinese government. So that is the demand that we can think of from China market. But I wanted to point out that we are selling into a global market and the global market demand is still relatively healthy from where we can see, not only from China perspective but also from U.S., Europe and Japan, especially our sales into U.S. is quite healthy from where we can have the visibility for.

As far as your question on monetizing the project, we continue to see the interest from various quite diverse potential buyers for the project that we are discussing the sales for. And especially, as you probably have the knowledge on the 13.5 brand that the government has in China where there is a goal of reaching 15% of the power generation coming out of the renewable energy source. And so by 2020, with that goal in mind, there is continued interest not only from the funds and insurance company as we discussed previously, but also from power companies that has a vested interest to build up their power generation from the renewable energy. And so that's why we continue to see the potential buyers and we are in active discussion with the potential buyers securing sales of our projects currently.

As far as your third question on the privatization, as I have discussed last quarter, this process is managed by the special committee by the Board of Directors and from management perspective, we are cooperating as the special committee has hired the financial advisor for Citi and also the legal advisors as well. And the process is ongoing but we really do not have any new update that we can offer and we believe that the special committee will make updates as they see appropriate. So I hope this is helpful, Patrick.

Patrick Jobin

It is. Thank you very much.

Teresa Tan

Sure.

Operator

Thank you. We will now take our next question from Philip Shen from Roth Capital Partners. Please go ahead.

Justin Clare

Hi everyone. This is Justin Clare. I am on for Philip today. So the first question I wanted to ask is, just how much of your Q3 production has been booked? And of the production that has been booked, how much of that is for the China market?

Teresa Tan

Okay. Let's get to your first question first, I guess. Currently, our capacity has reached 5.3 gigawatts for module globally with our manufacturing facilities that we have and we are running at full capacity currently and we expect that to continue. In addition, we have engaged OEM capacity for manufacturing and obviously, we will adjust based on the demand for our products and we continue to see healthy booking for our products even though we see that the potential over capacity, as we discussed before, for the second half of the year, but we believe that the first tier manufacturers will see a relatively healthy order even with the over capacity danger that we can forecast. So I believe that our manufacturing will continue the trend of running at full capacity as we go into third quarter.

Justin Clare

Okay. Great. And then also for your Q3 bookings, I am just wondering how much of those bookings do you have the pricing set? So how much visibility do you have into the Q3 pricing at this point?

Teresa Tan

As far as Q3, we continue to see price changes mostly downward changes from all markets, especially in China and we can see that, as I discussed earlier, the price pressure is definitely evident. And with our visibility, 5% to 10% price drop for the year as we projected will continue and it will be what we can see on a going forward basis. So for the third quarter, the price dropped from current level is very much can be expected.

Justin Clare

Okay. And then just one more from me. So given your decision to reduce your development guidance downstream, I am wondering what you are seeing from your customers in China, particularly? Are your customers choosing to scale back on development? Are people concerned about subsidy payments and pulling back from development in the market at all?

Teresa Tan

Subsidy payments or a lack of it continue to be a drag for everyone involved in the industry. And although progress has been made, as you know that the FIT category has been announced and over 200 megawatts of our project has been included in the FIT category and where we are applying for the FIT subsidy payment. And the slow process definitely puts pressure, especially the cash flow pressure on many of the developers in the industry in China for sure. But we still see a relatively healthy demand, especially in the first half of the year that's basically reflected in our shipments that has been increased significantly. And so I guess if you put two and two together, the developers are still very much interested. Of course the FIT slow payments puts a damper on the spirit of the whole process, I would say.

Justin Clare

Okay. Great. That's it for me. Thank you.

Teresa Tan

Thanks, Justin.

Operator

Thank you. We will now take our next question from [indiscernible] from Deutsche Bank. Please go ahead. Your line is open.

Vishal Shah

Hi .This is Vishal Shah from Deutsche Bank. Thanks for taking my question. Teresa, what percentage of your current downstream projects receive the FIT payments? You said 200 megawatts were included in the FIT category, but what's the total number?

Teresa Tan

Q4 number? Are you saying?

Vishal Shah

No, total number. You said you have almost a gigawatt of grid connected systems. How much of the China based grid connected systems that you have in your backlog currently receive FIT payments?

Teresa Tan

Yes, sure. We have total of 967, approximately a little shy from one gigawatts of project that we have on our balance sheet. But most of those are from China. And the China, while the overseas projects is less than 100 megawatts and majority of it was from China, both utility scale and DG scale.

Vishal Shah

And of those projects, what percentage does receive subsidy payments?

Teresa Tan

Well, I will say that from two perspectives. On the DG project that we have, usually there is a delay as far processing time is required to apply for subsidy payments. But for the projects that were connected in 2015, after the processing time, including the application time and the other processing time necessary, we have been receiving the subsidy payments on a regular basis. For the utility projects and that is the one that has a delay and where we only have a little over 200 megawatts that's been included in the category six currently. So we still have about 500 megawatts that is still waiting to be included for the next batch when they open up the window for applications.

Vishal Shah

Okay. That's helpful. So with the inclusion of 200 megawatts, will your electricity revenue increase in the second half?

Teresa Tan

Well, we certainly hope so. The process has been couple of months already and we certainly hope that the project will be completed by the third quarter.

Vishal Shah

Okay. So the second question is, what percentage of your Q2 shipments will be to China and the U.S.?

Teresa Tan

Well, Q2 currently as we can see from Q1, U.S. took the lead at 40.2% and China took the second position at 23.7%. But we expect China to pick up significantly in the second quarter because of the June 30 deadline that people need to connect to receive the FIT that expires on June 30. So we are expecting the percentage to be higher, maybe from 40 to 50% even for the total shipment in second quarter. So yes, it might take the second position in this quarter. But overall for the year, we are expecting the China percentage to be around one-third, around 30 percentage for the whole year.

Vishal Shah

Are the margins in China lower than in the U.S.?

Teresa Tan

Actually, on the contrary, the China margin is price okay compared to U.S., partially because the U.S. has the AD/CVD of course and also higher freight for the transportation, et cetera. So with the Thailand factory coming online and also the overseas cell capacity coming online, we are hoping the margins for U.S. cells to continue to improve on a going forward basis.

Vishal Shah

So with the mix impact, would your Q2 margins improve sequentially from Q1 levels?

Teresa Tan

We certainly hope so but they are now yet to be seen. At this point, our Thailand factory is running as planned, ramping up its production and so it usually takes a little time, but we are hoping that the second quarter margins. We still believe that the module business margin to be at mid-teen, 14% to 15% as we guided for the year, but then the second quarter with higher China sales expected for the second quarter, we are hoping the margin to be at least at the level we have for first quarter.

Vishal Shah

And so the last question then, I guess if you take that guidance for the full year into consideration and the fact that the mix in China would go down significantly in the second half, your second half margins will be below mid-teens, correct? I mean it will be in the 12% to 14% range?

Teresa Tan

I think are our target for the margin is mid-teen for the year. So we have been doing well as far as first quarter is concerned. And we continue to look for all opportunities to improve the margins in the second quarter and going forward. So I would just say that around 15% as mid-point is what we are hoping for and of course, striving for the high-end margin.

Vishal Shah

I appreciate it. Thank you.

Teresa Tan

Sure, Vishal.

Operator

Thank you. We will now take our next question from Gordon Johnson from Axiom Capital. Please go ahead.

Gordon Johnson

Hi guys. Thanks for taking the question.

Teresa Tan

Sure, Gordon.

Gordon Johnson

So it looks like clearly you took down your expected shipments to your internal projects but you left your full year shipment guidance the same and it looks like you guys are mix shifting more to the U.S. versus China, understandably given the feed-in-tariff change. So I guess our question is, we have some data that came out recently in the U.S., California Solar Initiative data that suggest that rooftop solar installations in California in March were down 22% year-over-year, the weakest growth ever. So it looks like rooftop solar installations in California are now on a decline. So given that just one data point and it's one state in the U.S., so not indicative of everything, the question is, are you guys putting a lot of emphasis and hope or some credence into the idea that the U.S. is going to be stronger this year? And that's why you reiterated your full year guidance? Or you are seeing strength in other markets? And then I have a follow-up.

Teresa Tan

Okay, Gordon. I would be happy to discuss your question. We did reduce our internal shipment, partially because of the visibility or lack of it for the quarter given in China that will be given in the second half of the year. And so with that visibility or at least a lack of it, we have reduced our overall grid connection guidance for the year and in accordance to this reduction, we reduced our internal shipments as well. But then on a going forward basis for the U.S. market, as you have rightfully noticed, the California expectation for California rooftop might be on a decline.

So our shipments are still is quite stable as you know and we are not only even within U.S., not only in California, our shipments are going for not only the West Coast but also the East Coast and we see healthy demand for our product in U.S. so far in the first quarter and looking at second quarter and we continue to see a healthy growth here in the second half of this year. So we are expecting a higher shipment for this year in U.S. compared to last year. And so I guess the one state change or expected change may not significantly deviate our target and our target for the country.

On the other hand, our footsteps are not only in North America but also in South America like many countries in Latin America and also the emerging markets and Middle East as well as in Asia, Southeast Asia. So I think from our capacity wise, we are running at full capacity and we are seeing our almost first allocate our resources and capacity amongst different regions to make sure we maximize our ASP and profitability. So it might be a long answer but I wanted to give you a full picture not only from one state or one country perspective but also from a global perspective.

Gordon Johnson

So that's helpful and you guys have definitely done a good job of continuing to be on the top of the market. I guess the follow-up would be two-prong. Number one, your downstream solar assets have grown from $80 million to $660 million, Q1 2015 to Q1 2016. Could you talk about that? Because clearly there seems to be some issue selling projects in China. So is there any potential down the road to write-down of those assets? And then separately, the gross margin question keeps being asked. So when I think about your mix shifting more to the U.S., which you guys have said is a lower margin market, polysilicon price is down this week for the first time in 17 weeks which would suggest given you have over 15 gigawatts capacity being added this year to the global market, that could potentially cause a price fall. Is there risk to margins, maybe not for you guys or for the industry, that you guys see in the second half given some of the puts and takes we are hearing about? If you could address those two questions. Again, thanks for the questions. Congrats on the execution.

Teresa Tan

Sure, Gordon. I would be happy to discuss. The number one question, you have mentioned is about project sale and I think I mentioned that in the previous discussion with previous question. basically, we see very diverse buyers that are interested in acquiring project. From our perspective, in order to have a transaction completed, it needs to be at a level where those buyers and sellers can accept. So active discussions are in progress and especially given Trina's quality of our project and also our reputation in the industry especially in China that we believe that will be beneficial for monetizing the projects that we have as we are executing our strategy here.

As far as your question about the margin, I think I touched on it earlier. The ASP downward trend is evident and we are expecting it to continue on the second half of the year. But at the same time, the cost reduction is also an ongoing effort as well. So from our perspective, we are working on towards the target of margin at mid-teen which means as the price pressure comes down, the cost comes down as well and as well as managing our sales mix. So it's a combination of various strategy that we are adopting to make sure to achieve the profitability target that we have set for ourselves.

And as far as the pricing war, I think this is a very complicated point you have raised. It's not a simple price war, just reducing the price as what people might think. It really comes down to region and the presence of the players in the region as well as the quality and the reputation and the brand name and also the availability of the capacity. So many, many things come together to decide where the price will end up to be. But we do see the pressure, but I don't know if we will get to a price war as you have eluded. But then I think from our perspective, from Trina perspective, we are focusing on the profitability target that we set for ourselves and we will continue our efforts in cost reduction in our manufacturing process as well as managing our sales mix in the region to optimize ASP for the entire company.

So I hope that helps a little bit for your question.

Gordon Johnson

Thank you.

Teresa Tan

Sure.

Operator

We will now take our next question from Sheng Zhong from Morgan Stanley. Please go ahead. Your line is open.

Sheng Zhong

Thank you for taking my question. Actually I only have two follow-up questions. One is about our China manufacturing capacity. So can you share a little bit more on how much delivery is expected from the Thailand plant this year? And maybe if you have some data on the production cost in the Thailand plant, it would be very helpful?

Teresa Tan

Okay. We were very glad to see that the Thailand plant went online as planned in the first quarter of this year. And I am sure you have seen the announcement as well on that. And we are definitely doing our best to ramp up the production as fast as we can so we can reach the full capacity as the plant was designed for. And the full capacity, from module perspective, it will be around 500 megawatts when it reached the full capacity. And for the cells perspective, it will be 700 megawatts when it reached the full capacity.

But now, one thing I can say for sure is that everything that comes out of the production that we can manage, it will be sold to the oversea market that we have our presence for especially U.S. And so by the end of the year we certainly hope to sell, because it was brought online in the middle of the year, reaching the 500 megawatts for the total module it would be difficult because only a portion of the year. But we believe that the production can be ramped up quickly to the full capacity and we are selling other products that's generated or manufactured in those plants the best we can to the market that it was designed for. So I hope that helps.

Sheng Zhong

Yes. And my second question is about our downstream project monetization. So do we have some market specification we want to monetize this kind of projects? I just want to understand more about our criteria on how we choose the projects we monetize. And if possible, do we have an outlook on how many projects we can sell this year? And maybe what's our hurdle margin for looking for these project sales? Thank you.

Teresa Tan

Sure. We would he happy to discuss. I think we touched on it earlier about monetizing the projects in China. I am assuming that's what you are focusing on. Of course, from international perspective, so we are selling all the projects as we are completing those projects, including U.K. and also in Japan and maybe in other countries or regions. But then I think China where most of our assets or projects are, we are looking at very diverse buyers potential and active discussions are ongoing.

From seller's perspective, from Trina's perspective, of course our focus is to make sure that we realize in optimizing the return on our investment for those projects that we have been spending our efforts to build. And so as far as identifying the buyers, we certainly hope that we can have the serious buyers to discuss those project sales and at the same time, we have reasonable return on those projects.

So it doesn't really matter if the potential buyer is from insurance company or it was from a utility or state owned companies. We are very interested in basically finding the match for the company as well as what that buyer is looking for. So until a project contract is signed and completed, it could be different buyers that are interested in the same project. And so it's very difficult to put the finger on one type of buyers until a transaction is completed.

So I can only assure you that there are a number of promising transactions that are being discussed. And we are certainly spending our efforts and time to pursue those leads and secure those transaction completions. And as time is appropriate, we will be happy to discuss this with the capital markets, with you all to make sure that we have the update for you.

Sheng Zhong

Okay. Thank you very much, Teresa.

Teresa Tan

Sure.

Operator

We will now take our next question from Frank He from Goldman Sachs. Please go ahead.

Frank He

Thank you for taking my question. So the first question is regarding the cost reduction plan. So Teresa, you just mentioned we will keep driving down the costs to maintain the margins. So could you update us about the recent latest cost in-house and also your target by end of this year?

Teresa Tan

Sure. The cost, at first, I know we have always been discussing the cost in a way that we have our in-house cost as well as the blended cost. But now, if you remember we have been discussing those asset-light approach from a strategy perspective and with that approach we are now expanding our investment as fast as what we are making our shipments. And so that's why the purchases and the OEMs and outsourcing cost will take a big proportion in our overall cost.

And so that's why I wanted to, number one, point it out, so from our in-house perspective, the cost has continued to be on a going downward trend from previous quarter at $0.36 to now $0.35 for the in-house manufacturing. But the blended cost stayed stable from the fourth quarter of last year. And therefore, the total blended cost at $0.47 remains the same from last quarter.

Frank He

Okay. And what's your target by end of this year for both costs?

Teresa Tan

The cost reduction is definitely going forward and we are actually expecting certain cost including wafer cost to be on a going down trend in the second half of the year as demand in China are subsides from the first half. So we expect the cost to continue to go down as the whole year target to be about 5% to 10% for the cost reduction for the full year. So the first half of the year, it is relatively safe saying but the in-house cost has reduced slightly and we expect that to continue. And we also certainly hope that the blended cost will go down as we go into the second half of the year.

Frank He

Got it. And second question is about your capacity rollout timetable. So you still target to have six gigawatts in the module and five for cell? I just wonder whether the additional 600 megawatts and 700 megawatts will be back-end loaded or it will be in the middle of this year?

Teresa Tan

Yes. We are on target to reach our capacity increase for both the module and cell and we expect the target to be reached in middle of the year, not the back end as someone may have discussed previously. So from our perspective, we believe that the six gigawatts of module capacity and five gigawatts of cell capacity to be reached towards the third quarter or the fourth quarter.

Frank He

Okay. Got it. And the last question is about your balance sheet. So right now you have around $1.5 billion total debt and I just wonder how much is related to your solar farms and how much is from the manufacturing side? And given the persistent delay in the subsidy payment, do you see any changes in the cost of funding and also the availability of the financing from the major creditors? Thank you.

Teresa Tan

Yes. Let me first discuss the overall environment for the funding. From where we can see, the funding is still very selective from bank's perspective in financing the projects or the company for developing the projects. But from our perspective, we are definitely making progress in securing financing for the downstream projects and not only from utility scale, but also from DG scale. So with the quality and the brand name and the leadership position that we have in the industry, we are seeing the continued support from financial institutions and the financing options are definitely from various options not just one simple option that is available.

So from our total debt perspective, the total $1.5 billion of debt that we have on our balance sheet, $933 million in short-term. And of the total, the short-term $933 million, about $700 million is related to module business and $224 million related to downstream business. And long-term financing, about $70 million related to module business and over $500 million related to the downstream business.

So as you can see that I wanted to point out, the financing that we have for our module business didn't really increase. On the contrary, it actually reduced to about less than $800 million currently on our balance sheet. And that is continued evidence of our positive cash flow from our module business and the need for financing is not as high as what it was before. So, most of our financing increase is really related to the downstream business where the project assets are the collateral for those financing. So I hope that helps.

Frank He

Got it. Yes. That helps a lot. Thank you very much.

Teresa Tan

Sure, Frank.

Operator

[Operator Instructions]. Thank you. We will now take our next question from Pavel Molchanov from Raymond James. Please go ahead. Your line is open.

Pavel Molchanov

Thanks for taking the questions. I know that Q1 was the first quarter when Trina was outside the European Union quota system. Has that had any impact that you have felt so far on either volumes or pricing in your European sales?

Teresa Tan

Yes, definitely. As I discussed during my presentation earlier, the European sales has almost doubled from what it was previously, largely owed to the decision of withdrawing from the European price undertaking arrangement. So that is definitely evidenced in our first quarter shipment that we have made so far and we continue to expect the impact in the sales for the region on a going forward basis.

Pavel Molchanov

Got it. And of course you made an acquisition recently of essentially a bankrupt company in the Netherlands. What I am wondering is, if there is serious deterioration in pricing and there are other bankruptcies, either in Europe or perhaps in the domestic Chinese market, would you consider acquiring fixed assets, manufacturing assets, in those kinds of situations?

Teresa Tan

From Trina's perspective, we have always been keeping our eyes open for opportunities as we are expanding our capacity and this example of acquiring the Netherlands company for our cell capacity increase is an example of what we are doing as we are executing our strategy. So of course, we are always vigilant in looking at the opportunities that might be available. But at the same time we continue to maintain our strategy of asset-light approach. So we are not only looking at acquiring assets to expand our capacity, but at the same time we are also looking at leasing some of the facility that may not be working or operating in optimal matter and we are engaging that kind of capacity in our overall capacity expansion at the same time using OEM as our capacity increase. So multiple ways of expansion is our strategy and again to answer your questions, we continue to look at opportunities to acquire as part of the expansion process on a going forward basis.

Pavel Molchanov

Okay. I appreciate it.

Teresa Tan

Sure.

Operator

Our next question comes from Ben Xu from Cowell and Lee. Please go ahead. Your line is open.

Ben Xu

Sure. Thank you, Teresa. And I think I have two questions. First is, how many megawatts of our downstream assets in Xinjiang is currently being connected and operating? And how many megawatts of our project in Jiangsu are utility scale thereabout? That is the first question. And the second is more related to the maturity profile we have. At the downstream efforts, as you have described is under progress. But my question is really on, in the worst case where we have difficulty selling the downstream asset, at the meantime next year, starting from June we would have two public market securities due, I would say, puttable with total assets of about $280 million, what is our financing plan if we have any difficulties on the downstream asset sale to finance the coming maturities? Thank you.

Teresa Tan

Sure. There are a number of questions in your questions that you have raised. So some of them are really specific. So let's see how I can help you to answer your questions one by one. From Yunan perspective, currently we have a little over 270 megawatts that's in operation. So almost completed for the total of 300 that was designed. And so that's one.

And as far as in Jiangsu, there obviously one of the largest project that we have is the utility scale 420 megawatts and there are some smaller projects for DG projects but they are relatively small. So if you do need the breakdown, we will be happy to follow-up on that after the call to provide you a little bit more detail. But I would say that in Jiangsu province, the largest project is the utility scale projects that we have.

As far as the convertible bond financing that we have issued in 2014, obviously it's a five-year convertible bond that's supposed to mature in 2019 with a option in 2017 for the holders to redeem in case of need. And we believe that there is a number of options for us to satisfy the redemption or the retiring of the CB, should that be needed.

From one perspective, we are selling the project on some to monetizing some of the projects that goes in oversea market as well as in China and active discussions are in progress and we are confident that some of the projects will be monetized based on information available at this time. And in addition, the positive cash flow from our manufacturing business is another source of cash to be generated for paying our debt, not only the convertible bond that might or might not be maturing next year, but also other debt obligations that we have on our balance sheet for Trina. So we are confident that we have the ability to manage our debt as well as satisfy our obligation to our debt holders.

Ben Xu

Okay. Thank you.

Teresa Tan

Sure.

Operator

We will now take our next question from Kislaya Gautam from Linden Advisors. Please go ahead. Your line is open.

Kislaya Gautam

Hi, Teresa. Thanks for taking the question. I had a follow-up on the utility scale projects that are connected in China. So from your previous response, it looks like except for the 30 megawatts, almost 700 megawatts is still waiting for FIT connection. So how much are you earning right now? And do you see any pressure in servicing the loan related to these utility project at the moment?

Teresa Tan

I am not sure if your number of project is what we have discussed or disclosed earlier. But currently we have about 900, a little shy from one gigawatts of projects that are in operation. That means they are connected to the grid. And also, of the total a majority of it is in China that we are generating electricity from those projects and obviously the FIT payment is an issue as we have discussed earlier. But we are receiving the electricity income from selling the electricity, the income is not just the feed-in-tariff that we are waiting for, but also by selling the electricity as part of the electricity revenue to make up our cash flow.

On the other hand, to service our debt that we have taken on for those projects, most of our financing institutions understand very well the FIT delay in obtaining from the government. And so in our structuring of paying back, the slowness of receiving FIT is being considered in structuring and making the plans for servicing the debt. And so that's why currently we do not see a difficulty in servicing our debt and we expect that as we are slowly moving into the FIT payments on a project-by-project basis, we will continue to have the ability to service our debt for the financing that we have on those projects.

Kislaya Gautam

Got it. And so right now what's the revenue that you are generating from the projects connected in China? And how does it vary? Do you have a fixed PPA kind of arrangement there? Or do you sell it in the open market? And what's the revenue? And how does it change? What's the variation in that?

Teresa Tan

On average, we are expecting about $25 million for each quarter, $25 million to $30 million for each quarter from the electricity revenue that we can recognize for the projects that are being connected or connected already. So that's what we are expecting for the year.

Kislaya Gautam

Got it. All right. Thanks.

Teresa Tan

Sure.

Operator

We will now take our next question from Mohana Kumar from ICC Bank. Please go ahead. Your line is open.

Mohana Kumar

Hi. My questions have been answered already. Thanks a lot.

Operator

We will now take our next question from Paul [Esplanade] from Esplanade. Please go ahead. Your line is open.

Paul Strigler

Hi guys. Just one question on the full year guidance. I just did the math and add your Q2 guidance to your Q1 shipment, it looks like you are expecting growth in the back half versus the first half. And I am wondering how that reconciles with, Teresa, your earlier comments that you expect this year to be first half weighted?

Teresa Tan

I apologize, Paul. It's good to hear your voice, but the voice came through very not clear. So if you can speak slowly and then you give the question again, I would appreciate it. Sorry.

Paul Strigler

Sure. I am sorry about that. So your full-year guidance, if we net out your Q1 shipment and then add to that your Q2 guidance, it looks like you are expecting the second half to be stronger than the first half. And I am just wondering how that reconciles with what you were saying earlier about the second half being weaker than the first half.

Teresa Tan

Okay, Paul. Let's discuss this one-by-one. As we were discussing the market change, we believe that the China market will be weaker in the second half of the year. So that's what we was referring to a much weaker second half. However the global markets including the U.S., Japan and emerging markets like India, they are going to be relatively strong and may even be stronger. So as we are allocating more capacity to China sales in the second quarter, on a going forward basis when the demand for China gets weaker we will of course allocating more capacity to oversea market. And that's why traditionally third quarter and fourth quarter are stronger globally, although given the China weak market, we still believe that the overall guidance that we have for the year will be achieved as we have discussed earlier.

Paul Strigler

And then just one last question related to that. So in the first quarter, it looks like you shipped about 40% to the U.S. and it looks like you are guiding to about 30%-ish for the full year. Does that mean you would expect shipments in the back half of the year to be flat for the U.S., up for the U.S.? How are you looking at the back half of the year versus say Q1 for the U.S. market?

Teresa Tan

I think the U.S. market will continue to grow and just that the relative percentage might be smaller compared to China in the second quarter when China sales pick up significantly for the quarter. So it doesn't necessarily mean that the U.S. will be on a decline. It just means that relative percentage will be smaller as China picks up the second quarter. But then the U.S. percentage probably gets higher in the second half compared to the second quarter. It's all relative but the overall total shipment will be growing as we have discussed earlier, Paul.

Paul Strigler

Thanks guys. Nice quarter.

Teresa Tan

Sure.

Operator

And we will take our next question from Stephen Roth from GLG. Please go ahead.

Stephen Roth

Hi. Thanks for taking the question. The convertible bonds that you referred to earlier which have just over a year to go to the put, recently traded at yields of north of 20%. Is there anything, either because of bank restrictions or because of the take-private process, that prevents you from buying back these bonds currently in the market?

Teresa Tan

Well, those bonds are publicly traded. So it really is what the bondholders are expecting. And so we of course are monitoring and looking at the price fluctuation and as far as what you have suggested of redeeming, it really is a total cash management from our perspective, cash management decision and we look at all the options including redemptions as part of the cash management for this particular obligation that we have. So I would not rule out any option that's available to us but at the same time, from market perspective, I can only say that we continue to monitor very closely.

Stephen Roth

But there's nothing in the bank agreements that prevents you from using your cash to buy back bonds?

Teresa Tan

There is nothing that would prevent us from doing that. You are correct.

Stephen Roth

Thank you.

Teresa Tan

Sure.

Operator

There are no further questions at this time. Ms. Yvonne Young, please continue.

Yvonne Young

Thank you operator. On behalf of Trina Solar management team, we want to thank you for your interest and participation in our Q1 earnings call. If you have any follow-up questions, please do not hesitate to contact us. So with that, this concludes Trina Solar first quarter 2016 earnings conference call. Thank you. Operator, you may now disconnect.

Operator

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.

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