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Canadian Solar Inc (CSIQ) Q4 2018 Earnings Conference Call Transcript

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Canadian Solar Inc  (NASDAQ: CSIQ)
Q4 2018 Earnings Conference Call
March 21, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Fourth Quarter 2018 Earnings Conference Call. My name is Ann, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

Now, I'd like to turn the call over to Ms. Mary Ma with Canadian Solar's IR department. Please go ahead.

Mary Ma -- Investor Relations

Thank you, operator, and welcome, everyone to Canadian Solar's Fourth Quarter 2018 Earnings Conference Call. Joining us today on the call are Dr. Shawn Qu, our Chairman and Chief Executive Officer; and Dr. Huifeng Chang, our Senior Vice President and Chief Financial Officer.

Before we begin, may I remind our listeners that management's prepared remarks today will 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 safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from management's current expectations, and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. In addition, any projections as to the company's future performance represent management's estimates as of today's call. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law.

All prepared remarks will be presented within the requirements of SEC Regulations G, regarding Generally Accepted Accounting Principles or GAAP. Some financial information presented by us during the call will be provided on both a GAAP and a non-GAAP basis. By excluding certaing non-GAAP information, management interests to providing our tryst with additional information to permit further analysis of the company's performance or results and underlying strength.

Management use non-GAAP measures to better express operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for better (inaudible) in accordance with GAAP.

At this time, I would like to turn the call over to our Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Xiaohua Qu -- Chairman and Chief Executive Officer

Thank you, Mary. We appreciate everyone taking your time to join us today. 2018 was an exceptional year for Canadian Solar, we achieved a record net income of $3.88 per diluted share. And our net profit increased by 140%, compared to 2017.

In 2018, we shipped around 6.6 gigawatt of solar modules and monetized -- when monetized around 1.7 megawatt of utility-scale solar project globally. With total annual revenue of $3.74 billion. Both of our MSS and Energy Business Group contributed positively to our top line and bottom line. In 2018, our module group, our MSS business contributed 58% of the total revenue.

We successfully maintained a healthy gross margin, despite module ASP pressure that started in May with the policy change in China. We achieved this result through disciplined order management and control of operational cost and inventory, combined with the benefit of the raw material price declines.

During the year, we also expanded our EPC business and O&M business. In 2018, our Energy business contributed $42% of the total revenue. This reflect the strength of our pipeline of sought-after energy asset and the acceleration on the sale of certain projects with high profit into 2018 from 2019.

In Q4 specifically, our MSS business contributed 63% of the total revenue for the quarter, we shipped 1,951 megawatt of solar modules during the quarter, which exceeded our guidance. Gross revenue -- gross margin for our MSS business was 31.7% or 28.8% if we exclude the CVD reversal benefit. Gross margin benefit from our cost and operational controls, lower material costs and our premium brand that adds to our competitive strength and the ability to control the price erosion.

As of Q4 2018, we had accumulatively delivered around 2.6 gigawatt of high efficiency anti-LeTID PERC solar modules worldwide. The majority of these modules are polycrystalline based PERC product, which makes us the undisputable worldwide leader in high-power polycrystalline products.

In 2019, we plan to convert all of our solar cell capacity, both poly and mono into PERC technology. Our high efficiency solar module products such as HiKu, HiDM and BiHiKu are well accepted by our customers. In Q4, our energy business contributed around 37% of the total revenue with a 27.5% gross margin. During the fourth quarter we sold 857 megawatts of solar project assets globally. We achieved revenue of $326.5 million and investment income of $40.4 million from the sale of those solar project asset.

Through this process, we also reduced our project debt by approximately $400 million. Our projects in operation as of February 2019 totals 986 megawatt with an estimated resale value of approximately $1.2 billion.

Our portfolio of late-stage utility-scale solar power project as of February 28, 2019 including those under construction was approximately 2.9 gigawatt. Our strategy is to build and sell these projects at COD or to sell them before COD, either at NTP or before NTP based on the market conditions. Due to the typical development cycle, we expect to realize sales for the majority of our current 2.9 gigawatt late-stage project pipeline in 2020 or later.

In Japan, we energized a 10.8 megawatt solar power project in November. Our current late-stage project pipeline in Japan of 295 megawatt reflect the anticipated impact of the final rule of the proposed change to the feed-in tariff program from METI or Japanese Ministry of Economy, Trade and Industry.

Canadian Solar maintains an approximately 15% ownership of the Canadian Solar infrastructure fund which has a capacity of 106.8 megawatt and our total assets under management or AUM of approximately JPY43.4 billion equivalent to $389 million.

Canadian Solar will continue to provide a right or first offer to CSIF to acquire our solar power plant in operations and project in our late-stage pipelines after they reach COD at competitive market price. In US, we completed the sale of Garland and Tranquillity solar power plants totaling 260 megawatt in October. In December, we sold the 210 megawatt Mustang 2 at pre-NTP stage. In addition, we further expanded our late-stage project pipeline to 1.2 gigawatt in US.

Following our Q3 call, we successfully signed two power purchase agreement for additional 398 megawatt projects, namely a 25 year PPA for the 88 megawatt Stanford Solar Station #2 project with Stanford University and a PPA on a 310 megawatt projects in Texas with a leading commercial and industrial customer.

In addition to the 1.2 gigawatts late-stage pipeline, we signed a build-to-transfer agreement for the 100 megawatt AC Sunflower project located in Mississippi. The build-to-transfer agreement is pending regulatory approval.

Finally, in February 2019, we provided our preliminary assessment of the potential impact of the PG&E bankruptcy filing of our project pipeline. We noted at that time, the company does not have material exposure with respect to previously sold projects. We do have potential exposure with respect to 60 megawatt AC of power purchase agreement signed with PG&E. In addition, the company has potential exposure with respect to interconnection agreement with PG&E, including an early to-mid-stage development projects and the late-stage Slate project, which together total approximately 700 megawatt AC. We continue to monitor the situation, but I have no further update as of today's call.

Now, let me comment on our guidance for Q1 2019 and the full year 2019. We current expect total Q1 module shipment to be in the range of approximately 1.3 to 1.4 gigawatt, including 50 megawatt of shipment to our own utility-scale solar projects. We expect the revenue for the first quarter of 2019 to be in the range of $450 million to $480 million. We expect the gross margin for the Q1 to be between 16% to 18% with net profit low or negative. Our outlook reflects lower module production and sales during the Chinese New Year holiday season, our IT upgrade during the quarter, continuous module ASP pressure decreased the sales of solar power projects compared to the previous quarter, and an expected foreign exchange loss due to the appreciation of Chinese RMB against the US dollar.

For the full year 2019, we expect our total module shipment to be in the range of approximately 7.4 gigawatt to 7.8 gigawatt and total revenue in the range of $3.5 billion to $3.8 billion. We expect profit in subsequent quarters after Q1 likely to recover as module production and sales increase and project sales pickup. However, we currently expect our net profit for 2019 will be lower than that of 2018 due to the lower product sales, ASP pressure and appreciation of RMB against US dollar, which results in higher module cost.

The current headwinds would normally be offset -- the currency headwinds would normally be offset by an adjustment of module price or cost reduction enabled by technology improvement, but that process takes time. Overall, the pullback in our 2019 outlook compared to 2018 is not a reflection of the long-term health, growth or profitability of our core business. Our core business and long-term growth strength remain sound and strong. We expect a rebound in product sales in 2020 and beyond, given our robust 2.9 gigawatt late-stage project pipeline and we will continue to develop and monetize solar projects.

Our focus on new solar module technologies, innovative product and premium channels will help us maintain our competitive edge in our module and solar system business.

Finally, we announced today the appointment of Mr. Arthur Wong to our Board as an Independent Director. His broad experience in finance, accounting and as an auditor will add valuable perspective and insight to our Board of Directors as we continue to maximize the value of our shareholders and focus on delivering improved results.

Let me now turn the call over to our CFO, Huifeng Chang for a more detailed review of our results for the fourth quarter. Huifeng, please go ahead.

Huifeng Chang -- Chief Financial Officer

Thank you, Shawn. We are pleased with the Q4 results, particularly, net income and gross margin. We achieved the higher than expected profitability through a combination of supply chain improvement, cost-cutting in MSS business and the acceleration in selling solar power plants.

As a results, our balance sheet has become stronger. We reduced the debt by about 14% quarter-over-quarter, and in February we repaid the entire outstanding balance of our senior convertible notes. We continue to redeploy capital into new attractive project opportunities, establishing our groundwork for future success.

Now please allow me to go over the details in the financial numbers. Net revenue for Q4 was $901 million, up 17.3% sequentially from Q3. But down 18.7% compared to a year ago period. The sequential increase is due to the successful monetization of solar power project assets and increased solar module shipments. The year-over-year decrease is a result of reduced solar module average selling prices and the reduction in revenue from project sales.

Net revenue for Q4 was comprised of $564.8 million from our MSS business and $336.2 million from our Energy business. Gross profit in Q4 was $271.3 million compared to $200.4 million in Q3 and $218.6 million in Q4 last year. Gross margin in Q4 was 30.1% compared to 26.1% in Q3 and 19.7% in Q4 last year.

Gross profit in Q4 includes the benefit of a CVD reversal of $16.1 million, which was based on the final rate of Solar 1 CVD AR5. Excluding the CVD reversal benefit, gross margin was 28.3% compared to 25% in Q3. The sequential increase in gross margin was primarily due to the realization of deferred module profits after project sales and a lower blended module manufacturing cost, which is, however, partially offset by a lower average module selling price.

Total operating expenses were $134.7 million in Q4, compared to $104.5 million in Q3 and $88.4 million in Q4 of the prior year. Income from operations was $136.6 million in Q4, compared to $95.9 million in Q3 and $130.2 million in Q4 of last year.

Operating margin was 15.2% in Q4 compared to 12.5% in Q3 and 11.7% in Q4 of the prior year. Foreign exchange gain in Q4 was $7.3 million, compared to a gain of $10.1 million in Q3 and a loss of $9.5 million in Q4 of prior year. We recorded a loss on change in fair value of derivatives of $7.3 million in Q4, compared to a loss of $8.9 million in Q3 and a gain of $7.6 million in the fourth quarter of 2017.

Income tax expense in Q4 was $36.7 million, compared to $13.4 million in Q3 and $28.9 million in Q4 of the prior year. Net income attributable to Canadian Solar shareholders for Q4 was $111.6 million or $1.81 per diluted share, compared to net income of $66.5 million or $1.09 per diluted share in Q3 2018 and net income of $61.4 million or $1.01 per diluted share in the fourth of 2017.

Moving on to the balance sheet. At the end of Q4, our balance sheet of cash and cash equivalents was $444.3 million, compared to $519.6 million at the end of Q3. Our restricted cash balance was $496.7 million at the end of Q4, compared to $475.4 million to end of Q3. Inventories at the end of Q4 were $262 million, compared to $222 million at the end of Q3. Inventory turnover was 44 days in Q4, compared to 55 days in Q3.

Short-term borrowings and long-term borrowings on project assets at the end of Q4 totaled $1.3 billion, compared to $1.9 billion at the end of Q3. Long-term borrowings at the end of Q4 was $393.6 million, compared to $120.2 million at the end of Q3. Total debt at the end of Q4 was approximately $1.96 billion, of which $527.8 million was non-recourse.

Short-term borrowings and long-term borrowings directly related to utility-scale projects which include the $418(ph)million of non-recourse borrowing totaled to $735.1 million at the end of Q4, compared to $1.07 billion at the end of Q3. As I noted earlier, we repaid the entire $127.5 million outstanding balance of our senior convertible notes in February 2019.

Overall, we exited Q4 in a strong business and financial position. We will continue to carefully manage our project pipeline in order to secure the highest return for our assets. While we expect 2019 to be lower than 2018 in profits, our core business and the pipeline remains strong. We expect to see a rebound in 2020 based on project development cycles. As always, Canadian Solar is not chasing lower margin volumes, we remain focused on driving profitability and building value for our shareholders.

With that, I would like now to open the call to your questions. Operator?

Questions and Answers:

Operator

Thank you. Yes, ladies and gentlemen, we'll now begin the question-and-answer session. (Operator Instructions) We have our first question coming from the line of Brian Lee of Goldman Sachs. Please go ahead.

Brian Lee -- Goldman Sachs -- Analyst

Yeah. Hi, guys. Thanks for taking the questions. I had a couple that I wanted to run through a few, maybe just on the guidance for 2019. It's a much softer start to the year than maybe we would have expected and definitely compared to 2018. Can you give us some sense of the cadence of projects? I know you are saying, of the 2.9 gigawatts a lot of it is happening in 2020. Maybe can you give us some sense of what percent of sales were from the projects business, from the energy segment in 2018 and what percent of sales that segment is expected to be in 2019?

Xiaohua Qu -- Chairman and Chief Executive Officer

We provide the 2018 percentage. I believe for 2018 the module segment accounts for 52% revenue and the project account for 48% as I said previously. Now this year will be slightly different, we'll receive more revenue from the project business and less from the -- no, more from the module business and less from the project business.

However, you will still -- the revenue itself doesn't always reflect the profitability, because we are setting some of the project pre-NTP. As you know, if we sell a project at NTP or pre-NTP then margin can be high, but the revenue can be low. The current guidance -- the current annual guidance of $3.5 billion to $3.8 billion reflect our current forecast of how many of the pipeline project will be sold in 2018 at NTP or below -- or before NTP, some will be left to 2020.

As you know that, we have 2.9 gigawatt of pipelines, some of those projects will reach COD this year anyway. Some will reach, but most of them will reach COD in 2020 and 2021. So your can assume that the majority of them will be sold in 2020 and 2021. But there will be some projects which we are already -- we have already brought on the market to sell as a NTP or pre-NTP package. We will update you when you -- when that process move along, but we do expect to sell some of those projects at NTP or prior NTP. So those projects will contribute to the profit in 2019.

Brian Lee -- Goldman Sachs -- Analyst

Okay. That's helpful. Maybe staying on that topic then on the margins. 2018, obviously, you had a strong gross margin year even with the pricing challenges that the industry saw for half the year. Just wondering how should we be looking at gross margin targets for both the module and the Energy segments in 2019, just in the context of some of the commentary you made here about NTP and mix. Are margins expected to be flat to up in both segments in 2019 or just any kind of color you can give on what to expect for the profit targets here? Thanks.

Xiaohua Qu -- Chairman and Chief Executive Officer

Thanks. For the module business, our current guidance reflected a lower gross margin than 2018. This forecast is based on a few factors. First of all, we forecasted a material price slightly going down, but not going down a lot, but meanwhile the module ASP reduction will catch up, because last year, especially, the second half of last year the raw material cost dropped a lot, but Canadian Solar had successfully hold on and slowed the reduction of our module ASP due to our branding and channel capability, but eventually we think the module ASP will decline -- continue to decline (inaudible) achieve some kind of balance. So we did forecast the gross margin to be lower in 2019.

But we also included this particular headwind, which is the currency. Late last year the Chinese RMB is at 6.9 and at some point even close to RMB7 to $1 and because a lot of our products are still made in China, especially -- and a lot of our material -- raw materials are purchased in China, that help us to reduce the cost. But in the past three months the Chinese currency appreciated a lot against US dollar. I guess -- expecting a resolution on the China-US trade dispute, but that has a negative impact on us, because that drives up our module cost.

So including these factors into our module profit guidance, however, as you know, the market can swing one way or another. So I hope by -- through a better management of the cost and also the price, I hope we can achieve a better result on the MSS.

Now for the Energy business, the gross margin will -- yes, the gross margin will probably be high, because we are selling more project NTP, therefore you will see a high gross margin, but revenue will be low. So the net -- if you look at the net profit, I think it's more or less the same.

Brian Lee -- Goldman Sachs -- Analyst

Okay. That's super helpful. Maybe last one and I'll pass it on. Just more of a housekeeping question. Can you -- or maybe a bigger picture question just on China demand. What percentage China represents of shipments in 2018? And then, how much do you expect it to be as a percent of shipments in '19? And then just maybe broadly speaking, what are your expectations for installations in the China market in 2019 overall for the market? And just lastly, any expectations on solar policy updates in China. What's maybe the latest you've been hearing there? When we might hear something official? Thank you.

Xiaohua Qu -- Chairman and Chief Executive Officer

All right. For Canadian Solar, our -- the percentage of module sales in China was around 20% in 2017 and reduced to -- close to 10% in 2018, especially, in the second half of 2018. For 2019 we budgeted around 10% or slightly higher than 10% in terms of total module sales of Canadian Solar.

Now, your next question is the China market itself. So far all the third party independent firms believe the China will install somewhere around 40 gigawatt in 2019, so we are using that as our -- as the base of our annual operation plan as well. However, China hasn't announced its 2019 policy yet. It has been in consultation for three, four months now, but it is still in consultation. Before the Chinese New Year some people expect it to be announced before the Chinese New Year, which means in January. At that point, Canadian Solar said "Hey, be cautious" and thereafter Chinese New Year people though it will be announced before the end of March, but now it looks like it's still in consultation. So personally, I don't see it to be announced in March, but I think eventually it will come out -- I just hope it will come out early than later.

Brian Lee -- Goldman Sachs -- Analyst

Okay. Thanks a lot for the questions.

Xiaohua Qu -- Chairman and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question is from the line of Colin Rusch of Oppenheimer. Please go ahead.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Thanks so much guys. Shawn, can you talk about the cadence of non-silicon cost reduction with the manufacturing process? Are you continuing to see ongoing benefits there or are you really shifting into a higher value, higher-priced products with little bit more expensive process?

Xiaohua Qu -- Chairman and Chief Executive Officer

I think for non-silicon cost most of the cost reduction now come from the increase of the solar -- of the solar module wattage now. I don't -- haven't seen that much reduction of the cost itself, I do see the reduction of silver usage, for example, on the solar cells stage. But we also see the increase of the solar glass price, so more or less offset, I guess, but since the module wattage has been going up, so the average per watt -- loss that they comprise has been going down, that seems to be the main driver now.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Okay. And then, in terms of targeted markets and emerging markets, are there areas in the world that you see is growing? In some of the emerging markets that may surprise us in 2019. Why you feel like you're in a strong position to benefit from that sort of growth, that is always typically some sort of surprise market, but I'm wondering if you are seeing that, I mean, at this point for 2019.

Xiaohua Qu -- Chairman and Chief Executive Officer

Well, we have turned most of the surprise market into our strong market. For example, Latin America used to be our surprise market, but now we already become the strongest player in that market. So it's not a surprise at all for us to continue to maintain the strength. Australia used to be a surprised market and now we have still mark to market share there. And it is not a surprise to me anymore. Now US market has some of analyst that know that, you may have a Safe Harbor rush by the end of this year, it might be a short-term rush and I'm not sure how much capacity is available to supply that rush demand anyway. There are some market demand like additional demand from Middle East. Let's see, home much of those demand will materialize. Now Europe, we do see some potential demand upside from -- for example Netherland, Spain and Italy.

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Great. Thanks so much, guys.

Xiaohua Qu -- Chairman and Chief Executive Officer

Thanks ,Colin.

Operator

Thank you. The next question is from Philip Shen of Roth Capital Partners. Please go ahead.

Philip Shen -- ROTH Capital Partners -- Analyst

Hi, guys. Thanks for the questions. We've been hearing a lot about strong global demand outside of China. So frankly, I was a bit surprised by your Q1 guidance, which looks light for both revenue and margins. I know you've talked about margins a bit already. But, first, can you comment on a little more on that global demand? I know, you just addressed some of that with Colin, but if there is some additional color that will be great? And then also, can you provide some more color on the Q1 revenue guide? Specifically, how much of the revenue in Q1 guidance is being impacted by your IT or ERP implementation? What was the potential revenue impact from the ERP system perhaps being implemented, resulting in lower utilization? So, if you can comment on across the capacity utilization that will be great? Thanks.

Xiaohua Qu -- Chairman and Chief Executive Officer

Yes, Philip. We shut down the operation for about five days in Q1 in order to complete the ERP upgrade. And also the factory -- most of our factories had be down for about three, three days during the Chinese New Year, so those are the major loss in production. And we're also upgrading some of our production lines. For example, we are upgrading -- we have been upgrading our sales(ph)lines in Thailand in order to allow for more products and more -- high efficiency product, that also resulted in some reduced shipment. So, see, Q1 is a typical low season, but these factors also somehow contributed negatively to the production in Q1. But I expect those issues go away in Q2.

Now -- but in particular, another factor in Q1 is the foreign currency. Now currently Chinese Yen appreciation happened so sudden, that we expect to have a sizable foreign exchange loss in Q1. I hope that we will absorb that more or less in Q2. It will still impact the production costs, but at least we'll not see a sizable foreign exchange loss.

Philip Shen -- ROTH Capital Partners -- Analyst

Okay. And then (Multiple Speakers)

Xiaohua Qu -- Chairman and Chief Executive Officer

Now what's your next question. Go ahead.

Philip Shen -- ROTH Capital Partners -- Analyst

Shawn, thank you. As it relates to the ERP implementation, can you talk about the cost benefit. Obviously, there is a cost in terms of shutting down the facility for five days, all your facilities for five days, what benefits do you expect to reap from the implementation of this new system?

Xiaohua Qu -- Chairman and Chief Executive Officer

Well, shut it down for five days and you will get a bad affair for next five years. So, overall, it is still beneficial. And our previous SAP based ERP system were implemented around six, seven years ago. And at that time, our production is probably around 1 gigawatt -- 1 gigawatt to 2 gigawatt. We only have less than 10 major product, so the production -- like the product code will all -- and also material code will all develop at that time and it doesn't support our current production level. The complexity of our product mix and also materials and also we are now operating 15 factories around the world, so they are totally different scales. We think that to make this upgrade well be -- it's necessary for us to continue to be competitive, and also to handle the increased complexity of the production.

Also in the long term, we have to reduce the labor cost, the headcount in a factory and to have the system ready will help us to do that. So, there will be the future benefit. But as you know that, it will take time to see the benefit of any IT upgrade. And I hope to discuss this question with you after 12 months. And I hope I can details -- give you some clear details of what benefit we achieved.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Thanks, Shawn. In terms of the housekeeping question on the Q4, ASP. We calculate $0.26, but that seems much too low. Can you help us understand what the Q4 module ASP was for external shipments, please? Thanks.

Xiaohua Qu -- Chairman and Chief Executive Officer

I don't think it's that high. The ASP should be around $0.30, right? It's around $0.30, but the manufacturing cost is in low 20, so that give us the close to 30% gross margin.

Philip Shen -- ROTH Capital Partners -- Analyst

Okay, great. And one last one here. In terms of CapEx, would you expect for 2019, I know, you laid out some expansion for cell. Can you kind of talk to us about why you're expanding cell and what's the CapEx number might be for '19? Thank you.

Huifeng Chang -- Chief Financial Officer

We have very wider estimate, somewhere around maybe $400 million and maybe some of that is new, around $300 million and maybe $100 carry from 2018.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. And then -- Thanks, Huifeng. In terms of the rationale for cell expansion, I mean, to what degree do you see the -- is there a global demand surge at this point or is that a little bit too robust of a prospectus?

Huifeng Chang -- Chief Financial Officer

Yeah. First of all, we disclosed the matrix for the capacity expansion in terms of -- mostly on the module side and slightly expand the cell and I think wafer pretty much remain constant -- wafer and ingot remain constant. And of course, we have a strategy in mind, why we set up this way and then also because of all these tariff issues, et cetera, by location wise, we also have a plan.

Philip Shen -- ROTH Capital Partners -- Analyst

Okay, great. Thank you, Shawn and Huifeng. I'll pass it on.

Xiaohua Qu -- Chairman and Chief Executive Officer

Okay. Thank you.

Huifeng Chang -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from Paul Coster of JP Morgan. Please ask.

Paul Coster -- JP Morgan -- Analyst

Yes. Thank you so much for taking the questions. Quite a lot to unpack here. The accounts receivables going into the New Year pretty elevated. I think nearly $500 million, which seems up a lot year-on-year and yet the first quarter is pretty light. Perhaps you could just sort of help us square that one away?

Huifeng Chang -- Chief Financial Officer

Yeah. Hi, this is Huifeng. The increase of accounts receivable, the reason are two, very straightforward. One is that, we are selling some projects in China, but some of the income is to be received. And the other one is that, we have a very sizable module order in Europe and also its payment to be received. But nothing unusual happened. Okay.

Paul Coster -- JP Morgan -- Analyst

Okay. All right fine. The next question I've got is the -- so, Shawn, it sounds to me like you're seeing the impact of the second half weakness in module pricing, it's kind of flowing through to this year. And now we are sort of playing the price for that. But do you think the module prices will be fairly stable over the course of 2019 or do you expect 2019 to also be a year in which module prices decline significantly?

Xiaohua Qu -- Chairman and Chief Executive Officer

No, Paul. We believe our module price will be more or less stable. We modeled some -- our quite ordered -- our disciplined module price reduction quarter-over-quarter, but no dramatic price reduction. And we believe that our channel and channel feedback allow us to do that. No I can't really comment on other companies, but this moment seems like the price -- module price stable. Now moving forward, let's see how it happened to other manufacturers. But for us, we are -- we think we'll be able to maintain, let's say, for the module price to orderly going down.

Paul Coster -- JP Morgan -- Analyst

Right, got it. So, I think most investors will be now looking through 2019, at least as far as it relates to the Canadian Solar into 2020. And, obviously, you've got a lot of projects that will be coming to COD and NTP next year. How much of a line of sight do you have into the margins for 2020?

Xiaohua Qu -- Chairman and Chief Executive Officer

Yeah. Paul, I think it is a right way to look into 2020 rather than dwell 2019. Margin wise to realize those projects in 2020 allow us to increase margin, we believe. Now in the project business, actually the later you wait, usually the lower the components price you can receive. So to have the project COD in 2020 is not necessarily a best thing, especially we can secure the Safe Harbor ITC -- 30% ITC Safe Harbor this year and would realize those projects in 2020 and 2021.

Paul Coster -- JP Morgan -- Analyst

Okay. One last question. It looks like the business in North America is shifting little bit toward C&I customers and away from utilities and IPPs. Does that have any bearing on margin or ASPs? Or is it the business the same in those two different end markets?

Xiaohua Qu -- Chairman and Chief Executive Officer

Our business -- our project business still focus on the utility-scale -- large utility-scale project, but the PPA provider can be a private PPA from a, like, leading Corporate rather than regulated utilities. Now we -- now we will focus on large scale utility-scale project in US.

Paul Coster -- JP Morgan -- Analyst

Okay. Got it. Thank you.

Xiaohua Qu -- Chairman and Chief Executive Officer

Thanks, Paul.

Operator

Thank you. Our next question is from Alex Liu of UBS. Please go ahead.

Alex Liu -- UBS -- Analyst

Thanks for taking my question. I have two questions. Number one is, considering the wafer ASD(ph)rally year-to-date and the potentially it heightened the wafer supply demand. So what's your thought and strategy for wafer? Will you consider maybe expanding your wafer capacity or you will stick to buying from the others? And do you think that any wafer price increase further you can maybe pass through some of the increase to your customers. And my second question is, what's your breakdown of your cell module capacity in terms of mono-silicon and multi-silicon? And what's your view of the mono and multi commutation for this year and maybe the year afterward? Thank you.

Xiaohua Qu -- Chairman and Chief Executive Officer

Yeah. Thanks, Alex. I believe this is the first time I answer the question during our earning call. So, welcome Alex.

Alex Liu -- UBS -- Analyst

Thank you.

Unidentified Speaker --

Thanks. Now on a wafer price side, we will stick to our current internal capacity for ingot and wafer, which means, we are going to purchase more and more wafers from external suppliers, at least for this year and probably also for next year. The reason is threefold, we believe that ingot wafer is the most oversupplied segment along the module value chain. If you look at poly ingot wafer and then cell and module, we believe that wafer capacity is the highest. The solar cell side, the total solar cell capacity is also high, but high efficiency solar cell, namely the PERC solar cell capacity -- PERC, but with strong anti-LeTID ability those capacities are still limited. And that's why we -- our strategy is to source more wafers from external suppliers.

Now among all the external suppliers, we will continue to source more poly wafer than mono wafer. The answer -- the reason is also straightforward. Simply because a lot of our competitors move to mono. We believe that the mono wafer supply will have some uncertainty. And we have a much better control on the multi-wafer supply, also the control on the cost of multi-wafers. And Canadian Solar developed the high efficiency multi-PERC technology. Now we became a undisputable leader in this particular segment, the Multi-PERC. We can also produce very high efficiency, we can produce 400 megawatt modules and even higher and this give us a different advantage, a differentiator. And so, this will be our wafer, ingot wafer strategies. And what's your next question, Alex ?

Alex Liu -- UBS -- Analyst

That one is, what's your view about multi and mono commutation this year? And maybe what's you estimate about demand breakdown in terms of mono and multi? And what's your current capacity breakdown of mono and multi and your further capacity expansion will be more mono or multi?

Xiaohua Qu -- Chairman and Chief Executive Officer

Well, now this is an interesting question. I have seen the multi-mono swing a few times -- the cycle a few times in my 23 year career path in solar. So it always swing back and forth. At this moment the mono is taking more market share than multi, which is the trend in the past few years. However, we believe that multi is actually comparative in many market segment. For example, in the utility-scale project segment many of our customer realized that and many of our customers actually understand that multi has much longer field track record than mono. So we see a strong enough demand for our high-power, high efficiency multi-year product.

Now in the future, Canadian Solar will continuing to produce both mono and multi. Now multi will be more than 50% of our project portfolio, But for some of our residential premium products we do use mono. And for our new solar cell capacity we announced -- actually we disclosed some of our continued expansion on solar cell. For all those new solar cell capacities, we also made sure that those capacity -- cell capacity are exchangeable between mono and multi. So we are flexible on two technologies.

Alex Liu -- UBS -- Analyst

Okay. Got it. Very helpful. Thank you, Shawn.

Xiaohua Qu -- Chairman and Chief Executive Officer

Thank you, Alex.

Operator

Thank you. This is the end of our question-and-answer session. I'll now turn the call back to our presenters. Please go ahead.

Xiaohua Qu -- Chairman and Chief Executive Officer

Thank you, everyone for your continuous support. And if you have any further follow-up questions, please contact our Investor Relationships. Thanks and have a nice day.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. And thank you for participating. You now all disconnect.

Duration: 60 minutes

Call participants:

Mary Ma -- Investor Relations

Xiaohua Qu -- Chairman and Chief Executive Officer

Huifeng Chang -- Chief Financial Officer

Brian Lee -- Goldman Sachs -- Analyst

Colin Rusch -- Oppenheimer & Co. Inc. -- Analyst

Philip Shen -- ROTH Capital Partners -- Analyst

Paul Coster -- JP Morgan -- Analyst

Alex Liu -- UBS -- Analyst

Unidentified Speaker --

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