Daqo New Energy Corp ADR

Good day and welcome to the DACO Energy First Quarter 2020 Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kevin He, Investor Relations. Please go ahead.

Hello, everyone. I'm Kevin He, the investor relations of DarkQ New Energy. Thank you for joining our conference call today. DarkQ New Energy just issued its financial results for the first quarter of 2020, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference. Today, attending the conference call, we have Mr. Longgen Zhang, our Chief Executive Officer, and Mr. Min Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, and then Mr. Yang will discuss the company's financial performance for the first quarter of 2020. After that, we will open the floor to Q&A from the audience. Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational, and financial performance and industry growth are forward-looking statements that are made under the safe harbor provisions of the U.S. Private Securities Mitigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Security and Exchange Commission. These statements only reflect our current and preliminary views as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today and we undertake no duty to update such information except as required under applicable law. Also, during the call, we will occasionally reference monetary amounts in US dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into US dollars solely for the convenience of the audience. Without further ado, I now turn the call over to our CEO, Mr. Zhang. Please, Mr. Zhang.

Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are pleased to report an outstanding quarter with excellent financial and operational results. I would like to thank our entire team for their hard work and dedication to make these outstanding results possible. Despite the outbreak of COVID-19 in China in January and the subsequent domestic lockdown and travel restrictions that created a particularly difficult environment for securing raw materials, managing on-site operations, and facilitating product shipments and logistics. We overcame these challenges successfully and operated at full capacity during the quarter. The company produced record volume of 19,777 metric tons for the quarter and sold 19,101 metric tons of polysilicon. Thanks to growing economies of scale, significant savings on energy consumption, and improved operational efficiency, our total production cost decreased to $5.86 per kg during the quarter, a decrease of 8% from $6.38 per kg in Q4 2019. Our cash cost during the quarter also decreased to $5.01 per kg down from $5.47 per kg in Q4 2019. In addition, we continue to make improvements in quality and were able to sell approximately 95% of our products to modern waiver customers. All in all, we are very proud of the achievements we made in expanding production volume, optimizing our cost structure, and enhancing quality within only two quarters following the start of Phase 4A pilot production. Our exceptional results this quarter reflect the strong capabilities of our Xinjiang facilities at full production following the completion of the Phase 4A expansion project. We believe this also demonstrates our extensive experience and expertise in polysilicon manufacturing and further solidifies our position as a global leader in the industry. Despite the challenging market environment, we successfully extended our growth margin by further optimizing our cost structure during the quarter. Growth margin during the quarter was 33.5% compared to 29.5% in the fourth quarter of last year. An expanding gross margin and increasing sales volume resulted in 63.1 million in EBITDA, up 39% sequentially, and 37.7 million in adjusted net income, up 53.5% sequentially. Towards the end of this quarter, the spread of COVID-19 globally and related lockdowns particularly in the U.S., Europe, and certain other emerging markets, resulted in significant disruptions to end market demand for solar PV products. This has created short-term market uncertainty and volatility across the solar PV industry during the second quarter, with significant impact to our customers' orders and pricing. Fortunately, the spread of COVID-19 has begun to ease in May and things are gradually returning to normal across all works of life, particularly in China. We expect to see some rush orders from solar PV developers in China for legacy projects delayed from last year in order to meet the grid connection deadline set for the end of June. However, a recovery of demand from markets outside of China is critical going forward as overseas markets currently account for approximately 75% of total global solar and market demand. With many economics beginning to reopen, we expect to see a gradual recovery of solar PV demand in the third quarter as the impact from COVID-19 fades over the next two to three months. We are optimistic that the long-term solar PV growth prospects remain intact. Despite the near-term challenge in market environmental, a solar PV allergy continues to attract investors seeking to benefit from lower cost and interest rates. We are also confident in our ability to navigate this challenging environmental leveraging our competitive advantages in product quality and cost structure. Now I will discuss outlook and guidance for our company. We are currently conducting scheduled annual maintenance for parts of our Xinjiang facility. Our facility has grown significantly over the years, and for this year we will be conducting annual maintenance by project phases on a rolling basis. starting with early phases of the Xinjiang facilities, which had conducted its previous scheduled maintenance in the second quarter of last year. As such, we expect to produce approximately 15,500 metric tons to 16,500 metric tons of polysilicon and sell approximately 14,500 metric tons to 15,500 metric tons of polysilicon to external customers during the second quarter of 2020. For the fall year of 2020, the company expects to produce approximately 73,000 metric tons to 75,000 metric tons of polysilicon, inclusive of the impact of the company's annual fertility maintenance. reflects DACA's new elegance current and preliminary view as of the date of this press release and may be subject to change. The company's ability to achieve these projections is subject to risks and uncertainties. Now I will turn the call over to our CFO, Mr. Yang, who will discuss the company's financial performance for the first quarter of 2020.

Thank you, Longan, and hello, everyone. Thank you for joining our call today. I will now discuss the company's financial performance for the first quarter of 2020. Revenues were $168.8 million compared to $118.9 million in the fourth quarter of 2019 and $81.2 million in the first quarter of 2019. The increase in revenue was primarily due to higher polished silicon sales volume. Gross profit was $56.6 million compared to $35.1 million in the fourth quarter of 2019 and $18.3 million in the first quarter of 2019. Gross margin was 33.5% compared to 29.5% in the fourth quarter of 2019 and 22.6% in the first quarter of 2019. The increase in gross margin was primarily due to lower production costs. For the first quarter, our average total production cost was $5.86 per kilogram, a decline of 8% as compared to the fourth quarter of 2019 production costs of $6.38 per kilogram. With full production of Phase 4A project and an optimized production process, we were able to achieve a cost structure that was better than our original plan. In particular, we achieved per unit electricity usage reduction of approximately 7% compared to the previous quarter and a reduction of approximately 10% as compared to Q1 last year. Cost reduction also benefited significantly from economies of scale. Selling general and administrative expenses were $8.9 million for the quarter. compared to $8.5 million in the fourth quarter of 2019 and $7.9 million in the first quarter of 2019. SG&A expenses during the quarter included $4 million in non-cash share-based compensation costs related to the company's share incentive plan. R&D expenses were $1.7 million, compared to $1.7 million in the fourth quarter of 2019 and $1.3 million in the first quarter of 2019. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. R&D projects this quarter includes new research projects for removal of impurities from production process and reduction of metal contamination to enhance our product's quality. As a result of the foregoing, income from operations was $45.8 million, compared to 30.1 million in the fourth quarter of 2019 and 9.1 million in the first quarter of 2019. Operating margin was 27.1% compared to 25.3% in the fourth quarter of 2019 and 11.3% in the first quarter of 2019. Interest expense was 6.3 million compared to 3.9 million in the fourth quarter of 2019 and 2 million in the first quarter of 2019. EBITDA from continuing operations was 63.1 million, compared to 45.4 million in the fourth quarter of 2019 and 19.9 million in the first quarter of 2019. EBITDA margin was 37.4%. compared to 38.2% in the fourth quarter of 2019 and 24.5% in the first quarter of 2019. Net income attributable to DACA New Energy shareholders was 33.2 million in the first quarter of 2020, compared to 20.1 million in the fourth quarter of 2019 and 6.6 million in the first quarter of 2019. Earnings per basic ADS was $2.37, in the first quarter of 2020, compared to $1.45 in the fourth quarter of 2019 and $0.50 in the first quarter of 2019. Now I will discuss the company's financial condition. The company remains in solid financial condition and has ample liquidity to meet its operational requirements and financial obligations. As of March 31, 2020, the company has won $20.8 million in cash and cash equivalents and restricted cash, compared to $114.4 million as of December 31, 2019, and $113.7 million as of March 31, 2019. As of March 31, 2020, notes receivable balance was $4.4 million, compared to $5.6 million as of December 31, 2019, and $0.7 million as of March 31, 2019. As of March 31, 2020, Total bank borrowings were $265.6 million, of which $149 million were long-term bank borrowings, compared to total borrowings of $280.1 million, including $151.5 million of long-term borrowings of December 31, 2019. For the three months ended March 31, 2020, net cash provided by operating activities was $31.1 million, compared to $48.5 million in the same period of 2019. And for the three months ended March 31, 2020, net cash used in investing activities was $12.9 million, compared to $38.6 million in the same period of 2019. The net cash used in investing activities in 2020 and 2019 was primarily related to the capital expenditures on Xinjiang Phase 3B and Phase 4A polysilicon projects. For the three months ended March 31, 2020, net cash used in financing activities was $10 million compared to net cash provided by financing activities of $7.2 million in the same period of 2019. And that concludes our prepared remarks. We will now open the call to questions from the audience. Operator, please begin.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Phil Shen of Roth Capital Partners. Please go ahead.

Hi, everyone. Thanks for the questions. The first one is on pricing. I was wondering if you could comment on, for Monos Poly pricing, what you see for Q2 and also Q3. Pricing has obviously come down this year due to the COVID demand destruction. A couple months ago on the Q4 call, you suggested that pricing could dip in Q2, and then there could be a rebound in pricing as high as $11 to $12 a kilogram, I believe, in Q3 and Q4. But what's your latest view, and do you see – well, just, yeah, what's your latest view by quarter in Q2, Q3, and Q4? Thank you.

Thank you, Philip, from World Capital. This is Longan. I think if you look at our Q1 ASP, it's $8.79. Compare Q4 last year, it's $8.70. It's a slight increase. The reason is because, you see, I think Q1, even though China, you know, hit by the COVID-19 is in January and February, but, you know, most factories still is running. Still running. So I think the order still is... especially, I think, the order to our downstream clients, especially Longi, Jinko, Steel, I think, are full capacity running. So we overcame all the challenges, continued shipping goods to them. Then I think starting end of March, especially beginning in last month and this month, I think really because the U.S., the Europe, I think the – COVID-19, I think, you know, caused the whole market all, you know, restrictions, travel restrictions shut down, working factory. I think all the downstream, I think, ending market demand suddenly, I think, stopped. So pushback to waiver, sale, even silicon demand is dramatically go down. To us, We also face a lot of challenge, but we strategically sign long-term contracts with, I think, LongKey and Jinko, especially LongKey. During the Q1, difficult time, we still oversupply to our big clients. So they are also very supportive in the second quarter. But the price we see in Q4 is around $7.20 to $7.50. And in May, we see the price continue go down to $7 to $7.20. So we think, you know, this price, basically a lot of polycylical companies is losing money. And all the competitors, even tier one competitors, I think they maybe, I think, you know, shut down due to annual maintenance or reduce their capacity, running the capacity by, you know, discounts. So, we believe, I think, May and June is the most, I think, lowest quarter on the silicon price. And the silicon price, I think, on the Q3, we're back to $7.50 to $7.80. Then on the fourth quarter, I think we're back to normal, $80.50 to $9.00. Because that's the industry, you know, average gross margin. I think, you know, around 25%. The ASP is around, I think, $9 or $8.50 to $9. Just want to remind you, in Q1, our model silicon almost accounts for 95%. So that's why our ASP is $8.79. If you look at detail, monosilicon price, Q1 actually is $8.97 compared to last quarter, it's $8.99. It's slightly go down. OSD go up. The major thing is because our monosilicon percentage from Q4 to 2020, 89% to 95% in Q1. So we'll continue to keep such high monosilicon silicon percentage to keep the ASP, I think, leading in the industry.

Great. Thank you, Longen. You know, I think on the Q4 call, you talked about being 72% booked for 2020 production and perhaps leaving 10% to 15% for the spot market. Where are you now after being done with Q1 and through much of May?

Okay, our sales pipeline still is very good. Today, our sales contract, if I count our sales block, inventory is negative 3,010. Basically, this month, the big clients are shipping over our original long-term contracts. So sales, to us, is not a big issue, okay? The big issue is the price. Then also, we also, you know, on the annual maintenance, you know, one by one, by routine, on the production line, we have five production lines. So basically, if you look at our guidelines, we're still at, you know, four capacity running besides that, you know, the maintenance production line. And we still sell everything. So we're making efforts to make it that any inventory by this Q4 is 2-0.

Okay, got it. And can you comment about the inventory in the downstream? How much polysilicon inventory is with your clients? I know it sounds like you're selling everything, but is there oversupply from – or too much inventory in the channel or at your customers from other suppliers, for example?

Basically, Philip, I'm a little maybe different, you know, opinion from you. The reason is because I think any market demand for module suddenly stopped. So, LongKey take advantage, along with Jinko, basically, okay? I think maybe don't want to get that. they're going to actually zero inventory their silicon products. We call it raw materials. So that's why, let's say, suppose for April contracts, we're supposed to sign contracts in March 20th. So they delay the signed contract to make zero inventory. So that's delay the contract. So if you look at operating cash flow, why does operating cash flow go down? Because the advanced cash from our clients especially long key, the contracts, you see, delayed to from March 20th, delayed to April 15th. So, we think right now, the downstream, especially our clients, the raw materials, especially silicon materials, almost only one day or two days. Like Jinko, almost three days, then, you know, order from us. Three days order from us. So, basically, they right now keep a low inventory. I understand it. The reason is because silicon prices continue to go down, Also, the downstream demand is weak or when the market come back is uncertain. I think at this moment, I think SiliconPrize, especially I think we're hit by the demand side. We are a chemical company, continue production. We see our competitors have inventory. But most of the inventory is multi-silicon. So it's unsellable. For monosilicon, it's not too much there. We know that. So we're very confident. I think in third quarter, the monosilicon price will come back.

Great. That's really helpful color. Thank you, Longin. One other one, if you don't mind. What's your outlook for your cost structure? You delivered a very strong Q1 cost structure. How much more can that come down in Q2? What do you expect it to be relative to Q1 in Q2 as well as Q3?

Okay. Basically, if you look at our Q1, cost of goods sold almost dropped down 50 cents, right, 51 cents. I think the majority cost go down is the utility and electricity. It's almost 31 cents go down. Then also the accessory materials, like package, like the core, is $0.13 per kg. Then also the salary and the wages, $0.08 per kg. So you add that up together. I think you have to remind you, Q1 is our full capacity running. The production is almost 19,777 tons. And Q2, because of maintenance, we don't think the... the cost will continue to go down. Basically, the only item will go down in Q2 is, I think, the mental power, silicon mental power, powder, right? Yeah, will go down. I think the rest of them, I don't think will go down. So, basically, I think Q2, the cost may be keep the same or even slightly go up.

Great. Thank you very much. I'll pass it on. Thank you, Logan. Great.

Thanks, Phil.

The next question comes from Gary Zhao of Credit Suisse. Please go ahead.

Hello, management. Thank you for taking my questions. So my first question is on the demand side. So what does management expect for the China demand this year and how much for the ex-China demand? And whether does the management have any expectation for next year? Thank you.

Okay, we are very prospective, you know, I think, in the solar industry. I think I'm still very optimistic on the Chinese market. The reason is because China may be hurt by COVID-19 in January and February, and March, I think end of March, almost, you know, all the factories come back. I think because to connect the grid, I think by the end of June, rush to connect it, I think for China market, I think this year definitely will be around 40 gigawatts to 45 gigawatts. Even, I think it will be higher. The reason is because the distributed, I think, distributed, I think, solar power implement, I think it will go up. For the rest of the world, the reason is because I think this COVID-19, you know, like the U.S., European, when they come back, I think it's uncertain. Let's say if U.S., European, all the markets come back in May, end of this month or June, then I think the industrial will come back in the third quarter. So, but I think for the rest of the world, besides China, I think this year, maybe around the 70 gigawatts. So for overall, I think for all globally, I think this year maybe around 105 to 115. That's my range. I think next year, definitely I'm very confident. The reason is because through this, I think, virus, the module price continue to go down. If you see China right now selling module per watt is $1.4 to $1.6, let me be, per dollar. And overseas, even cheaper, below than 20 cents, US cents per watt. The demand and the grid parity is there. Next year, I think it's definitely the globally, I think it will be about 150 gigawatt. Gary, I think that's my projection.

Yeah, thank you very much. And my second question is on the finance cost. I noticed that in the first quarter, your company's interest expense was relatively higher on a quarterly basis. So is there any reason behind that? And what is our expectation for the future? Thank you.

Okay, so there were two parts related to it. So one is from a higher debt balance. and also with higher bank fees related to notes payables and notes receivables, Chinese bank notes. And also in the fourth quarter, because we were at the end of our construction period, so during construction, interest costs related to new construction projects, we could capitalize part of it. But I think in Q1, the project has been finished, so there's been no capitalization of interest in Q1. So that's the main difference. I think going forward, interest expense will be approximately $5.5 to $6 million per quarter, around rate.

Okay, thank you. So my last question is on the capacity expansion. So can Benjamin share with us whether there's any current plan for further expansion and when we can expect to have further kind of clarity on that? Thank you.

I think for the 4A, you know, even though we right now run smoothly, I think still have some capex I think it didn't pay. I think around like... Unpaid, I think it still have like a, should be like, let me be, is around like one billion, right? Unpaid. Sorry, I think around 600 to 700 million, let me be, unpaid. So basically, right now, also, you know, we face that in Q2, the SPs continue to go down. We want to keep, you know, our barn sheep healthily. So we will not consider any expansion for this year. But as our financial statements continue to improve, yes, we will, you know, do revaluation to see whether, you know, we have to expand into the 4B.

Okay, yeah, thank you very much. That's all, no questions. I will pass on. Thank you.

Great. Thank you, Gary.

The next question is from Jeffrey Campbell of Chewy Brothers. Please go ahead.

Good morning, or I guess good evening. At high level, your forecast for 2020 volumes was 73 to 75,000 million tons. I was just wondering, first, how does this compare to your pre-COVID expectations? And second, do you have any sense of preliminary 2021 outlook, again, relative to pre-COVID, expectations and the world we're in now.

Thanks. Actually, the production forecast has not changed before or after COVID in terms of total volume. I think what we're doing is because a lot of the impact to our market is very much in the near term, and we think the market will recover towards the end of this year, in the second half of this year. So, we're actually conducting our annual maintenance a little bit ahead of our original plan, so that we're shifting production volume between quarters, so that in Q2 we'll be producing slightly less, and then we'll produce more in the second half of this year. So that's for this year. And our total sales volume, we think, will be similar to our production volume because of the strong demand for our products, in particular for our customers. And then right now for 2021, our outlook is overall the end market demand is likely to improve significantly compared to this year with market recovery. And so I think our outlook Well, we don't have a concrete guidance for production, but right now, based on our process optimization efforts, it should be higher than the production volume this year.

Also, I just want to add a comment, okay, because at this moment, we want zero inventory by the end of Q2, even though the ASP continues to go down. We don't want to accumulate any inventory. So that's why we move the annual maintenance, you know, ahead. So basically on Q3, Q4, the production capacity, the output will come back to Q1. So that's why we keep a whole year guidance there. Because we believe Q3, Q4, the ASP will come back.

I know that's helpful. And kind of thinking toward that recovery and demand, we're hearing – both at the utility level and at the residential level, that there's been some stresses showing up in financing, particularly in the U.S., financing related to the various safe harbor and tax benefits. Just wondering, are you seeing that? Is this something that you're watching closely? And your view for solar coming back in the second half of the year, does this also include an expectation that there's not going to be major financing problems?

No, I think the U.S., we consider the U.S. is a big market. Potentially, I think, and also potentially I think the market is so big. But also you have to consider, you know, last year, over one gigawatt, almost 19 countries. So basically right now, this industrial heat is by the virus, you know, COVID-19 virus. So we believe if this virus is, you know, gone, so the market will come back. If without this COVID-19, we think this year should be around like 140 gigawatts, even 145. So basically, we're very optimized, the whole market, because module is so cheaper and so easy to install and to use. So basically, we're very confident. I think the market demands starting from Q3 to Q4 even next year. Because the mortgage price also dramatically goes down.

Let me follow up on your point. I think if you look at markets like Europe or Japan or China, for these markets, the cost of credit or interest rate for debt financing for the projects are coming down. So there's excess liquidity in the market. So it's actually improved. And then with the cost of solar modules and solar projects coming down as well, the yield for these solar projects are becoming more attractive. I think the issue you raised about, especially about, I guess, the tax credit market in the U.S., I think we don't have too much color on that. But just very generally, I think because this year, you know, with the economy, right, so a lot of the companies – will have a reduction in profits and reduction in taxes that they would need to pay. So generally in this kind of market environment, the cost of tax credit will go up. So this actually would make monetizing these tax credits more expensive for these solar projects. I think the flip side is that because you have the U.S. Fed with the monetary stimulus, that's keeping interest rates. very low, so that could potentially offset some of these impacts. But I think that's a very specific issue to the U.S. end market.

Okay, great. I appreciate the color. Thank you.

Great. Thank you.

The next question comes from Alan Han of J.P. Morgan. Please go ahead.

Hi. I have a follow-up question on cost. Firstly, congrats on very stellar cost control in first quarter. Understand that the second quarter production cost may go up a little bit as you are scaling down production, but in assuming we ramp up to full capacity in third and fourth quarter this year, I mean, how much more room do we have on cash costs going down or further cost improvement on the cash costs versus that of the first quarter level?

I think, you know, to answer your question, if you look at our Q1, cash cost is $5. I think LIMB is around $35. Basically, we believe, okay, for the materials, for the silicon menthol powder, we're all in a long-term contract. So we still have some room to continue to improve, especially, I think, silicon powder, the price we see is continuing to go down. But for the utilities, we don't think, you know, any more room to improve. The only thing I think we can improve is the salary and wages. So basically, $5, if we continue in Q3, Q4, we continue to improve, maybe I think have like 5% room to improve, basically, you know, frankly speaking. It all depends on silicon powder continue to go down. Silicon powder today, I think, account for almost $4.45, let me be, 13.32, let me be, per kg. Around $1.91 out of my cash cost of $5. So it's number one cash cost is around, you know, account for 32.6%. Electricity only account for 28.7%.

Got you. And thank you for the color. Thank you.

Great. Thanks, Ellen.

The next question comes from John Segrich of Luminous. Please go ahead.

Hey, guys. Just wanted to make sure I've got the housekeeping things right. So what is the total capex that you're expecting for 2020, and how much of that is maintenance capex? And then is there any remaining CapEx that has to be paid for the expansion in 2021 that we should be modeling. And then I've got two more follow-ups if I can.

Okay. So actually, I think due to the COVID-19 situation and the impact to the market, so we're actually controlling our finances very carefully and strictly. And we're actually extending the payment schedule for a lot of our suppliers, particularly related to CapEx. So for this year, the total CapEx is expected to be approximately $75 to $85 million total. And of that, about $15 to $20 million is for – you can call it maintenance CapEx, but a lot of it is for project upgrades. And then the rest is for – mostly for project forage. And for next year, then, there's another about $50 to $60 million of capex related to Project 4A.

Okay. And is that on top of any amounts that are included as payables for PP&E, just to be clear?

It's inclusive. It's within the payables. Within the payables, okay. So the payables are actually our contractual payment obligations. But we are able to negotiate with our equipment suppliers due to the current market situation.

Okay. And then I know you gave a lot of figures kind of around percentages of everything, but I think you said electricity usage per kg was down about 7%. So what are you kind of down to about per kg now?

So we're around 66 kilowatt hour per kilogram today.

Okay. Was there anything in particular that allowed you to make that big sequential reduction? That's quite a big improvement.

Yeah, so it's really process optimization where we've optimized our process so that we could reduce electricity usage relative to what we've done in the past. Also, the equipment. I think if you remember, the Phase 4A projects now have either 72 or 80 Roth reactors Versus our older reactors were maybe, for example, 48 rods in the past. So these larger reactors also have more efficient usage of electricity. And for our front end process as well with our new capital equipment.

So that allows for electricity reduction.

And then also our electricity costs came down as well. Where is that now? We cannot disclose specific numbers, but overall it declined approximately 10% Q over Q. Okay.

We can tell him the total. You see, per kg, the average consumption is 66 kWh. And our cost is 11.75 lemming B per kg. So calculation by yourself. You need a cost.

Okay. And then last one. I know at the end of 2018, you guys acquired a subsidiary company, Daku Investment, I guess. Yeah. And I think you have $18 million or $16 million or had $16 million to pay for that. What does that company do, and what was the point of the acquisition?

I think, okay, let me just reflect to you, okay. The Daku investment company originally is owned by the group. The reason is because the company buy a piece of land, build two, I think one dormitory for our employee to lodge in. Okay, a building actually like the employee lodging facilities. So at that time, we need investments, we need construction of the building, so we don't want to touch the business. So DACA Group, I think, invest the money in the investment company. Then I think in 2019, because we want to go, I think, domestic, we call it third exchange board, new third exchange board. So we have to change the Xinjiang exchange plants, a company, limited energy nuclear company, you know, 1% is selling to this company. So this company also owns 1% of the Xinjiang facilities, okay? So then later, because we withdraw from the new third board, so we buy back this company, okay, with the 1% ownership, plus the building, the employee building. So that's why the total evaluation, you see, the $60 million, are you talking? Okay. All right. Great. Helpful.

Thank you. Okay. Great. Thanks, guys. Bye. Thank you.

The next question comes from Colin Yen of Daiwa. Please go ahead.

Hi. Thank you, management. This is Colin from Daiwa. I got a follow-up question on polycyclic price. Understood. Mr. Zhang said that we expect a recovery in price in third and the fourth quarter this year. probably due to the recovering of global demand. But on the other hand, our major clients, the waiver creditors, including Longzhi, Zhonghua, they were still in the middle of the price war of waiver. So waiver price is likely to keep dropping in the second half, despite a recovery in global demand. So do you think it's still likely to see the policy settlement price goes up, even the waiver price will keep dropping? Do we feel a lot of cutting pressures from the waiver producers? Thank you.

Okay. To my concern is because I think Longi Jinko, the downstream major player, used to take advantage of that virus, you know, situation to zero their inventory. Then besides that, there may be on the supply side, demand side, on the waiver side, the price continue to go down. So push, I think, you know, the silicon price continue to go down because silicon, we manufacture silicon perpetually. You know that. It's a chemical company. For example, if Longhi supposed to sign contract with us for April, should it be signed the contract in March 20th? If they move to April 15th, so almost a one-month delay. So, you know, cost, the demand, and the supply, you know, totally change the situation. So that's why I think today the monosilicon price go down. But you have to consider that. If, let's say, the import of silicon from OCI, from Walker, almost becomes zero, then the domestic monosilicon supply is there. It's not too much there. Even though some players have inventory. Majority of their inventory is the multisilicon. It is not unsellable, multiproduct. So we believe as soon as the demand come back, the downstream module, majority right now, even I think 90% of the module is modern module. So then as the waiver capacity continue for capacity running also extension, we believe silicon price definitely will go up. Today, if let's say on the, excuse me, If on today it is $7.20, how many silicon company can make a profit? Because our SP is a little higher. The reason is because 95% of our product is more than silicon. Only 5% is multi-silicon. We even use partial, 50% of multi-silicon to produce our own whole lot. So basically, if you look at that, At today's price, a lot of companies, most companies lose money. Even Daku, maybe, you know, Q2, you can calculate it. Our growth margin may be deteriorated, you see. And the bottom line, maybe, I think it's just about, maybe about zero, you know.

Understood, understood. Okay. The second follow-up question is still about our financing expenses. because our total interest borrowing debt was just up like 38% year-on-year from 2019 to 2020. However, our interest expense was like up by over 200%. And still, Mr. Yang was explaining that it was partially because of a higher banking fees. So I want to learn if we can share the exact interest rate from 1 to 19 to 1 to 20. Thank you.

So the interest rate currently is roughly 6% per annum on our debt balance. And actually for last year, I believe it was similar as well. So the interest rates haven't really changed. Well, maybe it came up slightly because we have higher amount of longer-term duration debt for our capital project, which carries a higher interest rate?

Thank you.

Okay, good.

Yeah, the short-term banking loan, every cost is 5.5%. The long-term, I think, fixed assets loan is around $5.60 per annum.

All right.

Thank you, Benjamin.

That's all my questions.

No, I think, yeah, the banking low total is around $265 million. I think temporary is really because we're in the rush payments on the Q4, 4A, you know, projects. But step by step, as the cash continues to flow from operating side, I think, you know, the interest expenses should be keep around $5 million to $5.5 million, I think, per quarter.

I see, I see. Thank you.

Great, thank you. Thank you.

Next question is from Satyan Shah, a private investor. Please go ahead.

Yes, gentlemen, how are you? Hello. The question I have is more due to the political tensions between the United States and China currently. I'm not sure if you're aware, but there is a new legislation going into the Senate today that basically would require Chinese companies to establish that they're not owned or controlled by the government and that they would be required to submit to an audit that could be reviewed by the public company accounting oversight board. How would that, if that legislation was to pass, how would that affect U.S. investors' ability to to still invest with you guys here. What are your views?

I think, you know, first of all, I'm not commenting on PACOB, you know, what are they doing. But in history, I think in 2010, if you look back, you know, in 2010, I think also some crisis, you know, a lot of Chinese company, I think from OTC, Uplist to Main Exchange. Also, I think PSCOV also looking for worksheets from auditor. I think Chinese government at that time, I think, opened certain number of public company to let PSCOV review. I think, you know, today, for example, like DACU is almost listed in United States, New York Stock Exchange, 10 years. So our book... is, I think, thoroughly, I think, auditable and transparency. So we're not afraid of that, basically, you know. And we support any, I think, you know, we support any transparency and because, you know, we are a public company and we have to follow, you know, the law. So no more comments on that that you question, you know.

Okay. No, that's fine. And then, My bigger question is for the company in general. Over the next year or two, as the solar industry sort of recovers, as you've elaborated on, what does DAKU look like a year from now in your estimation as a company?

I think we, okay, basically today we almost account for the market share 15%, you know, on the, I think on the silicon market. supply on this PV industry segments. We definitely is the key player right now in this industry. As you can see, the silicon imported from overseas, I think from this year, almost gradually, I think we're 2-0. Basically, the Chinese silicon will substitute for the imports, the first. Second is, if you look at the PV industry in the future, I think DEFRI is very optimistic. We believe this industry will continue to grow. DEFRI, we also see all player, for example, the Asia company continue to expansion, but we will watch the market. We will do our ... I think because we believe we were ... I think our experts So, basically, we will look at the market to see whether we will continue to expansion or not on the polysilicon side. Meantime, we're also looking for, you know, both, I think, domestic or overseas opportunities, you know. So, basically, we're also doing other, you know, for example, the, you know, special gas, you know, other projects, you know, to see continue to, you know, to increase our revenue avenues, you see, and to strategically to make, I think, DACA more strong, to continue to grow on the revenue side and also on the cash statements.

Okay, great. Thank you, gentlemen. Great.

Thank you.

The next question is from Robin Xiao of BMDI. Please go ahead.

Thank you, management, for taking my question. My question is regarding about the capacity from the industry. So basically, a lot of factory is making same margin for the current price, but we didn't observe lots of maintenance from main. So what do you see your competitors' maintenance schedule? Will they focus in July or April or August? So what's the color for this tier's capacity plan?

Okay. Basically, I think if you look today, I think, you know, especially during the Q2, a lot of companies, even Q1, you see the S&P, continue to go down, a lot of, we see, this industry already consolidation. So in China, basically right now, the major five companies is there. I think besides DaKu, Tongwei, TVA, right? TVA, New Horizons, and also ECL. I think that's the major player there. So if you look at those five players, I think New Horizons, because of the quality issue, And also, the capacity only, I think, can achieve around 40,000 tons to 50,000 tons. And also, they're going to go downstream vertically integrated. So, basically, in the future, I don't think they are the competitors in the solid silicon segment. Then, GCL basically is a joint venture with Zhongquan. I don't think they will continue to expansion. That facility is around 40,000 tons right now running. and basically the majority is supplied to Zhonghua. Zhonghua also buys some from us. So the only, I think, major 3 player is TD EA, Daku, and Tongwei. So today, on the quality side, we are almost 95% is monosilicon. And our competitors, I'm not mentioning, okay, especially I think other two, They also have new, I think, new facilities just opened last year. The production is not stable, and also quality is not stable. I'm not going to go ahead. You can call them to dig on the inventory. Basically, we right now, the inventory almost is zero. We sell whatever we produce. Basically, in this market right now, today's price is opportunity for consolidation and And I think also it's a good opportunity for our future. So after maybe Q2, even, you know, half of Q3, I think the survivors will enjoy the market.

So for maintenance, do you see a lot of factories who choose to have their maintenance plans in July?

No, I think that sometimes we know that they also move to a second quarter. Because second quarter right now, the selling price is so weak. So I believe I think some is more. Some still will be in, I think, September, October. The reason is because the maintenance for the winter. So I think I only can say maybe right now 50% of companies, any maintenance right now happened in Q2. Then 50% will maybe occur in Q3, Q4. Early Q4.

OK, thanks. My final question is regarding about the monthly supply-demand balance. So from the mono silicon products perspective, what do you see? What's the monthly supply-demand balance in the market? If you can, would you please share in gigawatt basis?

I think basically, you know, as the technology continues to improve, you have to remember, I remind you that per gigawatt waiver, basically, per gigawatt, whatever, you know, the downstream product, the consumed silicon is continuing to go down, okay? If, let's say, two years ago, maybe you consumed 4.5 grams, you know, silicon per watt. So that's why the model price, the model cost, of the model cost, Silicon is not number one cost right now. The number one cost is glasses. Okay? So, basically, we believe on a model right now, per watt, cost of silicon is around like 3 grams to 3.2 grams. So, if you calculation, let's say, this year, is around, let's say, I think if you calculation based on the wave capacity, this year, I think it's around like 135 gigawatts. Okay? So, that's will consume, I think, around 400,000 tons of silicon. So per month, I think it's around 35 to 36,000 tons every speaking. But right now, I think it may be around 30,000 to 32,000 per month. That's the demand side. The supply side, I think, basically because of the Q1, the COVID virus and caused some small weaver plants shut down. So then, you know, we, our chemical company, continue to running. So one of, you know, besides Daku, maybe other silicon producers have some inventory there. Then Longgi Jinko, when they, in March, come back, they consider, you know, they want to zero inventory The sale, the waiver price go down, reduce go down. So that's why they push the demand, you know, go down. Then supply still is there. Then push the price go down today, you know. Basically, I think solar waiver is around 55 to 58. But I think this is, you know, I think almost the bottom. I don't believe we continue to go down further.

Thanks. I have one follow-up question about the infantry strategy from downstream. You've mentioned about Jinko and Longgi. They're trying to maintain very low infantry level for now, so they keep ordering for maybe two to three days. So at what time point do you think they will change their strategy? Could you please share any color on this?

I think, you know, maybe by the Q3, when the module and the market come back, and I think the sale and the waiver demand is, you know, come back to normal. And it's not only besides Longgi and Jinko, because also other companies like Shangji, Jintong, Xiongkuan, all the companies are running, and the demand will be, I think, more So definitely, I think they have to accumulate some inventory. Otherwise, their supply will be interrupted. I don't think they can keep it like this way. The reason is because right now, it's not too much other players are doing. Small players right now cut their capacity. But when all capacity is running, then also the waiver capacity expansion continues to go on for the next year because people will see next year the potential market is there. So I think it will come back at least in a one-week inventory. So the demand data will come back.

Thank you, management. I will pass on.

Great. Thank you.

The next question is a follow-up from Gary Zhao of Credit Suisse. Please go ahead.

Hello, management. Just a quick follow-up question. So some of your key foreign policy competitors are currently under suspension. So just wondering when do you expect we may heard further kind of final kind of access capacity access on those companies.

Thank you. Welcome, Gary. You come back to, you know, the question. Basically, I think, Walker, you already hear that. I don't think, you know, the major, I think, they focus on the semiconductor, solid silicon. Maybe have some byproducts, continue to provide to the solar industry, but it's not too much. It's not, you know, number is not accountable. The only thing that I think maybe OCI, I think Malaysia, Indonesia, Malaysia, I think, plans. As we know that, Malaysia right now, today, we supply to Longgi the selling price around 720. We believe the Malaysia plans also is not compatible. So their capacity right now is around 30,000 tons. So that's the only right now that overseas I think capacity is there. Gary, did I answer your question? So then you're also going to, I think, the Silicon Association, they have every month the import figure, China import Silicon figure, you know, there. We can give to you if you want.

Yeah, okay. That's quite helpful. Thank you very much. Great. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Kevin Ho for any closing remarks.

Thank you everyone again for participating in today's conference call. Should you have any further questions, feel free to contact us. Thank you and bye-bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.