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spk04: and welcome to the DocuNew Energy fourth quarter and fiscal year 2020 results conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note this event is being recorded. I would now like to turn the conference over to Alex Hook, Investor Relations. Please go ahead.
spk05: Hello, everyone. I'm Kevin He, the investor relations of DarkU New Energy. Thank you for joining our conference call today. DarkU New Energy just issued its financial results for the first quarter of fiscal year 2020, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we also have prepared a PPT presentation for your reference. Today, attending the conference call, we have Mr. Longgen Zhang, our Chief Executive Officer, and Mr. Ming 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 fourth quarter and fiscal year 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 Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ. maturely 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 Securities and Exchange Commission. These statements only reflect our current and preliminary view 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 and applicable law. Also, during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience for the audience. Without further ado, I now turn the call over to our CEO, Mr. Zhao. Thank you, Kevin.
spk08: Hello, everyone. Thank you for joining our conference call today. We are very pleased to report a strong quarter in terms of operational and financial results to bring a successful close of the year 2020. I would like to thank our entire team for their hard work, commitment and dedication in achieving these excellent results. During the quarter, we produced 21,008 metric tons of polysilicon, a record high in our company's history. Our production cost was reduced by 2.7% in Lemming B terms, primarily due to our efforts in additional energy savings, offset by a higher than expected rise in the cost of silicon raw materials. In the fourth quarter, The increase in our cost in U.S. dollar terms compared to the third quarter was a result of exchange rate fluctuations due to lemming bee appreciation. In 2021, we will continue our efforts to reduce cost as we begin to benefit from our newly implemented digital manufacturing system to maximize our output optimize our production process, and further improve our operational sustainability and product quality. During the months of November and December 2020, we saw significant pickup in polysilicon demand from our customers to meet their increasing production needs to serve the growing solar end market. During the fourth quarter, we saw the 23,186 metric tons of polysilicon, which is the highest quarterly sales volume the company ever achieved. Since the beginning of 2021, we continue to see rising polysilicon market prices, and most recently, MarketPoly ASP has reached a range of $15 per kg to $16 per kg. As our model waiver customers continue their capacity expansion plans, supported by a robust downstream market demand, We believe that the supply of polysilicon will continue to be very tight throughout the year, given very limited additional polysilicon supply this year. Regarding the status of proposed initial public offering of our Xinjiang Daku subsidiaries in China's stock market, the Stock Listing Committee of China Stock Exchange stock market reviewed Xinjiang Daku's application in February 2, 2021, and determined that Xinjiang Daku has already met the offering, listing, and disclosure requirements related to its potential star market IPO. As the next step, Xinjiang Daku will need to go through the registration process with China Securities Regulatory Commission before the star market IPO can take place. The proceeds of its potential IPO will be used to fund our Phase 4B polysilicon project with an annual capacity of 35,000 metric tons. We have already started the preparation works for Phase 4B, including the design and the procurement process. We plan to start the construction in middle March and expect to complete the project by the end of 2020. and ramp it up to full capacity by the end of Q1 2022. I have been in the solar industry for over a decade, and the prospects for the solar industry have never been bright. Driven by the new trends of solar grid parity and the urgent need to address climate change, the industry is on the of ongoing tremendous growth over the next few years without the need for government subsidies. Solar energy is now one of the most competitive forms of power generation ever, even compared to fossil fuel, and we are beginning to see real-world applications where solar is the optimal choice to meet growing energy needs and to replace less carbon-based generation. Major economies around the world have also begun to implement ambitious policies and initiatives to support and mandate the use of renewable energy for power generation. The European Union has announced its Green Deal to fight climate change through progressive policies for a climate-neutral and sustainable EU with the goal of no net emissions of greenhouse gases by 2050 and to decarbonize the energy sector. Over the next few years, the European climate law is expected to turn this political commitment into a legal obligation. In China, President Xi Jinping has announced China will aim to hit peak emissions before 2030 and reach carbon neutrality by 2060, and we expect various government agencies, including the NEA and the NDRC, to introduce and implement policies to mandate and support the use of renewable energy. For 2021, The NEA has indicated its intention to accelerate the development of wind and solar energy with a goal of adding a combined 120 gigawatts of wind and solar in 2021. In the U.S., with the Biden administration's commitment to fight climate change and plan for clean energy revolution, With a goal of achieving a 100 percent clean energy economy and reaching net zero emissions no later than 2050, we believe favorable policies are forthcoming to support renewable energy growth in the U.S. We are standing at the beginning of a new era that will demand more and more clean, renewable, and cost-effective energy resources, among which solar PV is one of the most competitive. We will focus on our core business, continue to expand capacity and further improve quality to better serve the fast-growing solar PV market. Now let me discuss our outlook and guidance for our future. The company expects to produce Approximately 19,500 metric tons to 20,500 metric tons of polysilicon. And the sale approximately 20,000 metric tons to 21,000 metric tons of polysilicon to external customers during the first quarter of 2021. For the full year of 2021, the company expects to produce approximately 80,000 to 81,000 metric tons of polysilicon. inclusive of the impact of the company's annual facility maintenance. Now, I will turn the call over to our CFO, Mr. Yang, who will discuss the company's financial performance for the fourth quarter and the fiscal year 2020.
spk09: Thank you, Longyan, and hello, everyone. Thank you for joining our call today. Now I will discuss our company's financial performance for the fourth quarter of 2020. Revenues were $247.7 million compared to $125.5 million in the third quarter of 2020 and $118.9 million in the fourth quarter of 2019. The 97% increase in revenue in the fourth quarter compared to the third quarter was primarily due to higher polished silicon sales volume and higher polished silicon average selling prices. Gross profit for the fourth quarter was $109.5 million compared to $45.3 million in the third quarter of 2020 and $35.1 million in the fourth quarter of 2019. Gross margin was 44.2%. compared to 36% in the third quarter of 2020 and 29.5% in the fourth quarter of 2019. The increase in growth margin was primarily due to higher ASPs. Polysilicon average production cost was $5.92 per kilogram in the fourth quarter, compared to $5.82 per kilogram in the third quarter. The slight increase in ASP was primarily the result of RMB appreciation versus the U.S. dollar during the quarter. In RMB terms, our production cost in Q4 was reduced by 2.7% as compared to Q3, primarily as a result of improvements in energy and operational efficiencies, despite a higher-than-expected rise in silicon metal raw material costs in the fourth quarter. Selling general and administrative expenses were $11.2 million compared to $9.2 million in the third quarter of 2020 and $9 million in the fourth quarter of 2019. The increase in SG&A costs was primarily due to an increase in shipping costs as a result of higher sales volume for the fourth quarter, as well as an increase in personnel costs. SG&A expenses during the quarter included $4.5 million in non-cash share-based compensation costs related to the company's share incentives plan. R&D expenses for the quarter was $1.5 million compared to $1.7 million in the third quarter of 2020 and $1.2 million in the fourth quarter of 2019. For the quarter included projects related to quality and purity improvements for N-type polysilicon as well as other technology upgrade projects and can vary from period to period reflecting R&D activities that take place during the quarter. Income from operations was $98 million compared to $33.3 million in the third quarter of 2020 and $30.1 million in the fourth quarter of 2019. Operating margin was 39.6% compared to 26.6% in the third quarter of 2020 and 25.3% in the fourth quarter of 2019. Interest expense was 8.3 million compared to 5.4 million in the third quarter of 2020 and 3.9 million in the fourth quarter of 2019. The increase was primarily due to an increase in bank interest charges as well as bank fees related to Chinese banknotes. EBITDA was 115.1 million compared to 51.6 million in the third quarter of 2020 and 45.4 million in the fourth quarter of 2019. EBITDA margin was 46.5% compared to 41.1% in the third quarter of 2020 and 38.2% in the fourth quarter of 2019. Net income attributable to DACA New Energy shareholder was $72.8 million compared to $20.8 million in the third quarter of 2020 and $20.1 million in the fourth quarter of 2019. Earnings per basic ADS was $1.01 compared to $0.29 in the fourth quarter of 2020 and $0.29 in the fourth quarter of 2019. Now on the company's financial condition. As of December 31, 2020, the company had $118.4 million in cash and cash equivalents and restricted cash, compared to $109.8 million as of September 30, 2020. And as of December 31, 2020, the notes receivable balance was $0.2 million, compared to $1.9 million as of September 30, 2020. As of December 31, 2020, total bank borrowings were $193.7 million, of which $123.2 million were long-term borrowings, compared to total bank borrowings of $271 million, including $140 million of long-term bank borrowings as of September 30, 2020. For the 12 months ended December 31, 2020, Net cash provided by operating activities was $209.7 million compared to $181 million in the same period of 2019. And for the full year of 2020, net cash used in investing activities was $118.5 million compared to $261.8 million in the same period of 2019. Net cash used in investing activities in 2019 2020 and 2019 was primarily related to the capital expenditures on the company's Phase 4A polysilicon project. And for the 12 months ended December 31, 2020, net cash used in financing activities was $95.5 million compared to net cash provided by financing activities of $102.3 million in the same period of 2019. Now on the company's four-year 2020 results. Revenues were $675.6 million compared to $350 million in 2019. The increasing revenue was primarily due to higher polysilicon sales volume as 2020 polysilicon sales volume increased to 74,812 tons compared to 38,110 tons in 2019. Gross profit was $234 million compared to $80.1 million in 2019. Gross margin was 34.6% compared to 22.9% in 2019. The increase in gross margin was primarily due to lower polysilicon production costs. Selling general and administrative expenses for 2020 was $39.5 million compared to $32.9 million in 2019. The increase in HG&A expense was primarily due to an increase in shipping costs as a result of higher sales volume, as well as increasing personnel costs. R&D expenses were $6.9 million compared to $5.3 million in 2019. Income from operations was $187.9 million compared to $47.5 million in 2019. Operating margin was 27.8%. compared to 13.6% in 2019. Net income attributable to DACA New Energy shareholders was $129.2 million compared to $29.5 million in 2019. Earnings per basic ADS was $1.82 compared to $0.43 in 2019. Adjusted net income attributable to DACA New Energy shareholders was $147.1 million compared to $47.4 million in 2019. Adjusted earnings per basic ADS was $2.07 compared to $0.70 in 2019. And that concludes our prepared remarks. Operator, now we would like to open the call to questions from the audience.
spk04: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 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 2. At this time, we will pause momentarily to assemble our roster. The first question is from with Credit Suisse. Please go ahead.
spk10: Thank you. Thanks for taking my questions, and congratulations on the strong results. I have two questions. So firstly, it's on the polysilicon price outlook. So we noticed that there has been a significant polysilicon price hike after Chinese New Year, so from around the 90 RMB to around the 110 RMB last week. So can measurement share with us your latest view on the near-term polysilicon price outlook for the next few weeks? And if you can also share your estimate for the second quarter this year and also the second half of this year. And the second question is on the inventory. So wondering if Benjamin can share with us the company's latest policy inventory. And if you have also some information on the inventory level, add to your competitors and also add to the wafer companies. Thank you.
spk08: Hello, Gary. I think, first of all, I think, you know, the price. Basically, I think, you know, January, our average, including the value-adding tax, I think our selling ASP is around $80 per kg. February, around $81. Right now, I think, in March, I think we're selling around $100, higher than $100, okay? Basically, I think we see the selling price go up. And especially this week, I think we're selling our products around $120 per kg. So equivalent, I think, if you without value-adding tax, is more than high than $16 per kg. The reason is because we see this year didn't have any capacity adding to the polysilicon supply side. But the demand side, really, we see a lot of, I think, the waiver expansion projects is on the road. As you see that, recently we just announced two long-term contracts. One is with Zongquan. Another one is with Wuxi Sanji. Basically, those two long-term contracts is most, I think a majority, 90% quantity is focused on 20, 22, 20, 23, 20, 24. This year actually is not too much, you know. So you can see right now people is more even in a concern even to next year, middle of next year possible demand is still higher than the supply. So as we see the policy comprise continue every week go up. And we believe I think second quarter the ASP should be around 120 to 130 per kg, let me be, it's possible. And for second half of the year, I think definitely we believe should be above 120, let me be, per kg. And I can't project how far away, but as we say today, polysilicon cost accounted for In module, OK, firing module, only around 15% to 16% account for total, I think, a project cost maybe around 7% to 8%. It's total lower glasses cost. Glass today cost account for almost 18%, 19% of the module. So we do not believe, I think, polysilicon price go up little will affect, I think, the ending product module price too much. And today I think the major problem, I think maybe the major price come back is around, let me be, 1.7. We still think it's sellable. The market is still there, especially in China. So we believe, I think, the polysilicon price will continue maybe first half of next year, still can above, I think, around like 100. let me be per kg. And after the middle of next year, I cannot project. It depends on the ending market and also how fast I think, you know, the wave expansion and how fast, you know, the polysilicon can be adding, supply can add in there. As we see that next year, the only capacity can end in, I think, why is it over 35,000 tons? Then Tongwei may be around a 80,000 tons. And we also see Asian Silicon and Shinta, based upon their IPO, they're also planning expansion. So their capacity maybe we're adding by the end of next year. So really, we do not think too much capacity supply even next year. Maybe the year 2022, Third, I think the capacity come back, you know, a little more. So I'm not giving, you know, the year beyond the next year. So basically what I think is, you know, the silicon supply and demand very tight this year. The situation will continue to middle of next year. The inventory, let me answer the second question.
spk09: Okay. Hi, Gary. So let me discuss quickly about our inventory level. So I think you remember at the end of Q3, because of a delay of order from a particular customer, I think our inventory was a bit higher than normal. So it was running at more than three weeks of inventory at that time. I think during Q4, demand improved and orders normalized, especially in December with very strong orders from our customers. So inventory has reduced to less than two weeks, approximately 10 days or so. So that's already a normalized level of inventory. And then by now, our inventory is running at very lean levels. So it's less than a week of inventory right now, which is really the minimum level that we need to prepare products for the different grades and to ship to different customers. So we're running at basically our minimum level of inventory right now. of less than a week. And I think across the industry and also our customers, we're also seeing very lean inventory levels currently.
spk10: Okay. Thank you very much. This is very helpful. Thank you. This is very helpful. And I'll pass on. Thank you.
spk09: Great.
spk10: Thank you. Thank you.
spk04: The next question is from Kyle Liu of CICC. Please go ahead.
spk12: Hey, thanks, management, for taking my question. I only got two questions. First, yeah, I think we have no doubt about the potential price uptrend this year. But we are seeing some kind of change on the demand weakness, especially in March. I think we have some challenge checks showing the modules company has already cut their capacity utilization recently. So could you please give us some colors on the current market dynamic and do we think the current price, the growth trend will be slowed down or do we expect the price to stabilize recently? I mean, we have no doubt about the whole price trend this year, but how about recently? So do we expect that change in the modules will have some pressures on us And the second question is about the prepayment. So we know we have some prepayment signed with the customer. So could you please share the prepayment percentage we have signed with the customer or maybe just some colors that we can, for example, how much money we can, a bond payment we can receive when we sign a contract with our customers. That's all my question.
spk08: Okay, I think first the question I think you know today basically okay module market I think at the Europe in Europe and the US market is still is very hot. Yeah, I think you know You obviously see you're selling around 25 cents. I think a lot feels good. The only thing so right now China I think right now is the English to 1 1.65 1.7 and it looks like a little slight The reason is because everybody is waiting for NEA, the two conference meetings, the new policy. But definitely, I think after the middle of April, definitely, I think China's demand will quickly come back. That's, I think, for certain. But to answer your question, yes, I think the module selling maybe will slow down in China within one month. But if you look at the inventory, maybe some inventories pipe on sales. And the reason is why, because I think right now, waiver today, almost mono waiver, you know, no inventory, as we told. I think then also some, I think some company, okay, I think keep a high, in order to keep a high growth margin, basically they continue to increase the waiver prices. I'm not sure, you know, how long they can, you know, continue doing that. Okay, basically what I say is, In some segments, because unbalanced, you know, gross margin, and it cannot pass through the middle industry, what I say is the waiver, sale, and the module, and the cost may be temporary. The module, I think, selling may be a little slow down. But for further, for the future, you see, I think a module, just like the building, as you build up, you always can sellable, okay? Only is the price. So finally... you were selling the module, maybe at a lower price, right? The only thing is, who is going to lose money? Not to say lose money, maybe adjust their gross margin in a certain area, you see, to lower down their gross margin. So what I think is, in the future, wave of gross margin should go down. And the module's gross margin should be reasonable, to reach a reasonable margin to push the module continue to sell it. So I'm not worried about, just as I said, you see, even polysilicon price continued to go up 10, 20 per kg. But that affected, you know, the final product only a little. If we increase $10, $10 per kg, maybe only increase the module price, you know, 0.5%, 3%, 0.3%. It does not affect too much. You know, the effect is less than the glasses prices right now affect the module. So what I think is, Because of demand and supply, the market mechanism, you know, for us, because we are a chemistry, you know, industry, it's hard long-term investments, you know, it's intensive capital investments. So it's hard to, in time, just one time, you know, to increase the capacity. So as you know that, the demand and supply is there. So even this year, all the polysilicon produced only maybe can support, I think, around 150, you know, gigawatts. But as you can see, the waiver capacity continued expansion by the end of this year. In China, maybe it reached to more than 400 gigawatts. So we don't know, basically. But I can tell you is the market is there. China will continue to go up. Even today, the head of the NBA just said we were detailed, laid down the policy, and to encourage, I think, wind, solar industry, and encourage each provincial level to continue to develop. Adding together, I'll show you more than original planning, the national-wide, maybe 60, 80 gigawatts. I think we're very confident in the China market. Second is the pre-payments. We signed, I think, two long-term contracts. One is with Zongquan. Zongquan signed before Chinese New Year. So we based on that time, I think we collect 5% of, you know, the current price, the total contract value. And for Shangji, basically we based on right now, I think the week before last week, the average selling price, we collect 6%, I think, the down payment. So we are going to sign another contract, also continue to keep it in 6%. So as you can see there, The only thing that we find under the contract, majority is for the next three years. It's not for this year. This year, we're just going to squeeze maybe beginning inventory, maybe the end of the year. You see our 4B or even December, maybe we'll book some next year, January quantity. There are some contracts that we have the adjustment 10% up and down, so we still can, I think, do something to help some company, especially like I think some company, you know, they are sizable in the future. And our strategy is in the future, you know, one client cannot account for more than 20% of our sales.
spk12: Yeah. Yeah. Thanks for taking the, thanks for your answer. I actually have a follow-up question on your last one. So, It's interesting we have noticed that the wafer price has always been bending with the polysilicon price. When the polysilicon price goes up, the wafer price always follows up and goes up. But if we look at the capacity, we should see some overcapacity or competition on the wafer side. But actually, in the price level, we didn't see that. So could you give us some color on that? Do you think it's just something that will definitely happen, but it's just not happening? Or do you think it's because currently the sales diversity is not big enough? So we still have, I mean, the whole industry, the policy industry still have the sales contract with the leading player. actually the second tier players cannot get enough, cannot get enough the poly silicon. So even they have planning to build up more capacity, but actually they cannot produce more wafer. What do you think about it? Yeah.
spk08: I think, you know, as the module assembling growth margin right now is lower. So it's not discouraged. I think the module sales, sales, in China, temporary. But if you look at the sale, I think inventory is there. I think some company, maybe the big, in the history, they almost manipulate the waiver capacity. But in the future, right now, they're vertically integrated. If they can sell their waiver all in the module, I think it's okay. But if they continue to increase the price of the waiver, if they cannot sell in the module, what's the next step? They have to reduce the module with a price. All right? So I think that's the time. Only the time can tell you. So I'm not going to do any comments. I think the stock price, tell everybody. All right?
spk12: Okay. Yeah. Thank you very much. That's all my questions.
spk02: Thank you. Very great. Thank you.
spk04: The next question is from Philip Shen with Roth Capital Partners. Please go ahead.
spk00: Hi, everybody. Thank you for taking my questions. The first one is just to follow up on the outlook for China's demand. Can you share what you think the overall demand will be this year? Do you think it'll be 60 gigawatts or do you think it's 80 gigawatts, for example, and perhaps talk about what that split might be by quarter?
spk08: Philip, I think, you know, I'm very optimistic about China, even though I think the drought didn't set any target for national level, but I think it encouraged each provincial to develop, I think, their own targets. Then today, in the two conferences in Beijing, today the head of the NDA basically sets the target there. I think around 1,200 give us. in the next 10 years. So as you can see that, I'm pretty sure, especially the distributed, you know, the rooftop and the distributed, I think, solar power plants in China is continuing to develop. I think this year definitely should be above 60, even above 80 gigawatts.
spk00: Great. Thank you, Logan. And I think you guys are fully booked for 2021. For 2022, I believe with the new contracts, you might be fully booked as well. So we'd love to get some additional color on how you're thinking about capacity expansion. And clearly with the China listing, you're going to raise money for the Phase 4B expansion. Can you talk about the expectations for CAPEX for Phase 4B? I believe it's maybe $13,000. Oh, sorry, $13,000 for a metric ton. Yeah. Feel free to give me, but do you expect the Phase 4B to be similar, or do we have the unit CAPEX right for Phase 4B? And then, Beyond 4B, what are you thinking about now? Where do you think the location could be for the expansion, and what kind of capex could that be? Thanks.
spk08: Okay, I think, Philip, I think, you know, the only thing I can tell you is we are continuing to expansion. As you can see right now, the information, even right now, we're still not listing IPO, but we use our own money already starting 4B. 4B design capacity is 35,000 tents. But that is integrated to our existing, I think, plans. So we think the actual output should be 40,000 tons. Basically, this year, we're already given guidance, 80,000 to 81,000 metric tons. So next year, I think, if not the final, I think, you know, we can see if we can, you know, climb the, you know, ramp the, you know, 4B capacity, you know, quickly. I think next year, Our plan is going to increase capacity 50%, reach to 120,000 tons for next year. So that's the, I think, two-year plan. Beyond the two years, we also, as you see there, we are planning right now the IPO in China's star market. So far, we don't know the valuation, but we're very optimistic, and we can reach I think right now the estimate is $5 billion. I think if we can raise more than that, definitely I think use our own current free cash, then this year I think net profit plus I think the depreciation or EBITDA, whatever, we think we can continue to planning expansion. That we cannot tell you how much and where, We are looking, you know, I think beyond Xinjiang, we are looking other places right now, and maybe we are looking, you know, another 40 or even 80 or even 110 new plants. So I think that's what we're waiting for, you know, basically based on the proceeds of the IPO, the timing, and also the market situation.
spk00: Great. Thank you. Can you give us a little bit more color on the China listing in terms of timing? When do you expect that to be, the CSRC, to give you the final approval? And then one last question. As it relates to your cost structure, I think you mentioned that it went up a little bit in Q4 because of currency. What's your expectation for cost per watt in Q1? And then how did that trend in 2021?
spk08: Okay, I'll leave the cost, I think, to our CFO, Ming. Basically, I think the IPO, I think, processing status in the, you know, maybe, you know, already, I think, you know, mentioned that. So far, we already, I think, go through the February 2nd, I think, the Star Market Review Committee already approved. You know, we are, I think, you know, meet all the requirements for the listing and, you know, all the requirements. Right now we are doing the registration. I think we are the first one, I think, you know, the U.S. company, I think, right now listing the subsidies in China. So we believe, I think, you know, we maybe can, you know, quickly registration by the end of this month. Then, you know, hopefully we can, you know, listing in China stock market, you know, by the end of April or beginning of, you know, May. That's right now the status. Then also, I think I forget, you know, your first question about the 4B total investments. The 4B total investments, because we are integrated to existing plans, so total investment is around 3.5 billion lemming bee U.S. Our 4A total investment is around 2.9 billion lemming bee U.S. So it's almost, I think, you know, 500, 600 million lemming bee increase The increase because the capacity is some area, the capacity is higher than 35,000 tons. Basically, we integrated the existing system. We were syndicated, I think after 4B down, ensures the plant should be more than 120,000 tons, the capacity, the actual output mean.
spk09: Hi, Phil. In terms of our cost structure, so for Q1, we're expecting our costs in terms of RMB to be roughly similar to our costs in Q4, and maybe just slightly higher because of high silicon metal costs. But I think in terms of movements in U.S. dollar, I think because of the current continued appreciation of RMB, I think there's we could see maybe a 3% to 4% increase in cost in U.S. dollar terms in Q1 relative to Q4 of last year. So that's what we're seeing right now.
spk08: Maybe because the U.S. government continues to issue like 1.9 trillion, you know, U.S. dollars. So cost, let me be continued appreciation.
spk00: Right. So that's for Q1. And Ming, what do you think about Q2, Q3, and Q4? What is the trend of the cost structure? Thanks.
spk09: Okay. We think costs for the remaining of the year should be similar. At least for Q2 and Q3 should be similar to Q1. And then costs should come down by Q4, assuming constant U.S. currency exchange rate.
spk08: Okay.
spk09: Thank you, guys.
spk08: But the 4B, if the 4B totally ramped up, our cost will continue to at least cutting, you know, 5%.
spk09: Yeah, 5% plus type of reduction from current cost level.
spk00: Okay. Great. Appreciate it. Thank you, and I'll pass it on. Great. Thank you.
spk04: Next question is from Colin Jen with Dialog Security. Please go ahead.
spk06: Good evening, investors. This is calling from Daiba. My first question is a bit similar to Philip's because, you know, the street, I think, has no concerns for another style earnings in 2021 because very limited capacity additions from the industry-wide. But people start to worry about the post-2022, especially for our major competitors, including Tongwei and Shinta. They both announced a very aggressive capacity expansion plan So do we worry about losing market share if we didn't expand in a timely manner? So if we expected to announce another expansion plan, do we plan to aid it by another share placement equity or debt financing? So this is my first question. My second question is regarding the FBR, my third, because as you may notice, there is quite different reviews on FBR from Tongwei and Chisell Poly. So what is our view on FBR, including security cost extra? Thank you.
spk08: Colin, I think for the first question, I'm going to compare to Tongwei. I know Tongwei right now currently have, I think, at least two places right now expansion, around 80,000 tents. But you have to consider Tongwei also, I think, you know, close equity investments with, I think, other companies. For example, Longgi, I think, Trina Solar. So basically, even by the year 2023, just like they claimed, their capacity is 290,000 tons. How much is sellable? We don't know. Because, you know, I think off-reach, maybe more than 100,000 tons, they will use their own vertically integrated because they are going to do the waiver sale and even module, right? So we, I think, are focused on our expansion. We think it is reasonable, and we're based on our, you know, capital, I think, status, our cash flow status, and I think we're going to do the 4B expansion. So by the end of this year, we are going to, I think, put it into production. Hopefully, it can ramp up production by the end of this year. So I think next year, our capacity, almost a 50% increase to 120,000 tons, we think is a big, I think, you know, increase to meet our clients' needs. As you can see right now, today, almost all big waiver producers sign long-term contracts with us. For example, Longi Jinko Trainers, Canadian Solar, I think Jing'ao, even Shangji, Zhongquan, I think we will announce another company pretty soon. So we right now almost signed those big clients, you know, next two to three years. So I think the relationship with the clients is not only the quantity, how much you can produce, but also the quality of the products. So as you can see, our quality, our service, I think we're very confident in the future, our expansion, continued expansion, and our clients' relationship. Secondly, for the FBR, for us, I'm not going to comment on another company, a Hong Kong listing company, they're doing FBR. As you know, we are one of the most transparent companies in terms of disclosing cost structure, product yield rate. However, we didn't see right now FBR, their cost structure, how much they cost, what's the yield rate. As we know, they already have like 10,000 metric tons production line. How much they produced? 200 tons? 300 tons? We don't know. Secondly, we are not users of FBR polysilicon. However, we very pay attention to this issue with communication, regular communication with our clients, to share with our clients. It's very clear that also today, the quality of FBR polysilicon still has, I think, much room to implement. and to match the polysilicon made by our modified Siemens technology. So I have no more comments on our competitor, or even they say substitute technology, revolutionary technology. So basically, as you can see there, one of our clients, most of our clients, one of our clients, they claim they will invest FDR. They just signed a long-term contract with us. pay 6% of the down payments. So I think that's strong to improve, you know, two methods. Which one is the best?
spk06: I see. I see. Very clear. Thank you, Longbin.
spk08: Great. Thank you.
spk04: The next question is from Alan Han with J.P. Morgan. Please go ahead.
spk11: Hi. I guess I have two minor questions here, as most of the questions are already answered. I noticed that in the fourth quarter last year, I mean, the realized price is around $10.8. If we are to take the average from, say, PV InfoLink or Silicon China, it seems to me that the average price would be slightly higher. I just want to understand why. Is it due to we have a slightly higher sales volume in December when price was relatively lower?
spk08: I think, Alan, I think most important, if you look at our, you know, the structure of our product sale in Q4, we're selling, I think, our product is around 23,186 measure tens. Almost 100% we are monoproducts. If we compare our Q3, our product, you see, the monoproducts still is 98%. So basically, you know, we're selling most is right now, I think, monosilicon. Then also off-reach, we're selling most is the high-quality monograves, I think, polysilicon. As you can see that, even monosilicon classified, I think, right now is for, I think, products. So we are, majority right now is selling the highest price. So that's why our SP is higher. I think around like $10, 80 cents. So I think that's my answer. Basically, I think we will continue to enjoy that. The reason is I said, you know, we, I think in the middle of last year, we adopted, I think, digital management. Even, let's say, in the deposit processing, we used, you know, ThinkWalks to do the AI calculation. AI, I think, the technology. So right now, Our modern silicon products, I think every month we produce is about 99%.
spk09: Just follow up to what Longin said. I think Alan, I think you're right. Q4 was a little bit unique in that we did sell more volumes in December than during the months of October or November. I think part of the reason some of our customers were taking advantage of very attractive pricing at the time, and also they were preparing for building up additional volumes for production during the Chinese New Year. Yeah, so that's where the ASP came in.
spk11: Got you. And my second question, and also my last one, is that I noticed in your other operating income that declined from 5.5 million US dollar in 2019 to 0.2. I mean, looking at periods like years, how it trend, it usually doesn't trend to almost zero. So just want to get a sense of why over there.
spk09: Okay, so other operating income historically most of, for example, R&D, grants and technology grants from various government agencies. And for this year, it just so happened that these were less than previous years. And actually, I think for future periods, we would expect levels that actually would be more similar to our current year, the lower levels than previous years.
spk11: Similar to the current year, but not the previous years.
spk09: And not the previous years, yeah.
spk11: Got you, got you. I guess I'll pass it on. Thanks.
spk09: Great, thank you. Thank you.
spk04: The next question is from Chao Ji with Goldman Sachs. Please go ahead.
spk01: Hi. Thank you for taking my question. I remember you said that part of your R&D in 2020 was spent on the research of anti-prada. So can you please share with some color and in terms of progress or anti-poly? Thank you.
spk09: Okay. So basically, we are doing R&D to improve our purity levels. Because the N-type requirements are much more stringent than the standard monotype levels. And right now, because of the strong demand from our customers, so we are optimizing our overall production for the monotype polysilicon. But we do expect, effectively starting this year and through the next, say, two years, that the demand for N-type products wafer and translating to N-type poly will increase over this time. So we are doing R&D efforts to increase the share of N-type poly from our production. One of the key goals is to increase the level of production in terms of percentage and at the same time without a significant impact to our production cost. So that's our current target right now.
spk01: Sure. Thank you so much.
spk09: Great. Thank you.
spk04: The next question is from Tony Fei with VOCI. Please go ahead.
spk07: Hi, management. Thanks for your time. My first question is regarding your 1,000-ton semiautomatic capacity. I understand it's at a very early stage right now. But can you share what is your expectation regarding the quality and SP and maybe adjustable market regarding this project? And will it be commissioned at the same time with Phase 4B? Second question regarding your maintenance schedule this year, which quarter will it take place and how much production volume will it have impact on that specific quarter? Thank you.
spk08: That's the second question. Okay. Okay, I think first question about the 1,000 metric tons of semiconductor grade polysilicon. This is also in our IPO proceeds. It's based on the IPO success. I think it's a time we think, you know, it's a time we are going to starting doing that production line. Basically, we will join the venture with one of the, I think, you know, I can't announce the name, okay? very famous, I think, downstream semiconductor weaver producer, I think, continue together to do the, I think, the projects. And our, I think, angle is from the highest quality, I think, you know, the polysilicon is... I think the polysilicon should be the highest, I think, basically, right now is, I think, you know, should be about 12 inches... semiconductor wave quality. So we want from top to down, rather than our competitor, you know, I think Xinhua, but not Euro, I think water, you know, they are failed, because they are starting from bottom, I think lower quality semiconductor. So basically, I think we have the planning, and depends on right now, I think it proceeds from the IPO, and when we're going to successful listing, definitely we will announce that at that time. Second is the annual maintenance. Annual maintenance mostly will happen, I think, in the third quarter and just a regular. I think, you know, that will not affect, you know, right now. I think in our guidance for this year, 80,000 to 80,000, 1,000, I think, you know, the output is already considering the annual maintenance.
spk12: Okay, thank you.
spk09: Okay, thank you.
spk04: The next question is from Dora Liu with JP Morgan. Please go ahead.
spk03: Hi, I guess most of my questions have been asked, so I just follow up with two minor questions. And the first one is related to our long-term contracts. So could you share with us what is the percentage of our 2021 production volume which has been secured by the long-term contracts? And the second one is more related to the financial statements. I noticed that the note receivables in 2020 has dropped significantly. So could you share with us the reason? Thank you.
spk08: Okay, Donna, I think I answered your first question. Basically, we're now we signed, I think, you know, two contracts with Wuxi Sanji, I think, then another long-term contract with, you know, another five, I think, major waiver producer. I think we booked almost, you know, you know, 100%, I think, 2021 capacity. The only chance we can, you know, continue maybe we will sign another contract, I think, soon is, you know, just, you know, maybe Second half of the year, we can squeeze some little quantity to contract them to seem to book the year 2022, 23, 24. So basically, my answer is 2021, the output 80,000 terms, almost 100% booked. The second question, I think OCFO will answer that.
spk09: Okay, so actually the note receivables number came down. So during the end of the year, we actually paid down a number of our Chinese bank loans. And one source of the funding is from the note receivables. We converted it to pay down Chinese bank loans. So that's why you saw the balance came down.
spk03: Yeah, thank you so much. That's very clear.
spk09: Great. Thank you.
spk04: The next question is from Robin South with CNBI. Please go ahead.
spk02: Thank you, management, for taking my question. I would like to ask about customers' inventory level for polycellic conduits, seeing that your clients are building up inventory in view of upcoming supply shortage. This is my first question.
spk08: Okay, first of all, I'm not sure, you know, our clients build inventory or not. But basically, you see, our clients are the major player right now in the waiver industry. As you can see, Longgi, Zhongquan, Jinkou, I think, I believe, I don't think they build inventory on the waiver segments. I believe they're selling, I think, all either sell their all, even Shang-Chi sell their all products. or they integrated to, I think, sell module to selling the module. So basically, to me, as I just said, right now, this year, total polysilicon capacity only can support 150 or 160 maybe gigawatts, I think, final product. So we're maybe making some efforts to import some polysilicon. I think that's there. So maybe, you know, last year some inventory come out. This year, the ending products. So what I say is today, I'm not, even today, I think we don't think any inventory in us polysilicon producer, like Daku, Tongwei, I don't think any inventory, but besides Tongwei, okay, I don't know, because Tongwei is vertically integrated. So I don't think, you know, Terbian, Other companies have inventory silicon right now. It's sitting there. Also, I don't think the waiver producer, even today like Jinko or Zhonghuan, they pipe up their waiver in the inventory. I don't think so.
spk02: Okay, thank you. Very clear. My second question is about the payment terms. Given that the supply is quite tight and downstream is running short of policy account supply. So do we get better payment terms for policy account sales?
spk08: We still, I think, like the usual. You know, to us, I think if you can see, most of our deliveries are paid. So most right now, yes, we accept the banking notes, and we only accept banking notes, plus I think the cash, okay, the limitants. So basically, we're upon that. So we right now, because of the supply and demand, so we may be, in each and in quarter months, we may be asking for more remittance, cash, rather than the banking, I think, dropped. So I think that's what we're doing. But basically, I think all we deliver is upon the cash received. I think, as you know, that banking notes also is very, just like cash.
spk09: So basically right now what happens is, so one is customers are willing to sign long-term contracts and pay a higher prepayment per kilogram or a higher percentage of prepayment for the contract. So I think that's really a sign of customers are really willing to pay up front to secure supply. And another situation we're seeing right now is that actually We usually contract around the end of the month for next month's volume. And actually, customers now are eager to pay us ahead, right after the contract is signed, so that they could get on the delivery list, so that they could get earlier delivery of polysilicon for their order as well.
spk08: So basically, as Ming just said, I think the first one, most important, we right now are I think take the advantage of the supply, tight supply, so we are going to sign some contracts. Basically, I think a majority of quantity is the forecast, I think, next three years. So we collect a high percentage of down payments. I think that's what we're doing right now. To lock the future, I think that's what we're doing. Great, thank you.
spk02: Okay, I have one more question regarding the competition landscape. So what do you see in the relatively longer-term development for this PolySivicon supplying business? So do you think that there will be a big player and several smaller ones with roughly equal capacity, or you expect... we'll have four to five manufacturers with similar scale. And the second following question about this is, what would be Dicom's long-term market share target in this supply?
spk08: I think basically, you know, the silicon, I think, you know, industry is different, you know, from the middle, I think, stream, the solid industry, like a weaver, sail, and module. We are a chemical industry. First of all, we need a heavy capital investment capacity, as you can see on the balance sheets. Secondly, it's a long-term investment circle. Third is requirements for environmental, for the safety, all these. I think this industry, if you look at last year Q2, our selling price, almost this industry, I think we make little money. I think all the industry other players lose money. So basically, this industry is not just like, you know, you see the glasses. Glasses is even less technology than the polysilicon, you know. Then also you have to remember that in this industry, you know, one of the players, you can know that, they have the money, right, in Xinjiang, but they take their five years, they still didn't, you know, keep up, you know, the quality like a first-tier, you know, player. Basically, I think in the future, maybe in this industry, maybe we'll survive only four to five players there. Those four or five players will focus, I think, continue on the investments and the capacity, I think, expansion. Definitely, I think Tongwei is one of the bigger players, as you can see that, but they also continue to vertically integrate it. We don't know the future, what's going on. How much percentage of their policy looking where we go to vertical integration how much we go to the market but definitely I think a dark who is one of purely I think a silicon produce a player and we will not touch you know I think the downstream we do whatever we we we expert are so I think we definitely will be one of player and then maybe I think to be is one of player then also I think Asian polysilicon is going to IPO. We don't know the future, whether they can successfully IPO or not, raise enough money to keep up, you know, play with us, compete with us. Then another is New Horizon. I think that's the only, I think, left right now, the major player there.
spk02: Okay, thank you. I will pass on the question.
spk08: Great, thank you. Thank you.
spk04: This concludes our question and answer session. I would like to turn the conference back over to Alex Ho for any closing remarks.
spk05: Thank you everyone again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you and bye-bye.
spk04: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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