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spk02: Good day, and welcome to the DECU New Energy First Quarter 2022 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'd now like to turn the conference over to Kevin Ha of Investor Relations. Please go ahead.
spk01: Hello, everyone. I'm Kevin Heard, Investor Relations of Dark Union Energy. Thank you for joining today's conference call. Dark Union Energy just issued its financial results for the first quarter of 2022, which can be found on our website at www.bqsolar.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. Longgeng Zhang, our Chief Executive Officer, and Mr. Ming Yan, 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 2022. 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 materially from those containing 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 under applicable law. Also during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind They are a functional currency. It's a Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience. Without further ado, I now turn the call over to our CEO, Mr. Longgan Zhang. Longgan, please. Hello, Longgan.
spk09: Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are very pleased to report exceptional results for the first quarter of 2022, the best ever in the company's history. I would like to thank our entire team for their hard work and dedication in delivering such excellent operational, and financial performance. For the quarter, we achieved a polysilicon sales volume of 38,839 metric tons, more than three times our sales volume for the fourth quarter of last year. We recorded $1.3 billion in revenue, also more than three times of the revenue for the fourth quarter of 2021. and we recorded operating income of $797 million, net income attributable to DACU New Energy shareholders of $536 million, earning per share of $7.17 per share, and EBITDA of $827 million, all representing substantial sequential and year-over-year growth. At the end of the quarter, our combined cash short-term investments and a banknote receivable balance reached $2.6 billion, an increase of $1.2 billion compared to the end of last year. This strong financial performance reflects not only the strength of the end market, but also the trust that our customers place in the quality and reliability of our high-purity monograde polysilicon products. Last December, we began production in our new Phase 4b polysilicon facility. Production ramp-up was successful throughout the first quarter. During the first quarter, we produced 31,383 mesh tons of polysilicon. a 33% increase compared to the fourth quarter of last year, of which 97.2% was monograde. In the first quarter, our production costs were $10.09 per kg, a significant decrease from $14.11 per kilogram in the fourth quarter of 2021. primarily due to the decrease in the cost of silicon powder, as well as manufacturing efficiency improvements and a better economics of scale. We continue to see very strong demand for our solar PV products, both in China and overseas. In the first two months of this year, the new installation of solar PV in China were approximately 10.9 gigawatts. According to China TV Industry Association, new PV installations in China are expected to increase from 53 gigawatts in 2021 to 75 to 90 gigawatts in this year. In the first two months of 2022, based on China's customers' data, China's solar PV module export volume was approximately 26 gigawatts, doubled from the same period of last year. As a result of the strong then expected market demand, product pricing across the entire solar PV value chain increased consistently during the first quarter. Based on statistics from the China Silicon Industry Association, the average market SP, including VET, of small chunk monograde polysilicon increased from lemon B, 231.8 per kilogram in the first week of January to lemon B, 253.3 kilogram in the third week of April. Reflecting healthy demand from our customers and continued tight supplies, We also see healthy growth margin in the downstream waiver sector, which indicates that the solid value chain is able to pass down the impact of strong polysilicon prices to the end market. Global trends continue to favor the solar industry, which particularly benefits the polysilicon sector. We are beginning to witness significant policy shifts to accelerate clean energy adoption and decarbonization around the world. During the month of March 2022, the European Union announced its Repower EU initiative, which calls for an acceleration of clean energy transition under the European Green Deal. Germany, in particular, has announced an ambitious program to significantly accelerate its clean energy transition, which plans to deploy 22 GW of solar installations per year starting in 2026, a four-fold increase from 2021 installations of 5.3 GW. As solar energy has already achieved great parity broadly in many regions globally. The recent spike in high and volatile energy prices will further drive solar energy adoption with attractive economic results. All these factors lead to additional demand for our products, which cannot be met by the current market supply. We believe the polysilicon sector will remain one of the most profitable sectors in the solar PV value chain as polysilicon will continue to be in short supply and determine the actual pace and total volume of global installations. We will continue to focus on the efficient operation of our core business, increase our capacity based on market needs, enhance our competitiveness, in quality and reliability, and further optimize our cost structure to provide consistent returns to our shareholders. Now, let me move to our outlook and the guidance for the first quarter and whole year of 2022. The company expects to produce approximately 32,000 metric tons to 34,000 metric tons of polysilicon in the second quarter. of 2022, and approximately 120,000 metric tons to 125,000 metric tons of polysilicon in the full year of 2022, inclusive of the impact of the company's annual facility maintenance. Now, I would like to turn the call to our CFO, Mr. Ming Yang. Ming, please.
spk10: Thank you, Longan, and hello, everyone. Thank you for joining our call today. Now I will discuss our financial performance for the first quarter of 2022. Revenues were $1.28 billion compared to $395.5 million in the fourth quarter of 2021 and $256 million in the first quarter of 2021. The increase in revenue as compared to the fourth quarter of 2021 was primarily due to significantly higher polished silicon sales volume but we saw very strong demand for our products from our customers during the quarter. Gross profit was $813.6 million compared to $239.8 million in the fourth quarter of 2021 and $118.9 million in the first quarter of 2021. Gross margin was 63.5%. an increase of 290 basis points compared to 16.6% in the fourth quarter of 2021 and 46.4% in the first quarter of 2021. The increase in growth profits compared to the fourth quarter was primarily due to higher sales volume. The increase in growth margin as compared to the fourth quarter was primarily due to lower policy and production costs due to lower purchasing prices for silicon raw material during the quarter. SG&A expenses were $15.5 million compared to $10.2 million in the fourth quarter of 2021 and $9 million in the first quarter of 2021. The increase in SG&A expenses compared to the fourth quarter of 2021 was primarily due to an increase in shipment expenses as a result of increased sales volume. SG&A expenses during the first quarter included $2 million in non-cash share-based compensation costs related to the company's share incentive plan. R&D expenses were $2.1 million compared to $1.3 million in the fourth quarter of 2021 and $1.2 million in the first quarter of 2021. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. The R&D activities this quarter includes purity of process improvements and research related to N-type polysilicon and semiconductor polysilicon. Income from operations was $796.9 million compared to $228.1 million in the fourth quarter of 2021 and $109 million in the first quarter of 2021. Operating margin was 62.2%. compared to 57.7% in the fourth quarter of 2021 and 42.6% in the first quarter of 2021. EBITDA was $826.8 million compared to $251.1 million in the fourth quarter of 2021 and $128 million in the first quarter of 2021. EBITDA margin was 64.6%. compared to 63.5% in the fourth quarter of 2021 and 50% in the first quarter of 2021. Net income attributable to DACA New Energy shareholders was $535.8 million, compared to $141.3 million in the fourth quarter of 2021 and $83 million in the first quarter of 2021. Earnings per basic ADS was $7.17 compared to $1.90 in the fourth quarter of 2021 and $1.13 in the first quarter of 2021. As of March 31, 2022, the company had $1.13 billion in cash, cash equivalents and restricted cash, compared to $724 million as of December 31, 2021. And as of March 31, 2022, Bank note receivable balance was $1.5 billion compared to $366 million as of December 31st, 2021, and $38.5 million as of March 31st, 2021. Total combined balance for cash, short-term investments, and bank note receivables at the end of first quarter was $2.6 billion an increase of $1.2 billion compared to a combined balance of $1.4 billion at the end of 2021. And as of March 31, 2022, the company has no bank borrowings. Now on the company's cash flow. For the three months ended March 31, 2022, net cash provided by operating activities was $235 million compared to $159 million in the same period of 2021. The increase was primarily due to higher revenues and higher gross margin. For the three months ended March 31, 2022, net cash provided by investing activities was $166 million compared to net cash used in investing activities of $80 million in the same period of 2021. The net cash used in investing activities in Q1 2021 was primarily related to capital expenditures on the company's phase 4B and 5B. Phase IVA polysilicon projects. Net cash provided by investing activities in G1 2022 was primarily due to the redemption of short-term investments offset by capital expenditures of the company's Phase IVB project and Inner Mongolia polysilicon project. For the three months ended March 31, 2022, net cash provided by financing activities was zero. compared to net cash used in financing activities of $31.7 million in the same period of 2021. And that concludes our prepared remarks. Now we'll open the call for questions from the audience. Operator, please begin.
spk02: 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're 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. Our first question comes from Philip Shen from Roth Capital Partners. Please go ahead.
spk11: Hey, this is actually Justin Clairon for Phil today. How are you guys doing?
spk10: Hey, we're good. Thank you, Justin.
spk11: Good. So I guess first off, I just wanted to start off on the construction timeline for your 100,000 metric ton poly facility in Inner Mongolia. Just wondering, were you able to commence construction in March, which I think was the plan, and then do you continue to expect completion by the end of Q2 2023? And then, if possible, could you share a bit of the detail on what the ramp-up could look like? Like, would you be able to share your volume expectations for that new capacity in 2023 by quarter?
spk09: Justin, I think for Mongolia projects, the project total, I think, is starting actually last year, October, you know, starting design. So basically, last year, December, we already booked some contracts, some long-term equipment supply. So basically, the project is starting the field work in April, last month. And we schedule all the equipment, I think it will be on the site maybe by the end of August of this year. So basically, this project, I think we're starting tri-production in Q1 next year, and then to ramp up in the second quarter. So next year, definitely that 100,000 tons will help us adding the output, I think, maybe around, I think, you know, 700,000, 70,000 to 80,000 tons. So plus Xinjiang, I think, the production sites. So next year, I think our industry schedule. I think, uh, I'm not giving guidance. Okay. Just estimated next year for the, the whole output, maybe around the 20 to 20, uh, 21, uh, 200 to 200, 210,000 tents for next year. Yeah. Go ahead.
spk11: Go ahead.
spk09: Of course we are right now. I think that you can see we are filing, uh, uh, Chinese, uh, SEC and, uh, do the follow on offering. And the total offering, I think, is $11 billion, let me be. If we can be successful and raise that money by the end of June or July, then we were considering second phase, another 100,000 tons, maybe for some time, certain time. But definitely, I think we're already starting, I think, the feasibility study and the energy approval for that 200,000 silicon metal in Mongolia. So I think that project is where we'll use our own money, I think, a certain time, second half of this year, when we're starting that, to reduce our silicon powder cost vertically integrated to the silicon metal.
spk11: Right, okay. And then so on that, so when would that facility be available, the silicon metal facility?
spk09: It depends on, I think it depends on right now the approval. And basically our planning is, I think, you know, we were starting, I think, a project in the second, third quarter of this year. Then hopefully we can, you know, try production because silicon mantle is more easy, you know. So maybe end of this year or next year, you know, first quarter of next year, we will have some products come out.
spk11: Okay. And then on the, assuming you're successful in raising the capital in June or July here, what would be the potential timing for the next 100,000 metric tons of poly? And then would that also include, I think you had planned on 20,000 metric tons of semiconductor capacity as well. So any sense for potential timing for those facilities?
spk09: As you can see right now, our cash, I think, sitting in our balance sheet, it's almost, you know, $7 billion. So basically, yes, we are, I think, you know, because right now, Mongolia, their first project, I think, phase one, 100,000 terms, we're just starting to see. We, to a certain time, and we're in the second half of the year, we will approve, you know, evaluation of the situation, also the market. So we maybe will announce in the second half of this year, just starting the second half, plus the 20,000 nitroten, the semiconductor silicon materials.
spk11: Okay, great. And then maybe shifting over to poly pricing, could you share your latest view on the outlook for poly pricing this year? given the new supply that you expect to come online? I think previously you had talked about maybe 250,000 metric tons of capacity coming to market this year. Any change to that expectation? And then, yeah, just an updated look on the poly pricing from here.
spk09: I think right now, I think the first quarter, I think China manufacturing total, I think around like 160,000 tons. For the whole of this year, I think maybe around, you know, what we estimate the whole of this year, I think domestic manufacturing maybe around 700,000 to 800,000 tons, plus I think the import maybe around 800,000 to 900,000 tons. The silicon, you know, the price, demand, and the supply, you know, the demand is based on not only the end market, you see, the installation, but also the capacity, continuing expansion on the weaver segments. So, basically, right now, the weaver segments is so quickly, right now, the extension. You know, especially the bigger size, I think, of furnaces, you see, the pull machine, the puller. So basically I think of this year, the policy looks like a, you know, the price is continuing to go up and especially we see right now in, in, in May, the price, I think continue to go, go up. So basically we don't think the price, I think for, for, for this year, rest of the year, uh, we're, we're go down then for next year, if you look at, you know, the, some new coming, uh, comma, you know, you have to be careful because, you know, even like Daku, we are, uh, you know, C5 actually, you know, so we expansion the project also, you know, one project by one, one project, face one by face one, right. Face, face by face. So the project is taken longer from design to equipment manufacturing, you know, to, you know, to construction, uh, to put it all together and to put it into production. For newcomer, at least, I think, you know, take two, two half years to, you know, to produce, I think, valuable products or, you know, market demand products. Then plus, I think that, you know, the technology continue to improve in the sale segments. You know, the purity of polysilicon actually is, you know, from P to N, you know, the sale technology. So asking, I think, need, you know, like, you know, the greater two electric, we call E-grade silicon quality. So basically all these, I think, you know, we think next year, China, I think, you know, the meaningful supply, maybe around like 120, I think 1.2 billion tons, you know, I think that's next year. So we believe, I think, because the ending market has continued to, you know, potentially, you know, grow so quickly. So we think, you know, for short term, two to three years, silicon steel is total, I think, bottleneck for the whole solar industry.
spk11: Okay, great. That's really helpful. Maybe just one more for me. You know, we saw the cost of silicon powder decline in Q1 last It helped the cost structure. But as you look into Q2, can you share, you know, what you've seen in regard to silicon powder pricing and what that might mean for your cost structure, you know, also considering potential improvements in efficiency in the quarter as well?
spk09: I think silicon powder right now is very stable right now. For AERPOL, we procured, I think, at the price of around, like, 23,000, I think, per 10. Or you can say, let's say 23,000 per kg. Then in April, I think, you know, drop down to 21. So we think it's stable maybe around 20 to 21. So basically that figure, I think, you know, can keep a cost. I think cash cost may be around, because the invested cost right now also is because the call go up. So I think the future, the costs can be controlled, the cash costs can be controlled around 46, 45.
spk11: Okay, great. Thank you. I'll pass it on.
spk10: Okay, thanks, Justin.
spk02: Our next question comes from Gary Zou from Credit Suisse. Please go ahead.
spk06: Thank you for taking my questions. So my first question is on the, so I saw on the balance sheet at the end of first quarter, so we still get some kind of inventory there. So just wondering how much kind of, is there some sold polysilicon product? So we call it by the end of last year, so we have some kind of inventory. Just wondering how is the situation by the end of first quarter?
spk10: Okay. Hello, Gary. Yeah, so I'll answer your question on the inventories. So I think if you look at our balance sheet, our inventory position declined significantly from the end of 2021, from almost $330 million to now around $100 million. I think balance, I think still higher than 2021. First quarter, mostly for a few reasons. One is we do have a significant portion of what we call products that are shipped to customers but not yet recognized as revenue or product in route of shipment to customer. And we can only recognize revenue when the products arrive at customer side. I think some of the recent logistical challenges with China's COVID-19 restriction has made the shipment period a little bit longer than normal in the past. So we do have more portion of this inventory right now. And also, naturally, with our increase in production, right, so both our production volume increased, say, 40% to 50% relative to Q1 last year. And so, naturally, our work-in-process inventory and also our finished goods inventory will increase as well. So I would say the combined impact led to our current inventory. But I would say it's still on a relatively low or our finished inventory is relatively healthy, and we do expect it to continue to go down for the second quarter as well.
spk06: Yeah, thank you. This is very clear. So my second question is on our cash cost. So basically, if we compare the first quarter cash cost level in R&D terms, I think it's still kind of close to 15 or 20 R&D higher than our earlier kind of levels, kind of if you compare to when the industrial silicon price is still low. So just wondering in terms of the average kind of industrial silicon cost, what is the average cost in the first quarter this year, and how do we expect the level to be into the second quarter?
spk10: So, okay, let me address that then. Okay. I think you're right about our Q1, both our production and cash costs. I think Q1 still had impact from higher cost raw material at the end of last year. I think primarily related to silicon and multiple grade silicon costs. I think some of the investors might remember, I think, silicon metal cost was high as north of $10 per kilogram at Q4 last year. So, since then, it has declined significantly. So, like Longan said, I would say based on today's or really, you know, reflect about March cost, really, so... We would expect, based on today's silicon metal cost, our cash cost should be in the range of 45 to 46 RMB per kilogram.
spk06: Okay, yes, this is very helpful, and this is all my questions. Thank you.
spk10: Great, great. Thank you, Gary.
spk02: Our next question comes from Chioga G. from Goldman Sachs. Please go ahead.
spk05: Thank you for taking my question. Can I ask that you mentioned that we actually were very delighted to see a major cost reduction in the first quarter. But was it possible for you to break into how much cost reduction actually came from the silicon powder price reduction and how much reduction comes from the efficiency improvement? And also, will it be possible for you to share some guidance in terms of how much more non-silicon powder-based cost reduction we could be looking for in the coming quarters? And also, as you mentioned earlier, the current Shanghai lockdown probably would have some impact on the logistics and transportation of the raw materials and polys. Is it possible for you to share more, Tyler, in terms of what kind of impact are we looking for for our production and for the poly prices in the coming months? Thank you.
spk10: Okay. So I think because our facility for Phase 4B is still in a ramp-up period, so most of the cost reduction from Q4 to Q1 is coming from the silicon metal procurement cost reduction. And then a small portion of it is from the improvements in economies of scale. And For Q2, I would say then we will continue to benefit from the reduction in silicon metal costs, but also greater benefits from economies of scale and manufacturing efficiency. I think right now it's difficult to break the two, but I think combined we should see a continued cost reduction.
spk05: Sure, totally understand. Hi, Anton. Can you also share a bit more color in terms of the impact on the current lockdown and how do you think it will impact the policy prices in the coming weeks? Thank you.
spk10: Okay. I think what we're seeing in terms of the lockdown, because lockdown is mostly for Shanghai. and for the eastern regions. So I think for our Xinjiang facility or where our customer is in the Mongolia, I think we're not seeing any significant disruptions there. And our operations are operating very smoothly with no impact right now. Although we are making preparations for... for any potential impact from future COVID restrictions. And so right now, most of it is around logistical challenges, so maybe a longer time for product delivery to customers, and we are making preparations for those as well. But I think other than that, there's no significant impact for the supply chain. I think, in fact, we continue to see very strong demand from our customers. You know, I think for the month of April, we do have much more demand, actually, than what our production is or what we could sell to the market. And our customers continue to ask for more products as well. So I think that's reflective of the overall demand environment. Understood. Thank you so much. Okay. Thank you, Tito.
spk02: The next question comes from Alan Lau from Jefferies. Please go ahead.
spk08: Thank you. And congratulations to management for achieving the highest best quarter historically. And I have a couple of questions. First of all, we'd like to know what is the status of the human rights audit for now. And my second question is about what is your view on certain ways of players pursuing into polysilicon business like Zhonghuan and Shangji, would there be any conflict of interest with the company? And my last question is about what is your view on the U.S. ADL? So I'm aware that the company is confident that the issue will be resolved, but just to know if there's any actions that the company is also taking in tackling those challenges. Thank you.
spk09: So your first question is about the human rights?
spk08: The Xinjiang-related audit progress.
spk09: I think, Ming, you answer the first question, please. Then I answer the second and third questions.
spk10: Okay. So with regard to the human rights audit, so that's something that we continue to be working on and pursuing. So we've finished our internal audit with the help of a consultant. So we're now in the process of updating our internal guidelines and policy to reflect fully the United Nations guiding principles, including things, not just, you know, for example, human rights and anti-forced labor issues, but anti-discrimination issues. and promoting women's rights, things like that, and promoting labor rights. So we're in the process of doing those right now, and we're hoping that this could conclude maybe by the Q3 timeframe, and then we could move forward with a potential human rights audit by a third-party auditor. And this would, of course, need to be subject to government approvals to engage such audit. I think that the current strict COVID restriction seems like it would make it a little bit challenging to do that, but we're still optimistic about doing it in the future. And I think, Longan, do you want to address the wafer player? Yeah.
spk09: I think, you know, because of the high profitability, I think in solar, you know, the solar silicons, I think a lot of newcomers, I think, invest money in these segments. As I just mentioned there, because this is silicon production, starting from newcomers, starting from design to investments to procurement and equipment to construction of the plant, take a long time, take at least, I think, two to three years. And besides that, you see, we today, we have patents almost filing more than 180 patents And it's not that easy. It's not just like, you know, you manufacture a weaver. You buy the machine, build the plant. You can do it within four months or three, four months. So we are aware of that. I think, you know, a couple of weaver specializers, you see, like Zhongquan and Shangji, right now also try to step into polysilicon. We hope that they can be successful in it. But I think it takes time for them to, I think, finally produce high-quality polysilicon products. This industry, anyway, needs more polysilicon because the potential in the market right now is so hot. Let's say by the year 2025, really the market reached to 800 gigawatts, 500 gigawatts, We need, you know, if 500 gigawatts, we need, you know, I think, you know, 100, 1.5 million tons, measure tons of silicon. So it's not much player right now. Even as a doctor, we still continue to expansion our capacity by 50% every year. So maybe certain time we're going to merge, acquire some company, you know, it's based on, you know, the market situation. Also based on our balance sheets. Is it enough? strong buying sheets can do that. So we're aware of that. But, you know, we think, you know, we do our own way. And the Pacific price is determined by, you know, demand and supply, but also I think is determined by the quality. The quality also, I think, must be improved as the downstream, you know, the technology revolution, especially from P to M. So we're not worried about that. At least we think, you know, maybe two to three years still is the bottleneck, you know. And especially some players, maybe they announce, they still strategically announce, you know, with the local governments. And actually, if they're going to start to do the project, they have to do a lot of things to do, you know. So we don't think, you know, like Zongquan is really mean to do that. We're not sure because the contract is not signed by Zongquan, actually TCL, you know, the parent company. So with the, I think, you know, with, you know, another company. Then for the third question, I think, yes, we are listed in the U.S., and the industry right now is in good circle, and we make, you know, a strong profitability. We're willing to reward to society and also shareholders. Unfortunately, right now, you see the FHCAA, regulations, I think, you know, it's not against, I think, Daku, just one company. It's all Chinese, I think, companies in the U.S. But we believe, I think, China and the U.S. government will solve the issue. And we don't think, you know, I think we already see the good sign. Basically, you know, PCAOB are now working with, I think, bigger forefront in China. And we also see China SEC, Chinese SEC do, you know, some regulations and looks like, you know, open, I think, the auditory working paper, I think, for reading. I think for certain industry, especially like us, I think we don't think, you know, any problem to open, I think, auditory working paper. But it all depends on the government, I think, you know. I think government will solve the issue. I'm not worried about that. I think we'll solve the problem within the time, I think, deadline. Within the deadline, yeah. Alan.
spk08: Understood. Thanks a lot. Just a quick follow-up question or second question. So is there any transaction ongoing with Zhonghua and Shangji? Is that going as usual?
spk09: As we know, I think Shangji right now have some real action. First of all, they announced I think they're going to follow our offering I think a 6 billion, let me be. So stock price, you know, just to go down to the bucket, right? So we don't know. See, that's maybe a good sign, you know, and, uh, we see they, they, they are starting to, I think a sound contract with, you know, a local, we also do the, you know, the, I think a second metal in that place. I think they find the contract, but I just, I would say it's, it's, it's, it's, it's, it's take time. Okay. And actually, I also talked to the Mr. Yang yesterday and today. So I'm not going to do any comments. But I see a lot of people rushing in. But finally, you know, whether you can provide, produce the final, you know, high, you know, qualified polysilicon materials for this industry, for the demand, we don't know, really. You know, we are also, I just say, as a major player, we are still in a step-by-step, face-by-face, very careful, even let's say where Xinjiang did it very successfully. This year, that place, I think it will produce 125, 120,000 to 125,000. We're not saying, you know, we cannot like downstream. You see, you can do, let's say we do another 300,000 tents project. We cannot do that. 100,000 tents is already a big project for us. You see almost 800 people and experienced people and also a lot of investments it's around like a capital capex around like eight billion so if you look at our strong financial statements and uh i think that we are ready i think to challenge any any i think you know the industrial circle or even any newcomer thanks thanks a lot i sorry i meant like i don't want and shanghai are buying poly from dq and does that change but is there any change to that or No, they didn't change. They find the long-term contract with us, especially right now. The capacity is around like a 100 gigawatts every year. They need a 30, a 300,000 tons, metric tons, poly silicon, even though they have the joint venture with, I think, uh, uh, another company in Xinjiang, but they're only like 60,000 tons. So even they're going to do, I think, uh, you know, one or something still cannot solve their problem, you know? So they are continuing to expand in Yin Xia, as you know that. So by the end of this year, Zongquan's wave capacity is around 150 gigawatts. They need, I think, you know, 450,000 metric tons, silicon.
spk08: I understand. That's very helpful and very clear. Thanks a lot for the management. And again, congratulations.
spk09: Thank you. Thank you.
spk02: The next question comes from Tony Fay from Bank of China International. Please go ahead.
spk04: Hi, good evening, management. I have two questions. First is kind of a housekeeping question on your margin in the first quarter. So we see it's up quarter on quarter a bit, but it could be higher without the high cost inventory in Q4. So I'm just wondering, do you have a breakdown of the margins for the materials you made and sold in the first quarter compared to those inventories sold in the quarter? And second question is regarding the dividend. I think your subsidiary Xinjiang Daiqu has approved its dividend plan. So DQ should be entitled to around over 900 million RMB from the cash payment. So what is the competitive plan for this cash? Do you plan to pass through it to the ADR holders, or do you prefer to repurchase some of the ADRs? Thank you.
spk09: I think you're going to answer the first question about the margin. All right? Answer the second question.
spk10: Yeah. So thank you for your question. I think you're right. The first quarter cost and gross margin was impacted by both higher cost inventories and higher cost raw materials from the end of last year. And basically, these pretty much have been completely absorbed during Q1. And because we are using an average costing method to do our cost, it's really difficult to break or split the difference specifically. But I think just, you know, from an analysis or color perspective, I think without these impacts, yes, growth margin would be higher, would be meaningfully higher than the quarter in the first quarter. Yeah. And maybe Longin, do you want to address the next question?
spk09: Yeah, I think growth margin, I just, you know, the first quarter, I think we're around like 53%, right? I think second quarter, we will continue to improve. The reason is because I think polysilicon powder is continuing to go down. The selling price is continuing to go up. So we're expecting, expect, you know, the growth margin to continue to improve the second quarter. So the dividends, I think Xinjiang Daku will pay the cash dividends to its shareholders. In Asia, we announced, I think, in May 23rd. So total, I think, dividends is around like 1.155 billion RMB. And the Daku New Alley is beneficiary on 80.7% of the equity interest in Xinjiang Dachuan. So expect to receive the payment from Xinjiang Daku in later in june because we have to you know uh i think you know to for exchange to u.s dollar so then transfer money to overseas so it takes time but definitely i think their money uh upon the uh the board uh continue to uh to approve i think you know maybe we could we can you know to read uh distribution the dividends or maybe we're going to buy back you know the shares so it's subject to the you know the the board to approve.
spk04: Okay, thank you very much. Very clear. I'll pass it on. Great.
spk02: Our next question comes from Colin Yang from Daiwa Securities. Please go ahead.
spk07: Thank you, management. It's Colin from Daiwa. A simple question. I'm still waiting on the guidance of 32 to 34,000 columns production volume in the second quarter. I'm wondering Do we have any guidance for the sales volume in the second quarter? And do we have concerns like the first quarter could be the peak season in 2022? Because for the following quarters, it's very difficult to beat the 39% sales volume in the first quarter. Thank you.
spk09: I think, Mr. Yang, I think, you know, by the end of the Q1, we have, you know, the merchandise in the shipments is around... two thousand five hundred seventy four tenths we also have inventory two thousand nine hundred fifty one tenths so top together and together it's like five thousand five hundred ninety one tenths and the reason is because we have some inventory because every day we're manufacturing four hundred tenths you see and for the last five days anyway you you cannot ship cannot shipments you see even shipments during the merchandise shipping the merchandise so in the q2 we've given guidance i think 32 to 34,000 actual tons. Therefore, hopefully, the sales volume will go up more than that if we can reduce any inventory down to a minimum. We see right now the market is very hot. So definitely, yes, maybe the sales volume will go above the manufacturing, the production volume.
spk07: Institute, do we have an estimate of the potential impacts from the immune maintenance? I didn't follow you. I mean, do we have any estimated numbers for the potential impact of production volume affected by the immune maintenance?
spk09: Oh, the production maintenance, right? You're talking about? Yes. Other impacts from that. Yeah. I think, you know, usually the polysilicon plants in China, we do the maintenance usually in the hot weather, especially starting June to end of the year. Some players, because they have problems, issues, so then they have to do that. For example, like, you know, Tebian. You know that because the second phase, they have issues and design problems. They do the improvements. So that's why They shut down the first quarter, and I think recently, right now, they spent two weeks to connect, I think, you know, the improved phase two in Xinjiang products. Then we know that, you know, New Horizons, I think they're starting actually April to do the production and maintenance because they have to. So our planning is, I think, starting July, June to July. One line by one line. We total have six production lines. So basically, we're not affecting too much on the production volume because we sign long-term contracts with our clients. So we have to continue to provide silicon for our clients. So the whole year guidance we've given, I think 120,000 to 125,000 tons, I think we're very confident we can provide. considering the maintenance issues. Mr. Yang.
spk07: Thank you. So can we say that in the third quarter, it could be the lowest quarter with production volume affected by the hangar maintenance? This could be quite minimal.
spk09: The question is not clear, the voice.
spk07: I mean, it will be the third quarter this year, going to be the quarter with the lowest production volume in 2022 affected by the maintenance.
spk09: You mean the whole China manufacturing? for this year? You mean that? If we go into maintenance for A, for B, that two production lines, mostly annual output is almost 40,000 tenths. So basically, we're not shut down all the production lines. We're just one week by one week, even we shut down one week. So basically, we're not affecting too much. Our monthly right now, the production is almost more than, it's around like 10,000 to 12,000 tenths. So basically what we keep is that, you know, that pays.
spk02: The next question comes from Rajiv Chartree from SunSara Capital. Please go ahead.
spk00: Good morning, and thanks for taking my question. Can you talk about what you see in terms of both demand and supply for N-type polysilicon in 2022? And how much of your production would be N-type ready in the current year?
spk09: I think, you know, it's a good question because we see that N-type failed because I think that the efficiency is higher than P-type. As you know, that right now and type of technology, we have, you know, I think a couple of technology. Why is the HGT? Why is, you know, I think another is that we call back connected, you know, IDC or ABC. Okay. And, uh, like, you know, right now, Asian right now, the forecast, but also we see, you know, right now in type, I think that like a top con because top con, you know, just, uh, based on the perk, I think production line do some, you know, innovation, improvements. I think they can transfer even, let's say, the pop-up production line, the cost may be around 50% or less. So the efficiency is not that high. Maybe improve 1%. But finally, I think the HGT, IBC, ABC will be final, I think, you know, any type of technology. Right now, every month, we're shipping around like, you know, 11,000 tons to 12,000 tons, we see N-type is go up. And for example, like April right now, we ship more than 1,000 metric tons N-type. We also see the N-type, the price, the difference, I think, the price between N-type and P-type. At the beginning of last year, we may be on one lemming bee, we end up two lemming bee per kg. Right now, April, we're to three lemming bee per kg, the difference. And in May, maybe to five lemming bee per kg, because we see the demand for N-type is more and more. For China, the producer, I think for recognized, I think, you know, qualified Daku, I think the N-type materials right now, almost qualified for all N-type weaver producers. So all kinds were now trying to buy from us because otherwise they have to buy from Walker. And Walker, I think the quantity supply almost is the contract is contracted by some player like Zhong Huan, like other player. It's not too much right now available. So basically we see N-type, you know, Materials is continued, demand is continued hot. But we still see this year N-type, the capacity, maybe less than 10%, the whole market, any market. Next year, you're talking about, you know, next year maybe go to, I think, 15% to 20%. But majority, I think, around 2024, I think N-type will account for 40%, even 50%. But we still think, you know, N-type, P-type were parallel, you know, available in the market. But definitely, I think a high-efficiency module, N-type module right now, you have premium. And the module, the selling price in China right now is almost two lemming bi per watt. Compare P-type, you still like a 1.85, 1.9. So you have like 20 cents premium there. So I think that maybe cover... their cost, I think, you know, difference. So definitely, yes, N-type is the tendency of the future technology. Also, that technology, that trend, you know, come back, demand a high quality of polysilicon. That means you have to manufacture N-type, you know, polysilicon. So that's why in Mongolia, over 100,000 tons is 100% focused N-type, focused N-type. So we are, right now, is exactly doing the future market demand. Even though some player coming, new player, we even don't know whether they can produce, you know, P-type quality, I think, you know, polysilicon. So it's a challenge for them. So that's why we are focused on high-quality polysilicon, especially N-type. and in the future to continue to, I think, to compete with other, with our, you know, competitors.
spk00: Is it your view that the only N-type polysilicon suppliers this year are Dachau and Wacker? The other Chinese companies are not able to supply N-type this year?
spk09: I'm going to say that. But the major supplier right now is Dachau and Wacker. Then we know that some Chinese producers like Tongwei, they also supply a small portion of N-type right now, still recognized. But we know the bigger player all buy from us. So that's why it's difficult for us. For example, last year, even some bigger boss from Weber Manufacturing called me asking us to adding more. We're not available right now. So basically, the reason why, because, you know, manufacturing N-type materials, we have to adjust our production line, you see, then to increase the quantity, then also to reduce the P-type, you know, then the output also change. Today, you see, N-type and P-type in China right now, the price difference is lower, only like $3,000, $5,000. compare right now, even if it's less than $1, right now our ASP is almost $33, $32. So that is not attractive to us, incentive us to manufacture more end-type products to sacrifice our quantity.
spk00: Thank you very much.
spk02: This concludes our question and answer session. I would like to turn the conference back over to Kevin Ha for any closing remarks.
spk01: 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.
spk02: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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