Earnings Call: Q1 2021

May 18, 2021

Good morning. Welcome to Daqo New Energy First Quarter 2021 Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kevin He from Investor Relations. Please go ahead. Hello, ladies and gentlemen. I'm Kevin He, the Investor Relations of Daqiu New Energy. Thank you for joining our conference call today. Daqiu New Energy just issued its financial results for the Q1 of 2021, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a Today attending the conference, we have Mr. Longgen Zhang, our Chief Executive Officer and Mr. Min Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, and then Mr. Yang We will discuss the company's financial performance for the quarter. After that, we will open the floor for Q and 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 These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the 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 projects projections is subject to risks and uncertainties. All information provided in today's conference 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 that our functional currency is the Chinese RMB. We offer these translations into U. S. Dollars Without further ado, I now turn the call over to our CEO, Mr. Zhao Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. During the quarter, we continued to see strong momentum in customer demand for high purity polysilicon, which led to a significant shortage of polysilicon and high polysilicon ASPs. Our ASP in the Q1 of 2021 was $11.90 per kg, approximately 10% Higher than Q4 2020, due to the elapsed time from contract signing, product shipment to be fully reflected to our ASPs during the periods of rapid price change. Based on current customer contracts and product deliveries, we expect our ASP in the Q2 of 2021 to be in the range of $19 to $20 per kg, a significant improvement compared to Q1 That better reflects recent market pricing trends. As of today, current market pricing For high purity mono grade polysilicon has already reached the level of $23 to $25 per kg. With strong end market demand, driven by global carbon neutrality commitments by all major economies, Major mono wafer manufacturers continued their capacity expansion and new entrants build new wafer capacity. As a result, we believe that supply in the polysilicon market will remain tight Until the middle of 2022, when the market will finally see some additional supply of polysilicon. During the quarter, we produced 20,185 metric tons of polysilicon, which lays a solid foundation for achieving our production target this year and also gives us The confidence to raise our guidance for annual production volume to the range of 81,000 to 83,000 metric tons from 80,000 to 81,000 metric tons. During the quarter, approximately 99% of Our polysilicon products were sold to mono wafer customers and we already began commercial shipments of N type Polysilicon to our 4 major clients. Our production cost was up by 4% in renminbi10 In the quarter, as compared to Q4 2020, primarily due to the rise in the cost of silicon raw material and the impact of lower production volumes. We expect production costs As we continue our efforts to reduce cost and improve quality as we expect to see the benefits from our newly On the business development front, we have already sold out our production volume of this year. Through the long term supply agreements with customers that span All the major mono wafer manufacturers as well as major integrated solar manufacturers. More importantly, in connection with these long term supply contracts, we have received RMB800 1,000,000 of prepayment from customers this year to date, which will help us find our future expansion plans and ensure our future market share. This shows the tightness of our polysilicon market and a strong momentum in demand growth, As well as the fact that our customers' mind, Daqo is the leading supplier of In the middle March, we began construction for our new Phase 4B project, which which will add 35,000 metric tons Capacity for high purity polysilicon. We expect to complete the project by the end of 2021 And a ramp up to full capacity by the end of Q1 2022. Our Phase 4B project And the potential IPO on China's stock market will bring us into a new phase of development and enable us to quickly expand capacity to address the fast growing demand from the global solar PV market for Ultra High Purity Polysilicon. In the present context of global carbon neutrality goals, Major Economists in the world, including China, are launching ambitious policies to mandate the use of clean energy And address climate change with the megatrend of the transformation to lower carbon economy and sell approximately 20000 to 21000 metric tons of polysilicon to external clients During the Q2 of 2021, for the full year of 2021, the Company expects to Produced approximately 81000 to 83000 metric tons of polysilicon, inclusive of the impact of the company's and Facility Maintenance. Now, I will turn the call over to our CFO, Mr. Yang, who will discuss the Company's financial performance for the quarter. Thank you, Log In, and hello, everyone. Thank you for joining our conference call today. Now I will discuss our company's financial performance for the Q1 of 2021. Revenues were 200 and $56,100,000 compared to $247,700,000 in the Q4 of 2020 and $168,800,000 in the Q1 of 2020. The increase in revenue was primarily due to higher ASPs, partially offset by slightly lower polysilicon sales volume. As Longgen indicated earlier, based on our current Customer contracts and product deliveries, we expect our ASP in the Q2 of 2021 to be in the range of $19 to $20 per kilogram, A significant improvement compared to the Q1 average selling price of $11.90 While we saw a rapid and significant rise in market ASP during the Q1, due to GAAP accounting revenue recognition policies, There is a significant time lag from customer order contracting based on market price to polysilicon production and scheduled shipments to products found in a rather customer side for revenue recognition. Due to this impact, we believe our Q2 ASP will better reflect the Recent market pricing trends. Gross profit in Q1 was $118,900,000 compared to $109,500,000 in the Q4 of 2020 $56,600,000 in the Q1 of 2020. Gross margin was 46.4% compared to 44.2% in the Q4 of 2020 33.5 percent in the Q1 of 2020. The increase in gross margin was primarily due to rasp. Our polysilicon production cost in Q1 2021 was $6.29 per kilogram, an increase of 6.3% compared to $5.92 per kilogram in the Q4 of 2020. The sequential increase in cost was primarily due to an increase in the market price of metallurgical grade silicon raw material And lower production volume in Q1 as compared to the previous quarter, as well as exchange rate fluctuations, which had a roughly 2% impact to cost in U. S. Dollars. For the second quarter, we expect our production costs to be stable as compared to the first Selling, general and administrative expenses were $9,000,000 compared $11,200,000 in the Q4 of 2020 $8,900,000 in the Q1 of 2020. SG and A expenses during the quarter included $2,500,000 in non cash share based compensation costs related to the company's share incentive plan compared to $4,500,000 in the 4th quarter and $4,000,000 in the Q1 of 2020. Research and development expenses were $1,200,000 compared to $1,500,000 in the 4th quarter $20,200,000 in the Q1 of 2020. R and D expenses converted from period to period and reflect R and D activities that Take place during the quarter. As a result of the foregoing, income from operations was $109,200,000 compared to $98,000,000 in the Q4 of 2020 $45,800,000 in the Q1 of 2020. Operating margin was 42.6 percent compared to 39.6 percent in the Q4 of 2020 and Interest expense was $7,800,000 compared to $8,300,000 in the Q4 of 2020 $6,300,000 in the Q1 of 2020. Net income attributable to Daqo New Energy shareholders was $83,200,000 compared to 72.8 $2,000,000 in the Q4 of 2020 $33,200,000 in the Q1 of 2020. Earnings per basic ADS was 1.13 compared to $1.01 in the Q4 of $2,020.47 in the Q1 of 2020. EBITDA was $128,100,000 compared to $115,100,000 in the Q4 of 2020 and $63,100,000 in the Q1 of 2020. EBITDA margin was 50% compared to 46.5 percent in the Q4 of 2020 and 37.4% in the Q1 of 2020. As of March 31, 2021, the company had $227,800,000 in cash and cash equivalents and restricted cash compared to $118,400,000 as of December 31, 2020 $120,800,000 as of March 31, 2020. The increase in cash balance of RMB109 1,000,000 sequentially was primarily operating cash flow, offset by capital expenditures related to our Phase 4B project. As of March 31, 2021, The notes receivable balance was $38,500,000 compared to $200,000 as of December 31, 2020, and $4,400,000 as As of March 31, 2021, Total bank borrowings were $222,000,000 of which $100,400,000 were long term borrowings Compared to total bank borrowings of $193,700,000 including $123,000,000 of long term borrowings as of December 31, 2020, and total borrowings of 265,600,000, including 149,000,000 of long term borrowings as of March 31, 2020. For the 3 months ended March 31, 2021, Net cash provided by operating activities was $159,200,000 compared to 31 RMB100 1,000,000 in the same period of 2020. The strong increase in operating cash flow compared to last year was primarily due to higher net income as well as customer prepayments related to our long term supply agreements. For the 3 months ended March 31, 2021, Net cash used in investing activities was $79,900,000 compared to $12,900,000 in the same period of 2020. The net cash used in investing activities in 2021 was primarily related to capital expenditures on the company's Phase 4b polysilicon For the 3 months ended March 31, 2021, net cash Provided by financing activities was $31,700,000 compared to net cash used in financing activities of $10,000,000 in the same period of 2020. And that concludes our prepared remarks. Operator, we will now open the floor to questions from the audience. We will now begin the question and answer Our first question is from Gary Xu from Credit Suisse. Go ahead. Hello, management. Thank you for taking my questions. First of all, congratulations on the record high quarterly earnings. So I have 3 questions from my side. So first is, can management share with us your latest polysilicon ASP outlook for the second half of this year And also possibly for next year. And secondly, I want to ask for the latest progress of our IPO. And if possible, what kind of valuation or market cap we expect to get from the Asian market? And certainly, so given the very likely kind of a record high profits and cash flow we are going to get this year, So how do we think of the further capacity expansions into the next few years? Thank you. Okay, Gary. To answer your first question, the ASP, I think currently the polysilicon ASP, I think it go up very fast. And as you can see that this week, Our I think a small order reached to even more than $20 per kg. We believe The month of June, I think the selling price also was higher. So that's why we've given, I think, 2nd quarter, The average ASP is around $19 to $20 and that should be compared our Q1 is $11.09 a bigger jump and that will affect our gross margin bottom line in The second quarter we got a big improvement. And the reason is because for the second half of this year, the ASP, What's the trend? Basically, the poly, It's very difficult to forecast, I think, the peak price. However, you see our WAVA customers will continue to buy As their operating cash flow remains positive, that's what I say. You see, the peak will go to until The wafer industry is the average the gross margin will go to breakeven. Right now, as you see that last week, The wafer price continues to go up. So that's why it's difficult for me to give you a forecast Of polysilicon price, but I think the polysilicon price will continue to go up in the second half of the year because it didn't have any additional polysilicon capacity, new capacity add in. And For the next year, the first half of next year, maybe around 1,000 tons capacity new capacity come in. But if you look, I think the wafer capacity continued to expansion. I think by the end of this year, we'll reach Around, I think, maybe 4 50 gigawatts on the WAVA capacity. So we think I cannot give you the ASP for the next year, but I think the First half of next year should be around, I think, more than RMB150 per kg. Then second half of the year, because the new I think capacity coming. What I think I talked to industry and other people, we think it should keep above SPE above like RMB 120 per kg. 2nd question about our submarket listing. We cannot guarantee the timetable. The reason is a lot of uncertainty in China in our capital market. But we have updated our Xinjiang Daqiu Q1 financial data And also the first half of this year, estimate to Shanghai stock exchange last week. We think maybe this week will be released to public very soon and we are waiting to start the registration process with CSRC, the registration process is expected to be completed within 20 working days After CSRC officially accepts our documents, so after completion, I think the registration Completion of the registration with the CSRC, we can starting to listing processing. That takes maybe around 1 month. So basically, if everything goes smooth, I think we can be listing maybe early July. And For the valuation, it's difficult for me to tell you the valuation because The Chinese capital market, they have a special, I think, price determined mechanism. And we think from our side, we hope the IPO, the shareholders can Make money. But definitely, I think this year, the financial results plus next year financial results can support I think the future after IPO, the future, the price maybe continue to go up. The third question about the cash flow, Because I think if you look this quarter, I think the earning cash right now and the cash equivalents even with the cash is almost 220 RMB7 1,000,000 in hand. And also, we continue to have some like RMB400 1,000,000 deposits, Long term contract deposits were received by the rest of the year. And if you look our Q2 financial results Plus second half of the year financial results, the cash flow operating cash flow, I think, flow in is very high. So we are very confident even without the stock market listing, we can to support our 4B continue to expansion. So by today, our 4B total investments is estimated around like RMB3.6 billion. I think we already paid RMB1 1,000,000,000. So I think the CapEx For this year, we were paid, I think, 4B more than, I think, RMB3 1,000,000,000 we were paid this year, maybe only RMB600,000,000 to RMB700,000,000 will leave to next year 2022 to 2023. So basically, I think everything so far is very I think It's very good business. Thank you, Mr. Zhang. This is Thank you, Mr. Dong. This is very helpful and I'll pass on. Thank you. Great. Thank you, This concludes our question and answer session. I would like to turn the conference back over to Kevin Hur for closing remarks. The next Question comes from Kim Powell from ROTHAM. Go ahead. Hi. I missed Your price guidance for the second half of twenty twenty two, would you mind repeat it again? And I have a second question. Okay. So what's your current guidance for 2022? Okay. Basically, I cannot give you The guidance, okay. Based on my personal knowledge and we talked to the industry people, We believe even in the second half of next year, the reason is because the wave expansion capacity continued expansion And also the industry, the final ending products, the module, I think the market is very prospectus. So we believe the ASP is still about RMB120 per kg. Okay. In the second half of twenty twenty two? Yes. Okay. My second question is, your realized price and the lag time Between the realized price and the market price, given the fact that right now we're seeing market prices At maybe RMB150, RMB160 per kg and our realized price for second quarter, You guided at maybe US19 dollars to US20 dollars which is probably like still below the current market price. Generally, how your realized price for the quarter represents a lag time normally of how many months From the marketplace? Yes. Kim, I think first of all, If you look at the market price, okay, basically, we have to I think to clear, you have 2 price. 1 is You call market price and that is ASP. When we're talking about market price, okay, right now, let's say RMB 190, RMB200 per kg, that's a top small, I think monosilicon grade. That's the good price, okay. So when you're selling that, so bigger chunk maybe will be only like, let's say, 190 is a small, I think, re import good mono, I think, Perfect. I think Silicon Materials. So the second is a bigger chunk. The bigger chunk is you take RMB 2 So it's like 188. Then you talked about the sample floor. The popcorn maybe RMB4 per kg lower. So ASP maybe around RMB6 per kg down. Okay. First of all, to answer your question. So basically, what are we talking today, if we're going to market a contract, I think June, next week here we got a contract. So basically, their price is not ASP, okay. Their price is within tax, It's the top price. So for example, if June the price is $190, so SP only maybe is 100, Take $6 away, so it's $184 is ASP, okay, first of all. 2nd, the price is 1 month lag behind. So usually, if you see the Q2, we're giving you guidance. First of all, the ASP is 19 $1 to $20 That means without tax it's ASP, okay, period, to recognize revenue. But the market country, you see the price when you talk in Q2, because in the Walmart So that's why in April, the shipments, the price is determined by March. Okay. So the March price actually is the April shipment products, the revenue recognized also In April. So it's a 1 month delay. So that's why there's a little delay, okay? Okay. So did I answer your question? So always Yes. Next month, we determine it right now. So next month maybe jumping another $20, let me because the price change so quickly, it's difficult for us to tell you what's the ASP, what's the price. We have to based on whatever the actual contracts we signed and we deliver. But so far, I think the price is going to stable Right now it's around RMB 190 to RMB195 I think RMB per kg. This well, 190 to 195 includes VAT, right? Yes. Including VAT. Yes, yes, Keith, please always be aware that in the industry, when we talk about the price in RMB terms, it's always VAT included. When we say U. S. Dollar terms, it's always VAT excluded. Yes, so it's a little bit I'm just wondering when I look at TV Info, the price that they quote They're in RMB, they're normally ex VAT or with VAT? With the VAT? R and B always with BAT, yes. Okay. Okay. With VAT, how much do you think our cost would go up in the next Quarter or 2. Okay. Basically, if you look at our Q2, our cost will go up 4%. The major reason is because the Q1 compared I think Q4 last year go up 4%. The major I think is the raw material, a silicon powder. Secondly is the steam price, which we increased I think The price increased in Q1 and we signed with the supplier. So we think In the future, the price will be stable because we didn't see further the Silicon powder has continued to go up. Basically, seasonally, they should be stable, even go down. So Basically, I think the cost will stay, I think, the same. Only you have to consider the foreign exchange rate effect. Our next question is from Philip Shen from ROTH Capital. Go ahead. Hey guys, thanks for taking my questions. The first one is on pricing, but from a different angle. With the substantial rise in pricing For polysilicon, are you starting to see demand slowdown anywhere in the value chain, whether it's wafers or Further down or even for polysilicon, is there any talk at all that there is a slowdown in And what's your latest outlook for China demand in 2021 in terms of gigawatts? What's the range? And perhaps how does that compare versus What you were thinking back on the Q4 call, has that changed either lower or higher? Thanks. Okay. First of all, I think, Philip, it's difficult for me to give you the forecast on the price today. But the mechanism, you have to know that. From now on to mid of next year, I think for the ending market, for this year, for example, maybe globally, I think forecast is around like 165, 170 gigawatts. So the total demand for silicon is around, I think, 50 5,000 tons, then you need to put some inventory. So right now, the oil supply right now is sorry, 550,000 tons. But right now, oil supply is 500,000 tons there. So the shortage is there. 2nd is the polysilicon price is driven by the capacity of the weaver. The weaver prices continue to go up. So that's why silicon prices continue to go up. I think the peak should be a waiver. I think the gross margin go to breakeven, then I think silicon price maybe starting to turn around. So I can't tell you when will happen. The reason is because The major wave of producer right now is the industry. They continue to increase the price almost every month For several weeks, so you ask me, then you should ask whether we continue to increase price can selling or not. But I think the market is still there because high efficiency, high output was the panel, I think you can sell in high price. So that's why today China market is accepting the module, I think it applies RMB1.8, RMB1.9 per watt. So the polysilicon only Accounted for maybe 13% to 15% of the module price, only accounted for 7% to 8% right now maybe 9% of Total investments on the solar power station installation. So basically, I think The market is continuing to drive this price go up. So I cannot tell you when and how, What I can tell you is by the middle of next year, the poly supply is still totally still tight. Surprise still keep in the high, I think, range. That's what I can ask to you. 2nd question you said about this year. China market definitely I think right now is starting to hot. So this year I think China maybe around 65 gigawatts even to 70 gigawatts. And the global market, I'm not sure. Maybe I think 120, 130. So I'm very Optimism, I think globally, I think this year maybe around 180, 190 gigawatts. Okay. Thank you, Logan. My next question is on Your outlook for 2021, I think you said you're sold out. So actually it's more about 'twenty two. Can you talk about How much of your expected production has been tied up with long term customer agreements for 'twenty two, 'twenty three and maybe even 'twenty four. And then when do you think you'll be able to lock up all of 2022 capacity? Do you think that might happen soon or do you think that you'll keep some production or capacity available for the spot market? I think after we signed the long term contract with JINGO last week, I think we locked all our Production output this year and next year. Basically, next year are based on we can starting Production try production November this year and can reach the full capacity running in Q1. So basically, based on next year's 1,000 to 20000 tons. So basically, it's a long term contract right now. This year is already over 80,000 tons. Next year, I think around like 120,000 to 130,000 tons. So basically right now, we stopped signing any long term contracts for this year and next year. And for year 2023, we right now locked I think 70,000 tons. For I think the year 2024, 2025 and together, it's also around 80,000 tons. So that's we now So especially I think for the contracts that we signed recently, we collected 6 Based on market, I think there's deposits to guarantee in the future, you see, we can lock those amount. Okay. Thanks for that. And then back to the China listing, It seems like maybe the requirements for the listing have been tightened or There's been a slight delay in the process. I know you answered the question earlier, but can you talk about The timing you think now for the actual listing, do you think it becomes complete by the end of Q2 or Is there a chance that it goes into Q3? And we've seen that there might be some challenges maybe due to Something about increased pricing or increased R and D spending. So Just curious if you might be able to comment on that as well. Thanks. I think It's not I think the issue is not the what you mentioned, R and D or other stuff. I think we have to I think first we have to update Right now, I think the Q1 financial data, I think actually we updated last week. So we need to waiting for Shanghai Exchange To review those figures, then public maybe within 1 week or soon. So basically right now, so far, I think we believe, based on our knowledge, I think we can starting registration definitely by end of this month, we can starting to do that. So We believe, I think, we can listing, finish the listing, registration and the listing by the end of July. So yes, Some uncertainty because we are the 1st U. S. Listing company to listing the subsidiaries in China. So we also face questions and go through so far we go through everything. So I think we believe We can finish, I think early Q3. Okay. That's really helpful. Thank you And best of luck obviously with that process. As it relates to CapEx, with the rising input costs, Not only in solar, but just globally. Do you expect that to impact your CapEx for Phase 2b? And what is your current expectation for CapEx for 2021 2022? Okay. I think RedLip CapEx maintenance, I think maybe Ming can tell you. But for 4B total right now, We almost finished, I think, total investments around RMB3.6 billion. So we almost finished everything in the contract, I think excluding, I think around RMB300 1,000,000 didn't sign the contract. So basically, I think we're pretty sure It's under RMB3.6 million, of which I think we will pay this year maybe around RMB2.8 million to RMB2.9 RMB1000000 were paid by end of this year. So leave around RMB600 to RMB700 will pay next year Or even the year of next year, 10% is a guarantee, is 1 year after our small production. So basically, I think, I just said, without the Star Market IPO, our inside cash generated can support So basically, if we can raise more money from IPO, basically the IPO money we can continue to Future expansion, the capacity. So the annual maintenance, maybe Ming can tell you how much CapEx every year, the regular? The regular maintenance CapEx is only about $30,000,000 or Great year. Okay, great. Thanks. And I may have missed it, but what's your expected quarter for Maintenance this year, is it Q3 or Q4? What's your latest view? Thanks. I think we already finished, I think, one production line. So Rest of Singapore product lines were starting in June, July, August September. So, major work happened, I think, occurred I think in Q3. Okay. Thanks for the question. Great. Okay. Thanks, Phil. Our next question is from Dora Liu from JPMorgan. Go ahead. Hi, this is Dora. I have two questions. The first is regarding the inventory level. So Could you share with us the current inventory level of Daqo and how about the industry average level? And the Second question is regarding the N type polysilicon. I think Mr. Zhang just mentioned that Daqo started the commercial shipments So I'm just wondering what is the current mix or percentage of N type product of our polysilicon output? Thank you. Okay. First of all, I think maybe I I mean maybe you can add in more, okay? By the end of Q1, our inventory is around 12.95 tons. And compare the Q4 is 2,491. Actually, we dropped down 1196. So that's why we Recognize revenue, the quantity is higher than our production. So basically, the industry we don't know other people. Basically, We always keep our inventory as low as possible, okay? So if you look at our history, our inventory Usually, it's below, I think, 3,000 metric tons, never higher than that because we are Chemical industry is continued production. We don't want to keep any inventory. So basically, we also not going to go ahead To speculate the ASP, the selling price, so that's why whatever we produce, I think we're going to sell. Okay. That's the first question. 2nd question about n type. Today, we have 4 major clients right now use our n type Products. And the major customers may be taking around like 200 tons per month. So right now, I think every month we're selling n type maybe less than 1,000 tons. So the Q1, the total quarter I think around 2010 is N type. But the ASP of N type actually is not higher, only RMB2 Higher than the regular, I think, P type products. The reason is because right now, the use is still lower. We don't want to differentiate the price difference. So we just want to stimulate the client to use our N type products. But for the future, as you can see that our downstream clients, for example, like Donggi, like Jinko, I think the N type cell production line is already starting to commercial running. So we think the n type silicon, the demand will more and more. Basically, besides Walker, OCI, Then I think domestic producer, I think we are one of the biggest ones right now providing n type silicon Great. Thank you. Our next question is from Tony Fei from Bank of China International. Hi, management. Thanks for your time. This is Tony from BOTI. I just have one follow-up question on the competition landscape. So last week, we all noticed that East Hope announced they will build a 250,000 ton project in Xinjiang Province, that's quite huge. So of course, we don't know when or even whether they will finish it, but let's assume for the time being that the project gets materialized, How would it affect Daqo's future expansion plans beyond Phase 4b? Thanks a lot. Tony, first of all, we're not going to comment on our Competitors, because competitors also friends, okay? And yes, we also see Basically, our competitors definitely, I think the total, the market supply will affect in the future, you see, our continued We need it based on the market supply and demand. In the future, I think the market ending and the market the future, Especially, I think, the module in the future, the selling situation. So we see the market is so big. So some of our competitors, even Some new, I think, comments maybe will invest money in this industry. But Because silicon industry, the chemical industry, is a long term investment, security and also the quality, technology And priority, processing technology, all these I think experience Add together, you see the quality is most important. Safety also is most important. So we are focused on our quality And try to reduce our cost. And we try to make ourselves to differentiate ourselves from other people is to I think to make high gross margin than the industrial average, I think to survive. I think that's our I think on 4B, I think we want 4B, I think, to start production by November of this year, Q4 capacity running by Q1 next year to, I think, make sure next year we can produce More than 20000 tons, Tony. Okay. Thank you, Longgen. That's very helpful. Our next question is from John Siegfried from HIMSS. C. Wei:] Independently certify that there is no forced labor At DQ or even in the entire supply chain, there's been a couple of reports in broad daylight citing that your raw material suppliers have direct ties to XPCC that you buy your power from companies that are tied to XPCC. So how do we get through this and how do you guys Not get subjected to a potential ban of your products in the U. S. Or the EU. What steps are you going to take? Okay. I think, Jiang, first of all, we were not less critical in the way And we are continuing to focus on our own business to continue to expansion and to produce high quality polysilicon to support the global, I think the green energy solar industry, we did our, I think, the best efforts. So we hosted a site With many analysts and the investors, also media from home and abroad from 11 to 13, we also post I think I put the video on the Internet to let other investors to see that. I think it's just like you judgments. So we have reiterated many times of our 0 tolerance gains From the forced labor, so basically, we want to take this opportunity to show our investors what is advanced tech Polysilicon plant looks like and how we operate it and manage it. So in the future, We don't know because we cannot involve any political issues. So even in the future, maybe We need a high third party to do the audit. So we can answer that question. Okay, that's it. Can you are you 2 main suppliers of Silicon Haushein and SOKOS? Excuse me? Who are your 2 main suppliers of raw silicon, Sokos and Hoshan? You mean the silicon powder, right? Yes. The silicon powder is from one is from, I think, yes, SOKOS. Another is from Hexa. Yes. Hexa. Okay. And so if both of those We're tied to XPCC. Would you stop buying? Listen, Jiang, those providers only provide us The silicon powder, but they also buy a silicon method you see from all around the world, Okay. They mix together. They're going to produce powder, silicon powder. For Hexent, they do not only supply So that doesn't change whether or not if they use Forced labor, you would buy from them. I mean, just because everyone buys doesn't mean anything. I already said, we are 0 Terrence For the forced labor, okay? I'm not going to comment that, but also I can tell you, they also sell in polysilicon powder to overseas. For example, OCI Walker also bought the silicon powder from them. I understand that. That That doesn't mean that they don't use forced labor. I'm just curious, you've seen Apple cut off suppliers. Will you cut off suppliers that are proven? You have to put that. We don't see any clear evidence of our suppliers be involved into the forced labor issue, Okay. So if we see any clear evidence, we definitely take the stance of 0 tolerance. Okay. So you would drop them as a supplier. Perfect. Okay. It's an important issue that needs to be addressed. Yes. Our next question is from Colin Yang from Daiwa Securities. Go ahead. Hey, management. This is Colin. Just one quick question about our future capacity expansion after 4B. Financing plans for our future expansion. As you have only mentioned, right, if there is any last money from the Star Market IPO, it could continue for the Okay, Mr. Wang. I think basically right now if you look at our Q1 financial statements and we have enough I think inside the cash flow to continue to support our 4B to finish our 4B. Even by the end of this year, Without Star Market IPO proceeds, we can run very well by the end of this year, the cash flow. So basically, if we can successfully run the IPO and the IPO planning, I think right now, the prospect is I think we raised RMB5 1,000,000,000 and maybe more, okay, we don't know, maybe less. I think basically after we finished the Akhil, yes, we were through the board and to basically we have to evaluate the market situation, demand for product future. I think other competitive expansion and we were looking in some place. Yes, definitely, I think, besides Xinjiang, In China, other places, we have looked at 4 places, for example, like in Mongolia, Yunnan, Ganshou, even Shanxi province, So even abroad. So yes, definitely, at that time, we will make decision. We will let you know. Our next question is from Ji Chao from Goldman Sachs. Go ahead. Hi. Thank you for taking my question. I hope to ask about regarding the N type polysilicon that you mentioned that you already start the commercial shipment. Can you maybe share Your production cost level for the N type and also how much is our what is our kind of effective Supply capacity for the N type kind of poly, if the demand, downstream demand pick up quickly, how much How can we kind of reshuffle our kind of supply mix? Do we need to do a little bit upgrade to our existing kind of Okay. I think that's a good question. So far right now, I think in China, the bigger major, I think, We are the producer. They are already starting, I think, maybe 1 production line, N type production line. As you see the announcements like LONGi, Jinko and also Zhonghua and other players. So basically right now the quantity I think is lower. Their producer also is lower. So that's why they can use I think import Silicon Poly, for example, from Wacker, OCI and also like the high quality produced domestic like us. So I mentioned that in Q1, we sold I think around less than 2,000 tons N type polysilicon. But we can actually, I think, produce right now around 20% to 30% Of our poly is N type. So it's no problem to us based on right now the equipment and the technology, We even can increase N type quickly, I think to even 40%, 50%. So based on the market right now, We think in the future, the N type will become more and more, but it's the transition period. It will take time. We still think it will take 3 to 5 years, maybe N type will reach to 60%. But definitely, I think P type is still there. The reason is because of cost effective and also I think other Coordination, I think. So basically, I think the market we see the N type in the future, The efficiency on the sale efficiency, they can reach about 25%, compared to the PERC right now is 22%, 23%. Definitely, I think it's a big I think a jump also on the module side. And to increase the Output watts per panel to reduce the total light cost per watt. So that's most important. I think that's the future. I think one of the future, I think the next technology evolution, we are really, I think, prepared for it. For the cost, I think today is not we just select the N type actually, basically Classic of the N type from the P type. So it's cost even the same. So it's not a big difference. This concludes our question and answer session. I would like to turn the conference back over to Kevin Herr for closing remarks. 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. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.