Earnings Call: Q1 2020

May 20, 2020

Good day, and welcome to the Daqo Energy First Quarter 2020 Results Conference Call. All participants will be in 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, Investor Relations. Please go ahead. Hello, everyone. I'm Kevin He, the Investor Relations of Daqing Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the Q1 of 2020, which can be found on our website at chuckow.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference. Today, attending the conference call, we have Mr. Longgen Zhang, our Chief Executive Officer and Mr. 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 Q1 of 2020. After that, we will open the floor to 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 future operational and financial performance and the 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 contained in any forward looking statements. Further information regarding these and other risks is included in the reports or documents we have filed with are furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary views as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today, and we undertake no duty to update such information except as required under applicable law. Also during the call, we will occasionally reference monetary amounts in 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 of the audience. Without further ado, I now turn the call over to our CEO, Mr. Zhang. Please, Huong. Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are pleased to report an outstanding quarter with excellent financial and operational results. I would like to thank our entire team for their hard work and dedication to make these outstanding results possible. Despite the outbreak of COVID-nineteen in China in January and the subsequent domestic lockdowns and the travel restrictions that created a particular difficult environment for securing raw materials, managing on-site operations and facilitating product shipments and logistics. We overcame these challenges successfully and operated at full capacity during the quarter. The company produced record volume of 19,777 metric tons for the quarter and sold 19,101 metric tons of polysilicon. Thanks to growing economies of scale, significant savings on energy consumption and improved operational efficiency, our total production cost decreased to $5.86 per kg during the quarter, a decrease of 8% from $6.38 per kg in Q4 2019. Our cash cost during the quarter also decreased to $5.01 per kg, down from $5.47 per kg in Q4 2019. In addition, we continue to make improvements in quality and were able to sell approximately 95% of our products to mono wafer customers. All in all, we are very proud of the achievements we made in expanding production volume, optimizing our cost structure and enhancing quality within only 2 quarters following the start of Phase 4a pilot production. Our exceptional results this quarter reflect the strong capabilities of our Xinjiang facilities at full production following the completion of the Phase 4a expansion project. We believe this also demonstrates our extensive experience and expertise in polysilicon manufacturing and further solidifies our position as a global leader in the industry. Despite the challenging market environment, we successfully extended our gross margin by further optimizing our cost structure during the quarter. Gross margin during the quarter was 33.5% compared to 29.5% in the Q4 of last year. An expanding gross margin and increasing sales volume resulted in $63,100,000 in EBITDA, up 39% sequentially and RMB37.7 million in adjusted net income, up 53.5 percent sequentially. Towards the end of this quarter, the spread of COVID-nineteen globally and related lockdowns, particularly in the U. S, Europe and certain other emerging markets, resulted in significant disruptions to end market demand for solar PV products. These have created short term market uncertainty and volatility across the solar PV industry during the Q2 with significant impact to our customers' orders and pricing. Fortunately, the spread of COVID-nineteen has begun to ease in May and things are gradually returning to normal across all works of life, particularly in China. We expect to see some rush orders from solar PV developers in China for legacy projects delayed from last year in order to meet the grid connection deadline set for the end of June. However, a recovery of demand from markets outside of China is critical going forward as overseas market countries account for approximately 75% of total global solar end market demand. With many economics beginning to reopen, we expect to see a gradual recovery of solar PV demand in the Q3 as the impact from COVID-nineteen fades over the next 2 to 3 months. We are optimistic that the long term solar PV growth prospects remain intact despite the near term challenging market environment as solar PV Allergy continues to attract investors seeking to benefit from lower cost and interest rates. We are also confident in our ability to navigate this challenging environment, leveraging our competitive advantages in product quality and cost structure. Now I will discuss outlook and guidance for our company. We are currently conducting scheduled annual maintenance for parts of our Xinjiang facility. Our facility has grown significantly over the years. And for this year, we will be conducting any maintenance by project phases on a rolling basis, starting with early phases of the Xinjiang facilities, which had conducted its previous scheduled maintenance in the Q2 of last year. As such, we expect to produce approximately 15,500 metric tons to 16,000 500 metric tons of polysilicon and the sale of approximately 14,500 metric tons to 15,005 100 metric tons of polysilicon to external customers during the Q2 of 2020. For the full year of 2020, the company expects to produce approximately 73,000 metric tons to 75,000 metric tons of polysilicon, inclusive of the impact of the company's annual facility maintenance. This outlook reflects Daqo New Energy's current and preliminary view as of the date of this press release and may be subject to change. The company's ability to achieve these projections is subject to risks and uncertainties. Now, I will turn the call over to our CFO, Mr. Yang, who will discuss the Company's financial performance for the Q1 of 2020. Thank you, Langhan, and hello, everyone. Thank you for joining our call today. I will now discuss the company's financial performance for the Q1 of 2020. Revenues were $168,800,000 compared to $118,900,000 in the Q4 of 2019 and $81,200,000 in the Q1 of 20 19. The increase in revenue was primarily due to higher polysilicon sales volume. Gross profit was $56,600,000 compared to $35,100,000 in the Q4 of 2019 and $18,300,000 in the Q1 of 2019. Gross margin was 33.5% compared to 29.5% in the Q4 of 2019 and 22.6% in the Q1 of 2019. The increase in gross margin was primarily due to lower production costs. For the Q1, our average total production cost was 5.86 dollars per kilogram, a decline of 8% as compared to the Q4 of 2019 production cost of $6.38 per kilogram. With full production of Phase 4A project and an optimized production process, we were able to achieve a cost structure that was better than our original plan. In particular, we achieved per unit electricity usage reduction of approximately 7% compared to the previous quarter and a reduction of approximately 10% as compared to Q1 last year. Cost reduction also benefited significantly from economies of scale. Selling, general and administrative expenses were $8,900,000 for the quarter compared to $8,500,000 in the Q4 of 2019 and $7,900,000 in the Q1 of 2019. SG and A expenses during the quarter included $4,000,000 in non cash share based compensation costs related to the company's share incentive plan. R and D expenses were $1,700,000 compared to $1,700,000 in the Q4 of 2019 and $1,300,000 in the Q1 of 2019. R and D expenses can vary from period to period and reflect R and D activities that take place during the quarter. Our new projects this quarter includes new research projects for removal of impurities from production process and reduction of metal contamination to enhance our products quality. As a result of the foregoing, income from operations was $45,800,000 compared to $30,100,000 in the Q4 of 2019 and $9,100,000 in the Q1 of 2019. Operating margin was 27.1 percent compared to 25.3% in the Q4 of 2019 and 11.3 Interest expense was $6,300,000 dollars compared to $3,900,000 in the Q4 of 2019 $2,000,000 in the Q1 of 2019. EBITDA from continuing operations was $63,100,000 compared to $45,400,000 in the Q4 of 2019 19 $900,000 in the Q1 of 2019. EBITDA margin was 37.4% compared to 38 0.2% in the Q4 of 2019 and 24.5% in the Q1 of 2019. Net income attributable to Daqo New Energy shareholders was $33,200,000 in the Q1 of 2020 compared to $20,100,000 in the Q4 of 2019 $6,600,000 in the Q1 of 2019. Earnings per basic ADS was $2.37 in the Q1 of 2020 compared to $1.45 in the Q4 of 2019 and $0.50 in the Q1 of 2019. Now I will discuss the company's financial condition. The company remains in solid financial condition and has ample liquidity to meet its operational requirements and financial obligations. As of March 31, 2020, the company had $120,800,000 in cash and cash equivalents and restricted cash compared to $114,400,000 as of December 31, 2019, and $113,700,000 as of March 31, 2019. As of March 31, 2020, most receivable balance was $4,400,000 compared to $5,600,000 as of December 31, 2019, and $700,000 as of March 31, 2019. As of March 31, 2020, total bank borrowings were 265,600,000 dollars of which $149,000,000 were long term bank borrowings compared to total borrowings of $280,100,000 dollars including $151,500,000 of long term borrowings of December 31, 2019. For the 3 months ended March 31, 2020, net cash provided by operating activities was US31,100,000 compared to $48,500,000 in the same period of 2019. And for the 3 months ended March 31, 2020, net cash used in investing activities was $12,900,000 compared to $38,600,000 in the same period of 2019. The net cash used in investing activities in 2020 2019 was primarily related to the capital expenditures on Xinjiang Phase 3b and Phase 4a polysilicon projects. For the 3 months ended March 31, 2020, net cash used in financing activities was $10,000,000 compared to net cash provided by financing activities of $7,200,000 in the same period of 2019. And that concludes our prepared remarks. We will now open the call to questions from the audience. Operator, please begin. Thank you. We will now begin the question and answer session. The first question today comes from Phil Shen of ROTH Capital Partners. Please go ahead. Hi, everyone. Thanks for the questions. The first one is on pricing. I was wondering if you could comment on for Manos poly pricing, what you see for Q2 and also Q3? Pricing has obviously come down this year due to the COVID demand destruction. A couple of months ago on Q4 call, you suggested that pricing could dip in Q2 and then there could be a rebound in pricing as high as $11 to $12 a kilogram, I believe, in Q3 and Q4. But what's your latest view? And do you see well, just what's your latest view by quarter in Q2, Q3 and Q4? Thank you. Thank you, Philip from Roth Capital. This is Longgen. I think if you look at our Q1 ASP is $8.79 compared Q4 last year's $8.70 is a slightly increase. The reason is because, I think in Q1, even though China hit by the COVID-nineteen is in January February, but most of the factories still is running, still running. So I think the order still is especially I think the order to our downstream clients, especially LONGi, Jinko, still I think the forecast is running. So we overcame all the challenges, shipping continue shipping good to them. Then in I think starting end of the March, essentially beginning in last month and this month, I think we will because the U. S, the Europe, I think the COVID-nineteen, I think caused the whole market or restrictions, travel restrictions and shutdown, working factory. I think the all the downstream, I think, ending market demand suddenly, I think, stopped. So pushback to wafer, cell, even silicon demand is dramatically down. To us, we also face a lot of challenge, but we strategically signed long term contract with I think LONGi and Jinko, especially LONGi. During the Q1 difficult time, we still oversupply to our big clients. So they are also very supportive in the Q2. But the price we see in Q4 is around $7.20 to $7.50 And in May, we see the price continue go down to $7 to $7.20 So we think this price basically a lot of polysilicon company is losing money. And our competitors, even Tier 1 competitors, I think they maybe I think shut down due to the annual maintenance or reduce their capacity, running the capacity by discount. So we believe, I think May June is the most, I think, lowest quarter on the silicon price. And the silicon price, I think, on the Q3, we're back to $7.50 to $7.80 Then on the Q4, I think we're back to normal $80,0.50 to $9 because that's the industry average gross margin, I think around 25%. The ASP is around, I think $9 or $8.50 to $9 Just want to remind you, in Q1, our mono silicon almost accounts for 95%. So that's why our ASP is $8.79 If you look at detail, molysilicon price, TY actually is $8.97 compared last quarter is $8.99 it slightly go down. OFD go up, the majority the major thing is because our mono silicon percentage from Q4 to 2020, 89% to 95% in Q1. So we'll continue to keep such a high mono silicon percentage to keep the ASP as in leading in the industry. Great. Thank you, Longgen. I think on the Q4 call you talked about being 72% booked for 2020 production and perhaps leaving 10% to 15% for the spot market. Where are you now with after being done with Q1 and through much of May? Okay. Our sales pipeline still is very good. Today, our sales contract, if I count our sales book, inventory is negative 3,010, okay. And basically, this month, most of the big clients are launching is shipping over our original long term contracts. So sales is not to us is not a big issue, okay. The big issue is the price. Then also we also under annual maintenance 1 by 1 by routing on the production line, we have 5 production lines. So basically, if you look at our guidelines, we still at full capacity running besides that the maintenance production line and we still sell everything. So will make efforts to make the end inventory by the Q4 is to 0. Okay, got it. And can you comment about the inventory in the Downstream, how much polysilicon inventory is with your clients? I know you it sounds like you're selling everything, but is there oversupply from or too much inventory in the channel or the at your customers from other suppliers, for example? Basically, Philip, I'm little maybe different opinion from you. The reason is because you see, I think the end market demand for module suddenly stopped. So Longki take advantage, along with Jinko basically, okay. I think maybe Dongkuan together, they're going to actually 0 inventory their silicon products, we call it raw materials. So that's why, let's say, suppose for April contract, we're supposed to sign contract in March 20. So they delayed the signed contract to make 0 inventory. So that's a delayed contract. So if you look at our operating cash flow, why is the operating cash flow go down? Because the advances cash from our clients, especially LONGi, the contracts you see, delayed to from March 20, delayed to April 15. So we think right now the downstream, especially our clients, the raw materials, especially silicon materials, almost only one day or 2 days. Like Jinko, almost 3 days, then order from us, 3 days order from us. So basically they will now keep a low inventory. I understand that the reason is because silicon price continue to go down and also the downstream demand is weak or when they come see the market come back is uncertainty. So I think at this moment, I think silicon price, especially I think we're hit by the demand side. We are a chemical company continue production, you see. So we see our competitors, some our competitors have inventory, but most of the inventory is multisilicon. So it's unsellable. For monosilicon, there's not too much there. We know that. So we're very confident. I think in Q3, the silicon price monosilicon price will come back. Great. That's really helpful color. Thank you, Longgen. One other one, if you don't mind. What's your outlook for your cost structure? You delivered a very strong Q1 cost structure. How much more can that come down in Q2? What do you expect it to be relative to Q1 and Q2 as well as Q3? Okay. Basically, if you look our Q1, cost of goods sold almost dropped down $0.50 right, dollars 0.51 I think a majority of cost go down is the utility and electricity. It's almost $0.31 go down. Then also the accessory materials like package, like the core is $0.13 per kg, then also the salary and wages $0.08 per kg. So you add that together. I think for Q you have to remind you, Q1 is our full capacity running. The production almost 19,000 777 tons. And Q2, we because of maintenance, we don't think the cost will continue to go down. Basically, the only item will go down in Q2 is the I think the mantle power, silicon mantle power, powder, right? Powder. Yes, will go down. I think the rest of them, I don't think it will go down. So basically, I think Q2, the cost maybe keep the same or even slightly go up. Great. Thank you very much. I'll pass it on. Thank you, Logan. Great. Thanks, Phil. The next question comes from Gary Zhou of Credit Suisse. Please go ahead. Yes. Hello management. Thank you for taking my questions. So my first question is on the demand side. So what does management expect for the China demand this year and how much for the ex China demand and whether does the management have any expectation for next year? Thank you. Okay. We are very prospect, I think, in the solid industry. I think, I still very optimistic on the Chinese market. The reason is because China may be hurt by COVID-nineteen in January February. And March I think end of March almost all the capacity factories is a comeback. I think because to connect the grid, I think by the end of June, rush to connect it, I think for China market, I think this year definitely will be around 40 gigawatts to 45 gigawatts. Even I think it will be higher. The reason is because the distributed, I think, the solar power implement, I think it will go up. For the rest of the world, the reason is because I think this COVID-nineteen, the all if you like U. S, European, when they come back, I think is uncertainty. Let's say if U. S, European, all the market come back in May, end of May this month or June, then I think the industrial will come back in the Q3. So but I think for the rest of the world, besides China, I think this year maybe around 70 gigawatts. So for overall, I think for all globally, I think this year maybe around 105 to 115, that's my range. I think next year, definitely, I'm very confident. The reason is because through this, I think, virus, the module price continue to go down. If you see China right now selling module per watt is RMB1.4 to RMB1.6 per barrel. And overseas, even cheaper, below than 0.20 dollars per watt. The demand and the grid parity is there. So next year, I think it's definitely globally, I think it will be about 150 gigawatt. Gary, I think that's my projection. Yes. Okay. Yes. Thank you very much. And my second question is on the finance cost. I noticed that in the Q1, your company's interest expense was relatively higher on a quarterly basis. So is there any reason behind that? And what's up to date our 2 years? Thank you. Okay. So there were 2 parts related to it. So one is from a higher debt balance and also with higher bank fees related to notes payables and notes receivables, Chinese bank notes. And also in the Q4, because we were at the end of our construction period, so during construction, interest costs related to new construction projects, we could capitalize part of it. But I think in Q1, the project has been finished, so there has been no capitalization of interest in Q1. So that's the main difference. I think going forward, interest expense will be approximately $5,500,000 to $6,000,000 per quarter run rate. Okay. Thank you. So my last question is on the capacity expansion. So can management share with us whether there's any current plan for the expansion and when we can expect to have further kind of clarity on that? Thank you. I think for the 4A, even though we right now run smoothly, I think still have some CapEx I think you didn't pay. I think around like unpaid, I think it still have like it should be like renminbi is around like RMB1 1,000,000,000, right? Sorry, I think around RMB600 1,000,000 to RMB700 1,000,000 unpaid. So basically, our Nao also we face that in Q2, the ASPs continue to go down. We want to keep our balance sheet healthily. So we will not consider any expansion for this year. But as our financial statements continue to improve, yes, we will do revaluation to see whether we have to expansion the 4B. Okay. Yes. Thank you very much. That's all my questions. I will pass on. Thank you. Great. Thank you, Gary. The next question is from Jeffrey Campbell of Tuohy Brothers. Please go ahead. Good morning or I guess good evening there. At high level, your forecast for 2020 volumes was 73,000,000 to 75,000,000 tons. I was just wondering, first, how does this compare to your pre COVID expectations? And second, do you have any sense of preliminary 2021 outlook, again, relative to pre COVID expectations and the world we're in now? Thanks. Okay. So actually the production forecast has not changed before or after COVID in terms of total volume. I think what we're doing is because a lot of the impact to the end to our market for super polysilicon is very much in the near term, and we think the market will recover towards the end of this year in second half of this year. So we actually is conducting our annual maintenance a little bit ahead of our original plan. So that we're shifting production volume between quarters. So that in Q2, we'll be producing slightly less and then we'll produce more in the second half of this year. And so that's for this year. And our total sales volume, we think, will be similar to our production volume because of the strong demand for our products, in particular, for our customer. And then right now for 2021, our outlook is overall the end market demand is likely to improve significantly compared to this year with market recovery. And so that I think our first question will we don't have a concrete guidance for production, but right now based on our process optimization efforts, it should be higher than the production volume this year. Also, I just want to add a comment, okay, because at this moment, we want 0 inventory by the end of Q2, even though the ASP continue to go down. We don't want to accumulate any inventory. So that's why we moved the annual maintenance ahead. So basically on Q3, Q4, the production capacity, the output will come back to Q1. So that's why we keep a whole year guidance there. Okay. That's fine. Because we believe Q3, Q4, the ASP will come back. That's helpful. And kind of thinking toward that recovery in demand, we're hearing both at the utility the residential level that there's been some stresses showing up in financing, particularly in the U. S, financing related to the various safe harbor and tax benefits. Just wondering, are you seeing that? Is this something that you're watching closely? And your view for solar coming back in the second half of the year, does this also include an expectation that there's not going to be major financing problems? No, I think the U. S. We consider U. S. As a big market. Potentially, I think Green Paris and also potentially, I think, the market is so big. But also, you have to consider, last year, over 1 gigawatt, almost 19 countries. So basically right now this industry hit by the virus in the COVID-nineteen virus. So we believe if this virus is gone, so the market will come back. If without this COVID-nineteen, we think this year should be around like 140 gigawatts, even 145. So basically, we're very optimized the whole market because module is so cheaper and so easy to install and to use. So basically, we're very confident, I think the market demand for the starting from Q3 to Q4 even next year because the module price also dramatically go down. So let me follow-up on your point. So I think if you look at markets like Europe or Japan or China, so for these markets, the cost of credit or interest rate for debt financing for the projects are coming down. So there's excess liquidity in the market. So it's actually improved. And then with the cost of solar modules and solar products coming down as well, the yield for these solar projects are becoming more attractive. I think the issue you raised about especially about, I guess, the tax credit market in the U. S, I think we don't have too much color on that. But just very generally, I think because this year with the economy, right, so a lot of the companies will have a reduction in profits and reduction in taxes that they would need to pay. So generally in this kind of market environment that the cost of tax credit will go up, right. So this actually would make monetizing these tax credits more expensive for the solar projects. I think the flip side is that because you have the U. S. Fed with the monetary stimulus that's keeping interest rate very low. So that could potentially offset some of these impact. But I think that's a very specific issue to the U. S. End market. Okay, great. I appreciate the color. Thank you. Great. Thank you. The next question comes from Allen Han of JPMorgan. Please go ahead. Hi. I have a question follow-up questions on cost. Firstly, congrats on very solid cost control in 1st quarter. Understand that the 2nd quarter production cost may go up a little bit as you are scaling down production. But in assuming like we ramp up to full capacity in 3rd Q4 this year, I mean how much more room like do we have on cash costs going down or further cost improvement on the cash costs versus that of the Q1 level? I think to answer your question, if you look at our Q1 cash cost is $5 I think renminbi is around $35 Basically, we believe, okay, for the materials, for the silicon mantle powder, we're always long term contract. So we still have some room continue to improve, especially I think silicon mantle silicon powder, the price we see is continue to go down. But for the utilities, we don't think any more room to improve. The only thing I think we can improve is the salary and wages. So basically $5 if we continue in Q3, Q4, we continue to improve maybe I think you have like 5% room to improve basically in the frankly speaking. It all depends on silicon powder continue to go down. Silicon powder today, I think, accounted for almost RMB4.45 per kg, so RMB13.32 per kg, around $1.91 out of my cash cost of $5 So number 1, cash cost is around accounted for 32.6%. It actually only accounted for 28.7%. Got you. And thank you all for the color. Thank you. Great. Thanks, Evelyn. The next question comes from John Seygrich of Luminous. Please go ahead. Hey, guys. Just wanted to make sure I've got the housekeeping things right. So what is the total CapEx that you're expecting for 2020? And how much of that is maintenance CapEx? And then is there any remaining CapEx that has to be paid for the expansion in 2021 that we should be modeling? And then I've got 2 more follow ups, if I can. Okay. So actually, I think due to the COVID-nineteen situation and the impact to the market, so we're actually controlling our finances very carefully and strictly and we're actually extending the payment schedule for a lot of our suppliers, particularly related to CapEx. So for this year, the total CapEx is expected to be approximately $75,000,000 to $85,000,000 total. And of that, about $15,000,000 to $20,000,000 is for, you could call it, maintenance CapEx, but a lot of it is for project upgrades and then the rest is for mostly for project 4 Okay. And then For next year then there's another about $50,000,000 to $60,000,000 of CapEx related to Project 4A. Okay. And is that on top of any amounts that are included as payables for PP and E, Just to be clear. It's inclusive. It's within the payables. Within the payables, okay. So the payables are actually our contractual payment obligations. So we are able to negotiate with our equipment suppliers due to the current market situation. Okay. And then, I know you gave a lot of figures kind of around percentages of everything, but I think you said electricity usage per kg was down about 7%. So what are you kind of down to about per kg now? So we're around 66 kilowatt hour per kilogram today. Okay. Was there anything in particular that allowed you to make that big sequential reduction? That's quite a big improvement. Yes. So it's truly process optimization where we've optimized our process so that we could reduce our electricity usage relative that we've done in the past. Also the equipment, so I think if you remember the Phase 4a projects now have either 72 or 80 rod reactors versus our older reactors were maybe 48 rod in the past elements. So because these larger reactors also have more efficient usage of electricity and for our front end process as well with our new capital equipment. So that allows your unit to the reduction. Okay. And then also our electricity cost came down as well. Okay. So where is that now? We cannot disclose specific numbers, but overall it declined approximately 10% q over q. Okay. We can tell him the total. You see per kg, The average is actually I think consumption is 66 KWH and our cost is RMB11.75 per kg. So calculation by itself, the unit cost. Okay. And then last one, I know at the end of 2018, you guys acquired a subsidiary company, Daqoo Investment, I guess. And I think you have $18,000,000 or $16,000,000 or had $16,000,000 to pay for that. What does that company do? And what was the point of the acquisition? I think, okay, let me just reflect to you, okay. The Daqo Investment Company originally is owned by the group. The reason is because the company buy a piece of land due to I think 1 dormitory for our employees to log in. Okay, building actually like the employee log in facilities. So at that time, we need investments, we need to construct in the building. So we don't want to touch the business. So Daqo Group, I think invested money in the investment company. Then I think in 2019, because we want to go, I think domestic, we call 3rd exchange board, new 3rd exchange board. So we have to change the Xinjiang plans, a company, limited company, a new company, 1% is selling to this company. So this company also own 1% of the Xinjiang facilities, okay? So then later because we withdraw from the new 3rd board, so we buy back this company, okay, with the 1% ownership plus the building, the employee building. So that's why the total evaluation you see the $60,000,000 are you talking? Okay, great. That's helpful. Thank you. Okay. That's it. Thanks guys. Thank you. The next question comes from Colin Yan of Daiwa. Please go ahead. Hi, thank you management. This is Colin from Daiwa. I got a follow-up question on polysilicon price. Understood Mr. Zhang said that we expect a recovery in price in 3rd and the 4th quarter this year, probably due to the recovery of global demand. But on the other hand, our major clients, the waiver producers including Longxi, Zhonghua, they were still in the middle of the price wall of wafer. So wafer price is likely to keep dropping in the second half despite a recovery in global demand. So do you think it's still likely to see the polysilicon price goes up even the wafer price will keep dropping? And do we feel a lot of price cutting pressures from the wafer producers? Thank you. Okay. To my concern is because I think Longy, Jinko, the downstream major player used to take advantage of that virus situation to 0 their inventory. Then besides that, they may be on the supply side, demand side, on the wafer side, the price continue to go down. So push, I think, the silicon price continue to go down because silicon we manufacture silicon as a capacitor. It's a chemical company. For example, if LONGi supposed to sign contract with us for April, should it be signed the contract in March 20. If they move to April 15, so almost a 1 month delay, so cost the demand and supply totally change the situation. So that's why I think today the monosilicon price go down. But you have to consider that, if let's say the import of silicon from OCI from Wacker almost becomes 0, then the domestic monosilicon supply is there, it's not too much there, okay? Even though some player have inventory majority of their inventory is a multi silicon. It is not on saleable multi product, okay? So we believe as far as the demand come back, the downstream module, majority right now, even I think 90% of the module is more than module. So then as the wafer capacity continue full capacity running also extension, we believe silicon price definitely will go up. Today, if let's say on the excuse me, if on today it is $7.20 how many silicon company can make a profit? Because you see we our ASP is a little higher, really because we're 95% of our product is monosilicon, only 5% is multisilicon. We even use partial, 50% of multi silicon to produce our own whole lot. So basically, if you look at today's price, a lot of company, most of company is lose money. Even Daku maybe Q2, you can calculation our gross margin maybe deteriorated, you see. And the bottom line maybe I think just above maybe above 0. Understood. Okay. The second follow-up question is still about our financing expense because our total interest borrowing debt was just up like 38% year on year from 1Q 2019 to 1Q 2020. However, our interest expense was like up by over 200%. And still, Mr. Yang was explained that it was partially because of a higher banking fees. So I want to learn if we can share the exact interest rate from 1Q 2019 to 1Q 2020. Thank you. So the interest rate currently is roughly 6% per annum on our debt balance. And actually for last year, I believe it was similar as well. So the interest rates haven't really changed. Well, maybe it came up slightly because we have higher amount of longer term duration debt for our capital project, which carries a higher interest rate? Yes, the short term banking loan, every cost is 5.5%. The long term, I think fixed assets loan is around $5.6 to $10 per annually. All right. Thank you, management. That's all my questions. No, I think, yes, the banking loan total is around 2 65,000,000. I think a temporary reason because you see we're in the rush payments on the Q4 4a project. But step by step, as the cash continue to flow from operating side, I think the interest I think expenses should be keep around like $5,000,000 to $5,500,000 I think in the top quarter. I see, I see. Thank you. Great. Thank you. Thank you. Next question is from Satyan Shah, a Private Investor. Please go ahead. Yes, gentlemen. How are you? Hello. The question I have is more due to the political tensions between the United States and China currently. I'm not sure if you're aware, but there is a new legislation going into the Senate today that basically would require Chinese companies to establish that they're not owned or controlled by the government and that they would be required to submit to an audit that could be reviewed by the Public Company Accounting Oversight Board. How would that if that legislation was to pass and would that how would that affect U. S. Investors' ability to still invest with you guys here and what are your views? I think, first of all, I'm not commenting on PA COV, yes, what are they doing. But in the history, I think in 2010, if you look back in 2010, you see, I think also some crisis, a lot of Chinese company, I think from OTC up list to main exchange. Also, I think PSC will be also looking for worksheets from auditor. I think Chinese government at that time, I think, opened certain number of public company to let the PSCOV review. I think today, for example, like Daqo is almost listed in the United States, New York Stock Exchange, 10 years. So our book is, I think, sorry, I think, auditable and transparency. So we're not afraid of that basically. Okay. And we support any transparency and because we are public company and we have to follow the law. So no more comments on that, your question. Okay. No, that's fine. And then my bigger question is for the company in general. Over the next year or 2, as the solar industry sort of recovers, as you elaborated on, what does DAKU look like a year from now in your estimation as a company? I think we okay, basically, today, we almost account for the market share, 15% on the I think on the silicon supply, on the PV industry, the up, I think, segments. So we definitely is the key player right now in this industry. As you can see, the silicon imports from overseas, I think from this year almost gradually I think were 20. So basically the Chinese silicon will substitute for the imports, the first. Secondly, if you look at the TV industry in the future, I think, Desiree, I think is very, I think, optimistic. So we believe, I think, this industry will continue to grow. And definitely, we also see all players, for example, the Asia Company continue to expansion. But we will watch the market and we will do our I think because we believe we will I think, strengthen our efforts. So basically, we will look to market to see whether we will continue to expansion or not on the polysilicon side. Meantime, we're also looking for both, I think, domestic or overseas opportunities. So basically, we're also doing other for example, the special gas, other projects to see continue to increase our revenues, you see, and to I think strategically to make, I think, Daqo more strong, to continue to grow on the revenue side and also on the cash statements. The next question is from Robin Shao of BMDI. Please go ahead. Thank you management for taking my question. My question is regarding about the capacity from the industry. So basically a lot of factory is making same margin for the current price, but we didn't observe lots of maintenance from May. So what do you see in your competitors' maintenance schedule? Were they focusing July or April or August? So what's the color for this tiers capacity plan? Okay. Basically, I think if you look at today, I think especially during the Q2, a lot of companies, even Q1, you see the ASP continue to go down. A lot of we see this is actually already consolidation. So in China, basically right now, it's a major 5 company is there. I think besides ARPU, Tongwei, TBA, right? TBA, New Horizon and also, I think that's the major player there. So if you look at those 5 players, I think New Horizon because of the quality issue and also the capacity only, I think can achieve around 40,000 tons to 50,000 tons. Then also they're going to go downstream vertically integrated. So basically, in the future, I don't think they are the competitors in the solid silicon segment. Then GCL basically is a joint venture with ZhongAn. I don't think they will continue to expansion that facility around the 40,000 tons line now running. And basically, the majority supply to Zhonghua. Zhonghua also buy some from us. So the only, I think, major 3 player is TVA, Daqo and Tongwei. So today, on the quality side, we are almost 95% is monosilicon. And our competitors, I'm not mentioning, okay, essentially, I think other 2, they also have new I think projects new facility just opened last year. The production is not stable and also quality is not stable. I'm not going to go ahead, you can call them to dig on the inventory. Basically, we right now, the inventory almost is 0, okay? We sell whatever we produce. So basically, in this market, right now, today's price is opportunity for consolidation and I think also it's good opportunity for our future. So after maybe Q2, even half of Q3, I think the survivors will enjoy the market. So for maintenance, do you see a lot of factories which used to have their maintenance plans in July? No, I think that some plans we know that they also move to Q2, because Q2 right now the selling price is so weak. So I believe I think some is more. Some still will be in, I think, September, October. The reason is because they maintenance for the winter. So I think I only can say maybe right now 50% of the company is any maintenance right now happened in Q2, then 50% will maybe occur in Q3, Q4 early Q4. Okay. Thanks. My final question is regarding about the monthly supply demand balance. So from the monosilicon products perspective, what do you see? What's the monthly supply and demand balance in the market? If you can, would you please share in gigawatt basis? I think basically as the technology continue improve, you have to remember, I'll remind you that per gigawatt wafer basically per gigawatt whatever the downstream product, the consumed silicon is continuing to go down, okay? If let's say 2 years ago, maybe consumed 4.5 grams in our silicon per watt. So that's why the module price right now, the module cost of the module cost, silicon is not number one cost right now. The number one cost is glass chip, okay? So basically, we believe on a mono module right now per watt cost of silica is around like 3 grams to 3.2 grams. So if you calculation, let's say, this year is around let's say, I think if you calculation based on the wafer capacity, this year, I think it's like 135 gigawatt, okay? So that will consume, I think, around 400,000 tons of silicon. So per month, I think it is around like 35000 to 36000 tons every speaking. But right now, I think it may be around 30,000 to 32,000 per month. That's the demand side. The supply side, I think, okay, basically because of the I think Q1, the COVID virus and caused some small weaver plants shut down. So then we are a chemical company continue to running. So one of beside our dark cube, maybe other silicon producers have some inventory there. Then Longky Jinko, when they in the March come back, they consider they want to 0 inventory, the sale, the wafer price go down, reduce to go down. So that's why they push the demand go down, then supply still is there, then push the price as we go down today. Basically, I think solar wave is around 55% to 58%. But I think this is the I think almost the bottom. I don't believe we continue to go down further. Thanks. I have still one follow-up question about the inventory strategy from downstream. You've mentioned about Jinko and LONGi. They're trying to maintain very low inventory level for now. So they keep ordering for maybe 2 to 3 days. So at what time point you think they will change that strategy? Could you please share any color on this? I think maybe by the Q3, when the module and the market come back And I think the cell and the wafer demand come back to normal. And it's not only besides the LONGi and Jinko, but also other companies like Shang Chi, Jingtong, ZhongHang, all the companies running and the demand will be, I think, more. So definitely, I think they have to keep accumulate some inventory. Otherwise, their supply will be interrupted. We cannot I don't think they can keep like this way. The reason is because right now, it's not too much other players is doing small maybe players right now, cut their capacity. But when all capacity is running, then also the wafer capacity expansion continue to going on for the next year, because people will see next year the potential market is there. So I think it will come back at least in a 1 week inventory. So the demand data will come back. Okay. Thank you, management. I will pass on. Great. Thank you. The next question is a follow-up from Gary Zhou of Credit Suisse. Please go ahead. Hello, management. Just a quick follow-up question. So, notice that some of your key foreign polysilicon producers are currently under suspension. So just wondering when do you expect we may hurt further kind of final kind of exit, potentially exit from those companies? Thank you. Welcome, Gary. You come back the question. Basically, I think, Walker, you already hear that. I don't think the major I think they focus on the semiconductor solid silicon. Maybe it has some byproduct continue to provide to the solid industry, but it's not too much, it's not numbers are not accountable. The only thing that I think maybe OCI, I think Malaysia, Malaysia I think plans. As we know that, Malaysia right now, today, we supply to Longy, the selling price around $7.20 We believe, okay, the Malaysia plants also is not compatible. So their capacity right now is around 30,000 tons. So that's the only right now all the fees, I think, capacity is there. Gary, did I answer your question? Then you're also coming to, I think the Silicon Association, they have every month the import figure, China import silicon figure there. We can give to you if you want. Okay. That's quite helpful. Thank you very much. Great. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Kevin Ho for any closing remarks. Thank you everyone again for participating in today's conference call. Should you have any further questions, feel free to contact us. Thank you and bye bye. The conference has now concluded. Thank you for attending today's presentation. You may now