Earnings Call: Q4 2019

Mar 11, 2020

Good day, and welcome to the Daikou New Energy 4th Quarter and Fiscal Year 2019 Results Conference Call. All participants will be in listen only mode. 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 Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the Q4 fiscal year of 2019, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPC presentation for your reference. Today attending the conference call, we have Mr. Longgen Zhang, our Chief Executive Officer and Mr. Ming Yao, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, then Mr. Yang will discuss the company's financial performance for the Q4 fiscal year of 2019. 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 and 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 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 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. Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are pleased to report an outstanding quarter to close out the year in which we delivered strong operational and financial results. Having completed the new 35,000 metric tons Phase 4A expansion project at the end of the Q3, we quickly ramped up our Phase 4A project in Q4 and hit full capacity in December 2019. We completed the ramp up progress month ahead of schedule and were able to generate outstanding operational results across all key metrics, including production volume, manufacturing costs and the product quality. I would like to thank our entire team for their hard work and dedication. We produced 16,204 metric tons in Q4 2019, an increase of 72% compared to Q3. Furthermore, we successfully reduced our total production cost to $6.38 per kg during the quarter, a decrease of 8.5% sequentially and below our previous target of $6.50 per kg. With our additional capacity fully ramped up, we saw significant benefits from economics of scale and manufacturing efficiency. For example, we reduced energy related costs by more than 10% quarter over quarter, aided by significant reductions in per unit energy consumption. We also saw improved raw material utilization efficiency. In terms of operational synergy, per unit labor costs reduced by more than 20% compared to Q3 and depreciation costs per unit also declined significantly. In terms of production quality, approximately 81% of our production during the quarter were high purity mono grade polysilicon. This is exceptional since we were ramping up and optimizing Phase 4a production in Q4 and it is typical to have variability in quality during the equipment optimization process. As a result of reduction in manufacturing costs, our gross margin for 4th quarter increased to 29.5 percent, an 800 basis points improvement over 3rd quarter gross margin of 21.5%. Our EBITDA improved to US45.4 million dollars during the quarter, a sequential increase of 130%. Adjusted net income increased to US24.5 million dollars up from US9.5 million dollars in Q3. We are proud of our financial performance and believe it reflects the capability of our company now with Phase 4a at full production capacity. Based on our current estimates, we expect to run our facilities at full utilization during the Q1 of 2020 and produced approximately 18,000 metric tons to 19,000 metric tons of polysilicon. We are also making progress in cost reduction by further improving operational efficiency and maximizing economics of scale. As such, we expect our production costs to be continued reduced to approximately $6.10 per kg in the Q1 of 2020. At the same time, we will continue to improve product quality and expect mono grade polysilicon products to account for approximately 90% of our sales volume during the Q1 of 2020. 2019 was a challenging year for China's domestic solar PV market due to the delayed announcement of the subsidy policy last year, newly added solar PV installations in China during the year came in at approximately 30 GW, significantly below the market and government's original expectations of 40 to 50 gigawatts. However, a draft of subsidy policy for 2020 was released in later January this year and is expected to be finalized sometime in March or April of 2020. When combined with some delayed projects from 2019, we expect newly added installations in China for 2020 to be approximately 40 gigawatts. Demand from overseas markets is expected to grow healthily in 2020 as overall costs fall further and grid parity is reduced is reached in more and more countries and regions. With China's domestic market expected to recover and overseas demand continuing to grow, we believe global solar PV demand will exceed 140 gigawatts in 2020, a significant increase from 2019. Towards the end of 2019, we saw the market share for multi grade polysilicon products shift meaningfully towards mono grade polysilicon products, while mono grade polysilicon continues to be in high demand with stable pricing, demand for multi grade products wins with prices dropping significantly, while we are ideally positioned to benefit from this shift towards mono grade polysilicon. This will adversely impact some of our competitors who produce mostly multi grade polysilicon products. At the same time, we are seeing a number of major competitors shutting down their operations, exiting the market and laying off employees due to significant financial losses and their uncompetitive cost structure. We believe this trend will continue going forward unless ASPs can recover to healthy level for our competitors to continue production. In order to limit and contain the spread of COVID-nineteen coronavirus disease in China, the government implemented strict controls and policies starting in later January this year that had an adverse impact on the logistics and the supply chains of many companies in the manufacturing industry in China. We immediately set up a crisis response task force led by senior management team and quickly began rolling out initiatives to ensure business continued, including a detailed assessment of our supply chain and logistics and immediate procurement of critical raw materials and the plans to allow employees return to work, which resulted in uninterrupted production and a full utilization during this challenging period. We are pleased to report that with our team's dedication and strong support we received from raw materials supplies and logistic partners, we were able to remediate any impact on production, sales and shipments resulting from the outbreak and related government control. We believe mono grade polysilicon supply and demand balance will improve meaningfully in 2020, driven by the aggressive capacity expansion of mono wafer producers and limited new polysilicon production capacity coming online as well as our competitors shutting down capacity and reducing utilization. So far during the Q1, we are seeing robust demand for mono grade poly from our key customers with improvements in ASPs every month, which we believe is likely to continue going forward, combined with our anticipated lower production cost, we believe 2020 Q1 gross margin can improve compared with Q4 2019. I'm confident that we will continue to benefit from the shift from multi crystalline to mono crystalline technology, resulting in robust demand and the pricing for mono grade polysilicon. We expect to produce approximately 18,000 metric tons to 19,000 metric tons of polysilicon and sell approximately 17,500 metric tons to 18,000 metric tons of polysilicon to external customers during the Q1 of 2020. For the full year of 2020, the company expects to produce approximately 73,000 to 75,000 metric tons of polysilicon, inclusive of the impact of the company's annual facility maintenance. This outlook reflects DaqoView 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 Q4 and fiscal year 2019. Thank you, Langan, and good day, everyone. We appreciate you joining our conference call today. I will now discuss the financial performance of our Q4 fiscal year 2019. Revenues were $118,900,000 an increase of 42% as compared to $83,900,000 in the Q3 of 2019. The increase in revenue was primarily due to higher polysilicon sales volumes, which were partially offset by lower ASP. The company produced 16,204 metric tons and sold 13,291 metric tons of polysilicon during the quarter. The difference between production volume and sales volume was primarily attributable to an increase in finished goods inventory associated with the doubling of our production capacity in December 2019 when compared to the Q3 of 2019, the majority of which were shipments in transit to customers. There is also an increase in the amount of polysilicon utilized for the production of silicon feed rods, which is a raw material used in the polysilicon production process. Based on our current production capacity, we utilized approximately 500 tons of polysilicon for the production of silicon seed rods per quarter, which is reflected in our guidance for the Q1 of 2020. Gross profit was $35,100,000 an increase of 94% compared to $18,100,000 in the Q3 of 2019. Gross margin was 29.5 percent, an increase of 800 basis points compared to 21.5% in the Q3 of 2019. The increase in gross margin was primarily due to lower production costs. Selling, general and administrative expenses were $9,000,000 compared to $8,200,000 in the Q3 of 2019. Increase was primarily due to higher shipping costs as a result of higher sales volume. SG and A expenses during the quarter included $4,000,000 in noncash share based compensation costs related to the company's share incentive plan. Research and development expenses were $1,200,000 compared to $1,200,000 in the Q3 of 2019 $1,000,000 in the Q4 of 2018. R and D expenses can vary from period to period and reflect D activities that took place during the quarter. Income from operations was $30,100,000 an increase of 240 percent compared to $8,800,000 in the Q3 of 2019. Operating margin was 25.3%, a substantial increase compared to 10.4% in the Q3 of 2019. Interest expense was $3,900,000 compared to $2,600,000 in the Q3 of 2019. The increase was primarily due to an increase in bank loans. New income attributable to Daqo New Energy shareholders was $20,100,000 in the Q4 of 2019 compared to $5,000,000 in the Q3 of 2019. Now I would like to provide an update regarding our tax rate and tax expenses for the Q4 of 2019. Our Xinjiang Beko subsidiary is a high end new technology enterprise, which is taxed at 15% tax rate at the local subsidiary level. For the quarter and related to the completion of our new Phase 4a project, we took advantage of a new tax policy in China, which allows for a one time depreciation deduction for certain new capital investment items. Under this new tax policy, we took a $20,000,000 one time deduction for tax purpose. This would reduce our 2019 local taxable income by $20,000,000 and reduce $3,000,000 in cash tax payments for the tax year of 2019. However, under GAAP accounting rules, it would require us to record an additional $1,860,000 in tax expenses related to this one time fixed asset deduction. Excluding the impact from this accounting treatment, our GAAP net income for the quarter would have been $22,000,000 Earnings per basic ADS was $1.45 in the Q4 of 2019 compared to $0.37 in the Q3 of 2019. Non GAAP adjusted net income, which excludes noncash expenses related to share based compensation, was $24,500,000 in the Q4 of 2019 compared to $9,500,000 in the Q3 of 2019. Non GAAP adjusted basic EPS was $1.77 in the Q4 of 2019 compared to $0.69 in the Q3 of 2019. EBITDA from continuing operations was $45,400,000 compared to $19,700,000 in the Q3 of 2019. EBITDA margin was 38 0.2% compared to 23.5% in the Q3 of 2019. Now on the company's financial condition. As of December 31, 2019, the company had $114,400,000 in cash and cash equivalents and restricted cash compared to $68,200,000 as of September 30, 2019. As of December 31, 2019, the notes receivable balance was $5,600,000 compared to $4,300,000 as of September 30, 2019. As of December 30 1, 2019, total bank borrowings were $280,100,000 of which $151,500,000 were long term borrowings compared to total borrowings of 248 $800,000 including $163,500,000 of long term borrowings as of September 30, 2019. For the 12 months ended December 31, 2019, net cash provided by operating activities was $181,000,000 compared to $95,600,000 in the same period of 2018. For the 12 months ended December 31, 2019, net cash used in investing activities was $261,800,000 compared to $164,700,000 in same period of 2018. The net cash used in investing activities in 2019 2018 was primarily related to the capital expenditures on our Xinjiang Phase 3b and Phase 4a polysilicon projects. For the 12 months ended December 31, 2019, net cash provided by financing activities was $102,300,000 compared to net cash used in financing activities of $86,700,000 in the same period of 2018. That concludes our formal remarks. Operator, let's begin the Q and A session. We will now begin the question and answer The first question comes from Philip Shen of ROTH Capital Partners. Please go ahead. Hi, everyone. Thanks for the questions and congratulations on the strong execution. In your prepared remarks, you mentioned that pricing has improved each month this quarter. I was wondering if you could talk through how much things have improved, perhaps how what your expected ASP might be for Q1 And then what your expectations are for pricing for you specifically as we get through the year by quarter? Thanks. Okay, Philip. I think for the ASP in Q4, our ASP is around $8.77 I think excluding the foreign exchange rate change, we see that January, the ASP is a little different down than February dramatically increased 3% to 4%. Then March right now, the price is still not determined, but we believe we're, I think, stable, maybe same as February. So we think the ASP for Q1 was slightly high or same as Q4 last year. Great. Thank you, Longgen. And then as we get through 2020, how do you think about the ASP for Q2 and Q3? Okay. I think as I said, I think the supply side, I don't think any more new capacity will come in. In the meantime, because of the selling price ASP is so lower and a lot of, you see, our competitors, including the Chinese producer or even some foreign producer, they maybe shut down their capacity or factory. So we see the supply side is not to continue to increase. On the demand side, I think for even though the coronavirus epidemic maybe will affect the demand side globally, But we believe, I think the wave of capacity expansion in China is very quickly also so big. And as I can tell you, China right now, the downstream from wafer cell module, almost right now, 100% come back today. So what I say is maybe I think the price we will see slightly come back in Q2, but definitely in Q3, price will come back, I think maybe around 5% to 8%. Okay. And overall this year, I think the ASP maybe will be around like what I think is $9 around $9 Okay, great. Thank you, Logan. Shifting to your cost structure, perhaps we could go through the same process for how you expect your cost structure to trend. I think you mentioned Q1 cost structure all in is about $6.10 per kilogram. What do you see for Q2 and then Q3 and maybe the average for the year? Okay. So in terms of our costs, I think we're showing very good trends in economies of scale for our manufacturing, especially in energy reduction and also in, for example, labor cost savings, as we discussed. So for Q1, we are seeing costs about $6.10 I think for Q2, it could probably go down slightly lower too as well, probably in the $6 range. And currently, as of today, we think the second half could also be in the $6 range. So probably on average around $6 for this year. That's our cost target. Okay, great. Thanks Ming. Can you talk about what you need to see for Phase 4B? What I know there's some uncertainty now with coronavirus outside of China and what that might do to demand, even though the supply situation seems very healthy in China. So what do you what needs to be lined up for you guys to make the decision to do the expansion of 4B? And when do you think the timing of that decision could be? Okay, Philip. I think first of all, we still want to optimize our 4A production capacity running and to improve our balance sheet. So, so far, we haven't made any decision on when we're going to start 4B. But definitely, I think we will consider maybe second half of this year. Okay. That's helpful. And one last one and I'll pass it on. As it relates to the production or the sorry, the shipments that you expect for 2020, given all the contracts that you have, what percentage of the 2020 shipments have you already booked? I think basically right now, our long term contracts right now, we already booked I think 72%. But we still have 3 customers right now talk to us and want to sign long term contracts. So actually our capacity right now is limited, yes. So if those 3 sign up, what is the timing of when those 3 could sign up? And also incrementally, how much of that remaining 28% capacity or shipments could they We maybe didn't have the capacity to sign those. The rest of right now, the major three clients, I'm not going to name, but one of them also is bigger. So we maybe just signed in a while or 2 out of those 3. So basically, we maybe were signed around like 80% to 90% of capacity, whole capacity, still leave 10% for the market. Okay. Great. For some of the clients. Right. You want to have some exposure to the spot market. Yes. Okay. Thank you. I'll pass it on. Great. Thank you. The next question comes from Gary Zhou of Credit Suisse. Please go ahead. Hi, thanks for taking my questions. Gary from Credit Suisse. I have two questions. So firstly, as management has mentioned that this year, we may see a lot of capacity expansion from your downstream wafer customers. So do you think, let's say, by the end of this year, the poly industry would still have enough mono grade poly to be supplied to those mono wafer producers? And secondly, regarding your just further cost reduction in Q4 this year. So just to wonder if the management can elaborate a little bit more. Is it from lower energy cost or any other reasons? Thank you. Okay. Gary, thank you. I think the first question, basically, if you look at China last year, total silicon consumption on the poly side, I think, solar segment is around 460,000 tons, of which I think 140,000 tons is import from abroad, majorly from OCI and Waka. I think this year, I think the import frankly speaking, import policy maybe will be reduced dramatically. Then also if you look at China, I think the major supply, we already see I think a top maybe 5 major supply. One is Daqo, one is TBGA, then Tongwei, then plus I think Xixin and also New Hopes. So basically the supply is there. Then also your question is, you see, because we also see a lot of I think right now the waiver capacity expansion declared, the investment is around we already calculation maybe right now based on announcements by the end of this year, I think the mono waver capacity may be around reach to 150 gigawatts. But whether they really can be their capacity, okay, achieved or not, we don't know. But definitely in Q3, Q4, momentarily, I think the supply maybe we should supply, Supply compared with demand. So that's always a market mechanism. If let's say the demand is larger than supply, then the price go up, maybe some small producer will continue to come back. So it all depends on, I think, the demand and supply. But I believe, I think, in today, the situation, I think the ASP maybe will bounce back to $10 or even let's say $11 I don't think it will be about further. So for this year, definitely I think Q3, Q4, the polysilicon price maybe come back. Second question is about our Q1 costs will continue to go down maybe to $6 around $6 I think a major thing if you look at our Q4 is around $6.38 but only I think one and a half month is full capacity running. So basically I think Q1 we were full capacity run. I think the scalability of the economics will be fully achieved. That's the first. 2nd is also we maximize our economics of scale. So that also will reduce a lot of variable cost per unit. The most important for 4a, 4a capacity running because the efficiency is totally increased compared to all the existing production lines. For example, the tons consumed electricity, the utilities will go down. Then also the conversion ratio also is go down. So all these will improve and help us I think to achieve the targets. Gary, did that answer your question? Yes, thank you. Thank you. Thank you. That's very helpful. Okay. The next question comes from Alan Wang of CICC. Please go ahead. Hello, Mr. Zhang. Thank you for taking the question. We got one question on dollar variance impact and another one on classic expansion. For the impact, as we know, the logistics may be affected by some government control. So how is the inventory level of our company? And how do you think about the supply chain constraint of silicon orders? Will the higher price of silicon orders affect our cost level in this quarter? And the second question, as you mentioned, maybe the company is considering about 4B project now. And maybe after 4B, which part do you think in China may provide lower electricity price for future polysilicon expansion? Maybe can share some ideas of the queue? Thank you. Okay. Edwin Wang, thank you from CICC. I think first question, I think during this, I think, epidemic, I think the tough time, basically, we already passed. I think in later January, it's very tough because the government put a lot of restriction on the shipments, on the employee return back. It's not only for our company, but also for a lot of shipping company. So basically you cannot find the shipping facilities. Then also a lot of supply company not come back to work. They're not like chemical company. So basically, we got a lot of challenge, but the good thing is before Chinese New Year, we inventory, I think at least, I think, 20 to 25 days raw materials. For example, like MGSI, we inventory almost 20 days. So basically then I think good thing is we signed a long term contract with at least 3 supplies for each of the major raw materials. For example, MGSI, so we're working with Hezhen Guiyi, that's one of Asia companies. So they're also located in Shenhe, local city. So they added 4 new production lines special for us to provide every day around the 210, I think, MDSI powder to supply us. Then also like the package, we 1 by 1, we solve those issues. So basically right now today, almost right now, I think the state governments right now announced the news asking for all the manufacturing, the company, they come back to work. So basically right now, I think everything is smooth. We already see a lot of supply come back. So I don't think in China, if you can see the cases we found right now, every daily increase actually is lower. So in China, the situation actually is really, I think, improved. I'm more worried about maybe in the future, the global situation maybe were hurt on the demand side. So I think from Noah, I don't think the coronavirus will be affecting too much our industry. Maybe it will affect some the downstream, like wafer cell module production capacity, but it's not too much. You can see long key announcements. Well, thank you. That's the first question. 2nd question to you is about the or 4B, I think I answered that, I think, Gary, basically right now we want to forecast our 4A optimization of 4A capacity. We currently will not consider 4B. Of course, we already see, I think, one of our competitors, I think, expansion 35,000 tons in Xuchuan Province. I think a major thing is to new expansion on the polysilicon segments, why is the quality? We have advanced technology to keep, I think, high quality products. Secondly, you have to run at lower cost. Of course, the energy is one of the key factors. So what I believe is today maybe only if you not yourself, I think generate power. I think today maybe 2 areas, why is Mongolia, why is Xinjiang is maybe a good place to continue to invest. Secondly, we also need IR globally because not only China, but also globally we think still have some place maybe can have lower utility price is a fit for us. So we always keep an eye looking on that. For us, our strategy because we think our strong experts still on the polysilicon side. So we still think in the future, we will do the full 4B. The only thing is when we're going to do, think the most important is the place where we're going to select. Thank you, Alan. Yes. Thank you. That's very helpful. Yes. Thank you. The next question comes from Allen Han of JPMorgan. Please go ahead. Hi. This is Allen from JPMorgan and congratulations on the excellent operation in 4th quarter. I have two questions. The first question is regarding our potential CapEx plan for this year. Assuming we are not building 4B yet, how much residual CapEx from 4A would be kind of focused in 2020? And also at what point would management think about dividend, I mean, and stuff like that? And the second question I have is I want to ask management about like generally speaking, I mean, I know Daikou has an excellent record in achieving high mono grade product. What about the other competitors in China? Are they at the similar level as Daikou? So these 2 are my questions. Thank you. I think you want to ask a question. Yes. Hello, Alan. Thank you for your question. So regarding our plan for CapEx, So our total CapEx for this year is currently planned for approximately $100,000,000 to $120,000,000 and about $80,000,000 to $90,000,000 will be used for the remaining payments of our Phase 4a capacity expansion based on our payment plan and payment schedule. And then about $15,000,000 is in the new R and D project, which should help our manufacturing efficiency and also improve our quality. And then about $10,000,000 to $15,000,000 is the regular maintenance CapEx. That's the overall CapEx plan. And then in terms of dividends or possibly share something that we would look into most likely in the second half of this year when we expect our cash flow and cash balance to improve materially compared to what it is today. For your second question about the product quality, we believe I think Daqo is the first one to produce n type silicon, I think approved by SunPower, then also right now approved by the major producer right now, LONGi, Jinko, I think other company. So if you look at our quality, we right now Q4 because of ramping up 4A, so our monosilicon percentage is 81%. But we think Q1 we will reach 90%. I think you can do I'm not going to comment on the other company how much percentage is there on the capacity. It all depends on right now also the downstream, the wafer producer. Some wafer producer maybe buy our silicon then combine with other people's silicon. So basically, we definitely can be 100% replace the import of polysilicon and is the number one, I think the best silicon sink in China among the Chinese producers. Got you. Thank you. Okay. Got you. And thank you very much. The next question comes from Colin Yan of Daiwa. Please go ahead. Hi. Thank you, Mr. Jiang. Mr. Yang is calling from Daewa Securities. I got a few questions regarding our operations. So the first one, we'll go for our the 4th quarter external shelves goes for 13.2,000,000,000 and our production was about 16.2 tons. So the sales rate was only be around like 82%, which is much lower than the average of the first three quarters, which is all above 95%. So what is why has it dropped like over 10 to 15 percentage points? The second question is regarding our average selling price. Based on my calculation, our full year 2019 average selling price is like around 9.1%, 9.2% and it applies for like over 30% year on year drop. And as you can see the market price for the mono grade grade polysilicon was only dropped by like 9%. For multi grade, polysilicon dropped by 27%. So my question is why our year on year drop on ASP is much more close to the multi grid market price drop because our mono grid portion is like already over 80%? Thank you. Okay. Hello, Colin. Thank you for your question. So regarding our external sales volume relative to our production volume, So if you look at our production capacity or volume daily volume at the end of the Q3, so as of September 30, was about 9,000 ton per quarter, right? And then at the end of December, with our full month December production, we're at if you look at our current number, 18000 to 19000 metric ton per quarter, right? So our production on a daily basis pretty practically doubled, right? So at the same time, if you look at assuming the same numbers of days in inventory for finished goods and in terms of shipments in transit. So this would necessitate a doubling of finished goods inventory in that period. So the difference in or the difference in the sales volume that you're seeing in Q4 is reflective of what happened when you have such a significant jump in production volume in a short time period. I think this actually I would say generally would be very abnormal for any other manufacturing company. Okay. So that's the bulk of the impact. And then a smaller impact was from the polysilicon utilized for the production of silicon seed rod, right? So for example, in Q3 and earlier, we were we would only need about half the amount of what we needed today based on capacity. And then in planning for the our production capacity increase, we actually you'll see that it takes about a month or more, maybe up to 6 weeks to plan and produce the silicon C rod that we would need it to be used. So we actually had to utilize more silicon polysilicon for the production of silicon C rod during Q4 than the normal amount that would normally require. So the combination of these both of these effects is what caused the difference. But if you move forward to Q1, right now, our production levels between end of 2019 versus end of Q1 2020 is very much similar, right? So then you're no longer seeing that difference in sales volume versus production volume. So that's basically the reason. Also, I think the second question is for the ASP, right? I think for the ASP, should it be we on the news advance, we say 81% of the monosilicon, we say the production, the output, we total Q4, we're manufacturing 13,148 tons. But for the sales side, we recognize the revenue we are selling in total is 11,780 tons I'm sorry, on the production side, the total is 16,200 and and 4 tons of which 81% is monosilicon, that's 13,147. But on the revenue recognized selling side is 13,291 tons, of which the monosilicates 11,780 tons is around 89% on the revenue recognized side. And for the multosilicate, it's 11%. So the ASP is $8.77 excluding the adding value tax. So for the mono SP is around $8.99 for the multi silica is around like 7 for the $0.10 I see, I see. Thank you. So my next question will be around our production cost. As you mentioned, we expect the full year production will be lower to $6 per kilogram, which is very, very low because in Chinese terms, it's going to be like 42, 43, basically the lowest in China. So if you assume the polar tariff with the Xinjiang government remains unchanged at 0.2. So would you mind to elaborate more details about how can we achieve around 15% year on year job to $6 production cost? Thank you. I think basically the production cost of goods sold I think continue to go down is favorable from the 4A project, 4A capacity running. Because of we reached the 4 in Q1, we'll reach the full capacity running to reach the scalability of economics. So I think a lot of cost were per kg where we per unit where we continue to go down. For example, like labor, without 4A, our people is around 1200 people. But right now, with 4A, we're only 18 I think it's 1800 people. We just added 600 people. Then also the capacity you see the 4A, the new capacity, the efficiency is higher. For example, per kg consumption of the utility, the power also is lower. It's around like 63 to 65 KWH, but compared with existing plants, it's around like 68 KWH. So all these will help. Of course, because of we I think full capacity running the 4A and we have a truck I think a power price from the based on the investment agreements with local I think the supply actually supply company. So I think all these add together, basically why is the efficiency, why is the scalability, Then also the energy side, the price, I think this will help us to continue to improve our costs. Thank you. Thank you, Mr. Zhang. My last question, as you mentioned in the PBTU side, we expect the 2020 China installation to be around 40 gigawatt, globally 140 gigawatt. So as you can see, the ongoing outbreak, which is especially out of China, is we don't know whether it will be out of control or not. So do you think there is going to be any downward revision risk to lower our global installation target to below 140 gigawatt? Thank you. I think for the whole industry, if you're talking about the final product module, I think China definitely will be I'm very optimistic. The reason is because for 2019, we still have like legacy projects now 15 gigawatts. First, the government right now is already starting to, I think, subsidize RMB1.5 billion, I think, scheduling to do in there. As you can see there, the bidding project is around 20 gigawatts and another RMB0.5 billion is for the residential distributed in our projects, 5 to 7 gigawatts. So basically, I think for the module side, China definitely, I think will reach 40 gigawatt, even let's say conservative to reduce to 35 gigawatt. But also, let's say for globally, because so lower module price today, for example, the module per watt right now selling globally right now only like $0.20 But the U. S. Because of tariffs maybe selling $0.45 $0.48 But we see a lot of you see above right now about 1 gigawatt this year, maybe more than 15 countries. So I think because of to reach grid parity, such a lower, I think cost, I think definitely the global market demand is hot. Of course, I think the global market maybe will be affected by the coronavirus epidemic to slow down a little. But I don't think that will be affect too much. That's first. Secondly, to us, we're manufacturing polysilicon. Major clients our major clients is the wafer. So basically, if you look at today in China, the wafer capacity expansion is all online right now, is a lot. I just mentioned that maybe by the end of this year, the weaver only just as the weaver mono weaver capacity maybe reached to I think around 150 kilowatts. So for this year, I say it should turn I think the demand for polysilicon is already light in there. I don't think that net is a module, demand and supply maybe should period in a factory aided, but the demand for polysilicon is strong. Then the supply side, I don't think any much is there. But of course, I think maybe other companies right now will invest money and continue to expansion on the polysilicon side. But polysilicon is chemical industry. You have to put a lot of capital into it. Then the construction period at least 1 year. So I think maybe by the middle of next year, maybe some new capacity will come in. So to me, I think within 1.5 year, definitely the polysilicon price will slightly go up. But I do not hope the polysilicon price go back to more than, let's say, dollars 12 per kg. That will be, I think, maybe stimulate some it's already closed down capacity, all the capacity come back. So basically to me I'm very optimistic on the price of the polysilicon especially for the mono quality polysilicon for this year. Okay. Thank you, management. That's all my questions. Okay. Thank you. The next question comes from Min Zhou of AllianceBernstein. Please go ahead. Hello. This is Min here from AllianceBernstein. Thank you so much for taking my question. And so I have three questions. The first one is a very quick follow-up on the point that you made that 90% of your order is already pre booked by the customer and 10% is leaving to the spot price. And my question is for the 90%, the price has already been set or is also based on the like real time market price? So that's the first one follow-up. And the second one, I want to hear from your perspective about the supply side. As you have mentioned that the overseas competitors there are accelerating the capacity exit. And we have seen like Korean makers, OCI and Hanwha, they have already announced that. And how about Wacker? And do you foresee them to like the market anytime soon? Or you think they still need to wait and see? So this is the number 2. And number 3 is on your cost side. So can you give us some updates about the electricity cost arrangement with the local government and also with the local power suppliers? Thank you. Okay. I think Ming, for your first question, I think maybe you're some misleading. We say we already signed long term contract today is around 72% for year. But we also have available potential renegotiation 3 clients. Maybe we will select 1 of them or 2 of them. So we will maybe we're assigned to 90% our full capacity, okay, because those long term countries, not only this year, maybe next year, so also extend to next year. So we will leave 10% cushion there. So is that first I'll answer your first question. Second question about the supply side, yes, because of the ASP continue to go down and a lot of producer, both China and abroad, today, basically, if the production line, I think, is small production line, capacity is small capacity line today, the cost is higher, it's not efficiency, plus the utility price. So basically, even China, last year maybe around 25 polysilicon producer is there. Right now, maybe only 13, but maybe only 5 right now producer is existing there. So I'm not commenting about other company. OCR already declared, I think they will shut down the Korea plants. But I'm not going to comment on Walker, because Walker is a good company. It's a very wonderful company. They have diversified business and definitely they are major technology and focus on the semiconductor. And for the solar silicon, I don't think maybe up to today, I don't think they have too much advantage on the cost and also the corded side. But I'm not going to forecast whether they're going to down or not, I don't know. I think for the third question, basically on the cost side, I just I think mentioned that we signed the contract with local, I think, grid supplier with confidential. But if you want to know exactly price, the utility price, you can see our announcements. I think filing with SEC, you can find out. I'm not going to have to say that in the conference. But definitely, I think the utility with our big investments and the contribution, the tax employee to the local city. And definitely, I think the local grid supply, the power supply gave us very attractive, I think, the power price. Thank you. Okay. Thank you. Thank you. The next question comes from Robin Zhao of CMBI. Please go ahead. Hi, management. I have two questions. The first one is regarding the monograde polysilicon supply. So given that the Korean player is exiting this market, So what do you see the overall supply volume of monograde product in China? And given if the price will bounce back at a very quick speed, say for example like Q3, it bounced back to $11 per kg. So do you think that Korean player will return to this business? I think Robin, to answer your question first question about the monosilicon, I think the quality, basically, the most important silicon import is polysilicon from abroad, major from OCI, Wacker in the history, majority of the I think 80% to 90% is the mono. I think used to mono wafer manufacturing, okay? In China, I think I'm not I think top of 5, maybe the monosilicon percentage around 60% to 90%, maybe new hopes is a little lower. But anyway, I think still is the technology know how or the quality. Some company maybe they can they still can increase the capacity of mono polysilicon, but they cost a lot. They need to consume more power. So basically, you have to at a lower cost produce the high quality products. So I think that's very competitive, I think. Then for to answer your question, this year, if you look at that, the whole demand, I think the end product module, let's say 140 gigawatts. So that's maybe around, I think for the mono side, I think the mono maybe more than 90%. So what I think for the mono silicon maybe need at least 350,000 tons to maybe I think 380,000 tons there. Then between the monosilicon and the multisilicon, actually sometimes it's a blur. The reason is because some company maybe will use our high good quality, I think, monosilicon then manning a small portion of multisilicon, okay. We don't know the downstream, okay. So basically, what I think the demand is there, is around like 350,000 to 400,000 tons of monosilicon. If you consider right now, if the OCI only Malaysia plant 20,000 tons there, and I cannot project right now at such price, dollars 8. $0.77 how much you walk with supply? And definitely, I don't know. But I think the demand and supply is there, okay? To answer your second question, whether the silicon price went back to $11 I don't think so. The reason is because I don't want to do that. I think maybe momentarily we go to $11 $12 but I still think the price can little stable between I think $9 to $9.50 to 10.50 dollars I think that's a reasonable I think for the industry to healthy and encourage the industry to put more on the put more money into it, improve technology, improve the quality, continue to expansion to meet the demand side. So basically, I don't think even let's say back at $11 $12 some company will come back. Definitely for the small capacity production line definitely will shut down for longer and forever. So only thing is maybe encourage you, some company maybe to speed up expansion, okay. So that's why we also were to certain time in the second half of this year, we will weigh all the facts when and where we're going to invest in our expansion of 4B. Thank you, Robin. Thank you, management. I still have one more question regarding about the pricing spread between mono and 1T grade product. So when do you see the spread will enlarge further in 2020? And in the long run, if there is limit demand for multi grade products. So would that be a cause instead of a product sales to your business? Okay. First of all, even like us, we today run Q1 maybe around 90% is mono. We still have some products is multi, okay. If you want to reach the 100% mono, your cost is a lot. It's not cost effective. Let's say even Wacker and Haya with most advanced technology, but they also have the multi silicon produced, okay? First to answer that question. Then as the industry continues to shift to mono, I think module, yes, definitely, I think still like around 90% is mono. Still have 10% at least 10% on the multi side. That's why because the multi silicon still the supply is still there, the price is lower, such lower, is around like $7 It's almost $2 difference there. So maybe the lower cost even though is not efficiency, but still have the market there, the niche market, for example, the rooftop, okay. So basically I say, you cannot eliminate all the multi silicon the multi poly module market. So you still have to have some products still there. The only thing is if let's say like us, if you the monosilicon percentage, okay, if below, let's say 60%, then if you look right now the price difference is there, the ASP will dramatically go down. So how can you profit, right? So your gross margin will be terrible. So you is not competitive in the industry. So if you in the top, you have to I think keep the high percentage of mono polysilicon at I think a reasonable cost effective lower cost level. Wami, does that answer your question? Yes, yes. Thank you. I have no more questions. I will pass on. This concludes our question and answer session. I would like to turn the conference back over to Kevin He for any 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.