Earnings Call: Q2 2018

Aug 7, 2018

Good day, and welcome to the Dracon New Energy Second Quarter 2018 Results Conference Call and Webcast. 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 Mr. Longgen Zhang, CEO Mr. Ming Yang, CFO and Mr. Kevin He, Investor Relations. Mr. He, please go ahead. Hello, everyone. I'm Kevin He, the Investor Relations of Daqinew Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the Q2 of 2018, which can be found on our website at www.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 Q2 of 2018. 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 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 or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today, and we undertake no duty to update such information except as required under applicable law. Also during the call, we will occasionally reference monetary amounts in U. S. Dollar terms. Please keep in mind 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. Hello, everyone, and thank you for joining us today for our earnings call. We remain confident in the long term sustainable growth of the polysilicon industry despite the impact by the new solar PV policies issued by the Chinese government on May 31, 2018. The new solar policies caused uncertainty in the domestic solar market and negatively impacted downstream demand in June. Leveraging our strong cash position and efficient corporate management, we maintained full production capacity and delayed shipments until demand returned in early July when ASPs stabilized. With our production facilities now running at full capacity and low inventory levels, we are reiterating our full year polysilicon production guidance of 22,000 to 23,000 metric tons. Visualization levels and demand from our downstream customers involved improved in July. According to the China Silicon Association, approximately 30-thirty 5 percent of China's domestic polysilicon production capacity has been shut down as those producers are unable to survive at the current market prices. With supply becoming increasingly restricted and demand gradually recovering, polysilicon ASPs recovered meaningfully in July amidst robust customer volume demand. Despite the challenging market environment in China, demand for solar PV products remains healthy and robust for the rest of the world. New emerging markets in Latin America and the Middle East are booming with growing demand. India, in particular, is expected to grow rapidly with grid parity approaching in many markets such as Europe and the U. S, the project developers are more aggressive in their bid. With solar end markets outside of China accounting for an increasing percentage of our downstream customers' shipments. According to industrial forecasts, global solar installations are expected to reach 95 to 105 gigawatts for 2018. With lower and more competitive PV prices, the global solar installation could reach 120 to 140 gigawatts in 2019 and 140 to 160 gigawatts in 2020. A darker new average, we are confident in the long term sustainable growth of the polysilicon industry and our ability to benefit from this growth by increasing our production capacity and improving our cost structure and polysilicon purity. I'm pleased with our performance in this quarter and our ability to remain flexible and rapid adapt our business to a challenging market environment. Production of monosilicon Production of monocrystalline type polysilicon increased to 70% during the quarter. Monotype polysilicon continued to enjoy a healthy premium and strong demand from our customers. EBITDA during the quarter was US31 $1,000,000 and we generated US67.1 million dollars in cash flow from operations during the first half of this year. We are one of the very few polysilicon producers able to continuously generate positive EBITDA, net income and operating cash flow in this challenged market environmental. In addition, we expect to complete our Phase 3B expansion project and start pilot production in the Q4 of 2018, which will increase our annual capacity to 30,000 metric tons and further reduce our polysilicon production cost by approximately $1 per Q1 kilogram across our entire production facility. We believe that demand for our high quality polysilicon products will continue to grow over the long term as solar PV is becoming increasingly cost competitive and less dependent on policies and subsidies. Our strong balance sheet, ample operating cash flow and newly added capacity coming online will help us to further solidify our position as the polysilicon manufacturing leader. Now I will give you outlook of our guidance. We will begin a scheduled maintenance shutdown for our Xinjiang polysilicon facility in September, which is expected to impact polysilicon production by approximately 2 to 3 weeks based on current maintenance plans. During this period, in addition to the scheduled annual maintenance work, we will also connect the newly constructed Phase 3B facility to its existing facilities, upgrade technology across all of its facilities and install various manufacturing efficiency projects. As such, we expect to produce approximately 4,100 metric tons to 4,300 metric tons of polysilicon and the sale approximately 5,900 metric tons to 6,100 metric tons of polysilicon to external customers during the Q3 of 2018. The above external sales guidance excludes shipments of polysilicon to be used internally by our Chongqing Solar Wafer Facility, which utilizes polysilicon for its wafer manufacturing operations. Wafer sales volume is expected to approximately 7,000,000 to 8,000,000 pieces for the Q3 of 2018. For the full year 2018, the company expects to produce approximately 22,000 metric tons to 23,000 metric tons of polysilicon inclusive of impact of our annual facility maintenance. This outlook reflects our current and preliminary view as of today and may be subject to change. Our ability to achieve this production is subject to risks and uncertainties. With that, I will turn the call over to our CFO, Ming, who will go over our financial data for this quarter. Ming, please go ahead. Thank you, Longgen, and good day, everyone. Thank you for joining our earnings conference call. Revenues were $57,000,000 compared to $103,300,000 in the Q1 of 2018 $76,000,000 in the Q2 of 2017. Revenues from polysilicon sales to external customers were $63,000,000 compared to $95,600,000 in the Q1 of 20 18 $61,100,000 in the Q2 of 2017. Exane polysilicon sales volume was 3,881 metric ton compared to 5,411 metric ton in the Q1 of 2018 and 4,497 metric ton in the Q2 of 2017. The decrease in revenue from polysilicon was primarily due to lower polysilicon silicon sodium and lower ASPs. Revenue from wafer sales were $4,000,000 compared to $7,600,000 in the Q1 of 2018 and $14,900,000 in the Q2 of 2017. Fit for sales volume was 9,800,000 pieces compared to 13,300,000 pieces in the Q1 of 2018 and 27,000,000 pieces in the Q2 of 2017. The sequential decrease in revenues from wafer sales was primarily due to lower sales volume and lower ASPs. Gross profit was approximately $27,200,000 compared to $46,200,000 in the Q1 of 20 $24,200,000 in the Q2 of 2017. Non GAAP gross profit, which excludes costs related to the non operational polysilicon assets in Chongqing, was approximately 27,600,000 dollars compared to $46,600,000 in the Q1 of 2018 $24,800,000 in the Q2 of 2017. Gross margin was 40.6% compared to 44.8% in the Q1 of 2018 and 31.9% in the Q2 of 2017. The sequential decrease was primarily due to a decrease in ASP, which was partially offset by a decrease in average polysilicon production costs. In the Q2 of 2018, total costs related to the nonoperational Chongqing Polysecond assets, including depreciation, were $400,000 compared to $400,000 in the Q1 of 2018 $500,000 in the Q2 of 2017. Excluding such costs, non GAAP gross margin was approximately 41.2% compared to 45.2% in the Q1 of 2018 and 32.6% in the Q2 of 2017. Selling, general and administrative expenses were $7,800,000 compared to $4,800,000 in the Q1 of 2018 and $4,500,000 in the Q2 of 2017. The increase in SG and A expenses was primarily due to the increase of noncash share based compensation costs related to the company's 2018 share incentive plan, which in aggregate increased our noncash share based compensation expense by approximately $3,500,000 for the same quarter compared to the Q1. We expect to be at similar levels of share based compensation expense for Q2 in Q4. R and D expenses were approximately $200,000 compared to $100,000 in the Q1 of 2017 and $300,000 in the Q2 of 2017. Research and development expenses can vary from period to period and reflect R and D activities that took place during each period. Other operating income was $1,900,000 compared to $400,000 in the Q1 of 2018 and $800,000 in the Q2 of 2017. Other operating income mainly consists of unrestricted cash and expenses that the company receives from local government authorities, the amount of which varies from period to period. Operating income was $25,000,000 compared to $41,700,000 in the Q2 of 2018 $20,200,000 in the Q2 of 2017. Operating margin was 31.4% compared to 40.4% in the Q1 of 2017 and 26.6% in the Q2 of 2017. Interest expense was $3,500,000 compared to $4,100,000 in the Q1 of 2018 $5,300,000 in the Q2 of 2017. EBITDA was $31,000,000 and 29.20 percent. Net margin was 46.3 percent compared to 50% in the Q1 of 2018 and 39.2% in the Q2 of 2017. Net income attributable to Daqo New Energy shareholders was $13,400,000 compared to $31,600,000 in the Q1 of 2018 and $4,100,000 in the Q2 of 2017. Earnings per basic ADS were $1.06 compared to $2.91 in the Q1 of 2018 and $1.15 in the Q2 of 2017. Non GAAP net income attributable to Daqo New Energy shareholders were $18,200,000 in Q2 2018 compared to $30,900,000 in the Q1 of 2018 $13,800,000 in the Q2 of 2017. Non GAAP earnings per basic ADS were $1.44 in the Q2 of 2018 compared to $3.03 in the Q1 of 2018 and $1.31 in the Q2 of 2017. Now for the company's balance sheet. As of June 30, 2018, the company had $179,300,000 in cash, cash equivalents and restricted cash compared to $83,000,000 as of March 31, 2018. In addition to the proceeds from our follow on offering in April, company also received more than $30,000,000 of customer prepayments during the quarter. As of June 30, 2018, the account to full balance was 3,300,000 dollars to $2,000,000 as of March 31, 2018. We remain very prudent with our ARR policy, and our account receivable balance remained at very low levels. As of June 30, 2018, banknotes receivable balance was $19,300,000 compared to $49,700,000 as of March 31, 2018. As of June 30, 2018, total bank borrowings were 196,000,000 dollars of which $93,000,000 were long term bank borrowings compared to total bank borrowings of $218,000,000 including $108,000,000 of long term bank borrowings as of March 31, 2018. In April 2018, the company issued 2,000,64,379 ADSs, representing $51,600,000 ordinary shares through a follow on at $55 per ADS. The proceeds, net of underwriting commission and insurance costs, were $106,600,000 For the 6 months ended June 30, 2018, net cash provided by operating activities was $67,100,000 compared to 70 percent in the same period of 2017. The decrease was primarily due to an increase in inventory balance as well as payments of tax expense due to local government authority tax increase. For the 6 months ended June 30, 2018, net cash used in investment activities was $52,500,000 compared to $32,900,000 in the same period of 2017. Net cash used in investing activities in the first half of twenty eighteen and twenty seventeen was primarily related to the capital expenditures on the Xinjiang polysilicon project. The company currently anticipates capital expenditures for the full year to be approximately $120,000,000 to 130,000,000 dollars primarily related to our Phase IIIB expansion project and technology upgrades. For the 6 months ended June 30, 2018, net cash provided by financing activities was $93,200,000 compared to net cash used by financing activities of $23,400,000 in the same period of 2017. The increase was primarily due to net proceeds from follow on offering. This concludes our prepared remarks. We would like now to turn the call over to the operator to begin the Q and A session. Operator, please begin. Thank you. You. The first question is from the line of Philip Shen with ROTH Capital Partners. Please go ahead. Hi, everyone. Thank you for the questions. I'd like to start with your outlook on pricing. As we've seen pricing stabilize in the recent weeks with some poly pricing even being higher week over week. With the capacity that's shut down for maintenance throughout the industry, I think you talked about 30% to 35%. It seems like it's stable. So can you give us your outlook for pricing, maybe your average ASP you expect for Q3 and possibly for Q4? Thank you. Thank you. I think it should be good morning for you. Okay. To answer your question, first of all, I think because of the new policy we call 531 531 policy, we call. I think the pricing fluctuation in June really, I think, cannot represent any meaning because didn't have any trading there. So basically, we also have inventory because the lowest price is go to and renminbi is go to like a multi silicon go to 70, even lower go to 80 lemb per kg. So actually we didn't ship or sell any contract in June. So that's why we have the inventory by the end of the quarter, we have 2,000, I think 115 tons there. Then I think the price still the market is digested, I think, of the policy then come back early July. So basically, we're starting selling. Early July, the price go to monosilicon around like 93 and a multi is around 82, 83. So we're starting to selling the inventory. So basically today, we sold all the inventory today. And the price today, monosilicon is around 95, 96, too. And the multi is around 85 to 86 per kg. And to forecast, I think basically what I want to say is based on today's price structure, actually if you look at the mono and the multi, the average price still is around like $90 So basically, their price for the import poly, actually, their cash cost is above that, Frank speaking. So I think right now, to end of the year, I don't think the Chinese market will dramatically come back. Definitely, I think Chinese market is bigger potentially I think than projected figure. The reason because we see a lot of DG projects without any subsidized and still installation there because of module price continue to go down. So what I suggest forecast to end of the year, I think a silicon price should be between $95 to $105 I don't think we're about $110 So that's if you ask me for monosilicon. For the multi, I think maybe by the end of the year, maybe from 85 to 95. Great. That's really helpful. Thank you, Wengen. So let's shift gears to utilization. I know you guys are operating basically at 100% utilization. And even when you weren't selling in June, I think you were still operating very close to 100% utilization. But certainly the industry was not doing that. So how do you expect the capacity that's shut down for maintenance to evolve? So for example, do you expect that capacity to come back online at the pricing that you expect? Would you expect it to be permanently shut down? And then finally for your maintenance, I think you're doing 2 to 3 weeks in Q3. Sometimes in the past, you've split your maintenance between 1 quarter and another. Do you expect any maintenance in Q4 as well? Okay. To answer your question, first of all, what I think at this moment, because the price is somewhat lower, everybody take a chance to, I think, doing the maintenance. But some small player maybe take an excuse, maybe they're starting maintenance, maybe never come back, okay? So but definitely I think some bigger player, definitely I think it will come back like Tongwei, like TVEA. I don't think like Tongwei as I know, they just finished I think millions in RUSAN, then come back starting production again. And the TBA is starting maintenance I think this month, but I think that's where we come back. To that, because this year we have to shut down 2 weeks, maybe 3 weeks. The reason is because the 3B expansion will connect to our existing facilities. So definitely, I think it will take 2 to 3 weeks shutdown, then we come back. And we were starting trial production of 3B in Q4. So definitely, I think, hopefully, we can everything is mostly and to reach the design capacity of 30,000 tenants. Okay, great. And then shifting to the cost structure, I think your cost structure in Q, cash cost in Q2 was $7.43 I think you said in your prepared remarks or your release that once you're fully ramped up on to 30,000 metric tons, then your production cost comes down by $1 per kilogram. So is it fair to say, let's say, you're at $7.43 now, you make modest improvements in Q3 and Q4 and then throughout the full year 2019, your cash costs can be close to $6.50 Is that the right way of thinking about your cash cost structure? Thanks. Yes, I think so, because as far as we're starting trial production, basically, I think, 1st of all, 3b, we're adding additional 13,000 tons annual capacity. Then the electric cost will drop to I think $0.24 per kwh. Then in time, okay, our quality of products also will increase. So basically, I think per kg consumption, the adjusted will go down. So average, if the 3b we finished the 3b, so average the consumption, 68 KWH per kg. So we're lower. Right now, we are around 75 KWH per kg. So definitely, I think the you I think a figure for the cash cost is correct. Great. And then shifting to your some of your customer activity or just customer activity in general. Recently, we saw Longxi announced a new long term poly supply agreement with TBA. They announced one with you a few months ago. When do you expect to we were surprised to see that because of the downturn in the market. They still want to lock in long term pricing or long term supply agreements. So it's interesting and we think it's a positive. But what do you when do you expect to possibly secure your next long term agreement? Do you think it's actually possible? Or do you think we should not expect any more near term? Basically, first of all, I think talk about the LONGi signed the contract with TBA. I think basically if you look at LONGi by 2020, their capacity is 45 gigawatts. Their total consumption is around, I think, 170,000 tons, purely in the monosilicon. So even though they signed contract with OCI with us, with Tongwei, even with the TBA, they still want to sign more contract with me, because it's waiting for my 4A extension can be smoothly. So it may be possible to sign another contract by the end of the year, okay? So first of all, to let you know. 2nd for us, we signed one long term contract with Longy. Then we also talked to right now, 3 more clients right now. I think one of the clients we're working on there is almost I think it's on time it's going up. We're pretty soon I think it'll come out. So those long term contracts help us I think lock the downstream clients as one side. Another side is the culture we find, actually we I think it takes the advanced payments and a higher percentage of advanced payments, at least 5%. So that's what also help us on the expansion side to help us financing the projects. Great. One final question, I'll pass it on. As it relates to, I think in the PowerPoint, you had commentary about selling into the semiconductor markets. I think in the recent quarters, you guys have been deemphasizing either selling or being exposed to the semiconductor market in China. Has there been a shift in your thinking at all? Is that something that you want to pursue now perhaps to diversify the end markets for your polysilicon? What's the latest on semiconductor? I think you're looking for other opportunities. We're always working on that. And especially today's scenario, you know that China, especially the government is encouraged to do any try on the semiconductor side. Basically, we have the ability to produce semiconductor products, you see. But that's a long term, I think, strategic policy. The reason is because you have to it's not only just you produce a polysilicon, but also you have to working with downstream other company to working together. So it's not very easy. Semiconductor industry is different from the solid industry. So that's only can tell you it takes time for us, I think, to do that. Okay. Longgen, thank you very much, and I'll pass it on. Thank you. Thanks, This concludes our question and answer session. I would like to turn the conference back over to Mr. He for any closing remarks. Thank you. Thank you, everyone, again for We have one follow-up question from Mr. Philip Shen. Do we have time to take this follow-up question? Yes, sure, please. Okay, thank you. Let me announce Mr. Chen. Mr. Chen from ROTH Capital Partners. Please go ahead once again. Hi. Thanks again for the questions. As it relates to your wafer business, can you talk about what the future plan and what the latest thinking is for wafer? I know you reduced the outputs in the guidance for both the Q2 pre announcement as well as the Q3 guide. But at some point earlier this year, Longgen, I think you talked about considering alternative options there. Should we continue to expect the $7,000,000 to $8,000,000 pieces in Q4 and beyond? Or do you think we should start thinking about winding down that business? Okay. I think that's a good question, also a challenging question. I think current market situation is very challenging for our waiver business. Basically, I think we are going have a strategy review our waiver business. Basically, the shipments you can see there, we just go ahead and clean all the inventory. The ingots were produced, we're going to cut into the waiver to selling. So we were after we, I think, make a decision, we will announce that separately about the restructuring plans. Okay, okay. Good. Thanks for that. And then let me see. Let's see. I think you mentioned that people that China's demand may not be as low as people think. I'm thinking consensus expectations is about 35 gigawatts for China for full year 20 18. Do you think the risk is to the high side there, maybe it's 40% or what is the number that you think is more realistic for China in 2018? And then what do you expect for 2019? Okay. If you look at the whole policy, come out, the reason is I think is because last year in solar industry especially downstream because of diamond cutting plus per cap knowledge, One side is reduce the cost, another side is increase the conversion efficiency rate. So the current Chinese, I think the subsidized policy is 2 which to encourage those people to expansion the downstream projects with the IRR without leverage above 15%. So that's why last year, original target maybe, planning is 25 gigawatts, finally coming up 53 gigawatts. For the government, it's not too much it didn't have that much money to cover almost double the capacity on the downstream projects. So that's why the policy come out. The policy come out is little, I think, strategy is little strange because he should continue to be cutting the subsidized dramatically, But he didn't do that, only cut a $0.05 per KWH. In the meantime, he used, I think, a non market method to control. You see no more, I think, in the top line of projects. That's wrong, because you cannot stop the projects without any subsidized, especially I think today in Beijing in Eastern Coast area, the cost dramatic like even rooftop, the tenants are rooftop only like a cost total installation cost is around like RMB3.5 per watt per W per watt. So basically you see you can generate in Beijing per watt you can generate per year, you can generate 1.5 KWH. Even if based on $0.35 $0.76 per KWH, the core standard, the outline, the fee, you still retain is high calculation, right? So you're almost like a $0.60 in total investment only $0.03 So we see potential right now in Beijing, in Jiangsu, in Zhejiang, a lot of right now the rural area in store right now the rooftop, the solar system. So that's why I see their potential there. That is not only just the solar industry, but also you see for the environmental issue and also for the rural area, solve the labor the employment. So all these add together, I see potential is there. So what I'm thinking is definitely I think this year in China maybe we'll reach 40 gigawatts even to 45 gigawatts. Especially I think DG is not like people thinking only let's say the power improvements only 4.5 gigawatts then the DG second half is 9.5 gigawatts. I don't think so. It should be higher. That's my personal review, okay? Philip? Mr. Shen, are you finished with your questions? Thanks for your view on that for 2018. And what's your view on 2019? 2019, I think China, therefore, I think we issued new policy. I think that policy will update to the last policy. I think it dramatically reduced the subsidized, at least cutting 1 third, then move away that move away. I think open the door, you can install whatever you can without any subsidized. I think that's why I think next year China definitely was back to 45 to 50 gigawatt. Okay. And of that 50 ish gigawatts, how much of that do you think is unsubsidized? Do you think as much as half? What I think is subsidized is maybe around 35 gigawatts. Okay. Okay. And the rest would be unsubsidized. That's great. Thanks for the view there. But also how do you think about that, Philip? Because if he cut half 1 third of the subsidized, total amount still there, he can cover more projects. You see what I'm saying? Chinese government should be doing that because they also aware that cutting the subsidies within 3 years to the 4th year without any subsidized. So on the cutting the subsidized roadmap, you see, I think I don't think the total the projects, I think the subsidized projects will go down, actually should go up because you subsidize it lower, you see, less. It should say total amount is fixed. Right. I wonder if for the new subsidy in the new subsidy or process, especially for traditional utility scale, if they will limit the auction. So what do you expect the structure of the traditional utility scale auctions to be? Will they cap it on an annual basis? Or how do you expect the process to work? That mechanism, I think right now, everybody is gambling on that. I think for from industry, okay, we are willing to be open to bidding, whatever just open to bidding. I think whatever you can do as they're cost effective, then you just got the projects. I think they definitely will go there. Okay. One last question here. Earlier, we were talking about the industry evolution and you said many small players will never come back. Can you estimate how much in terms of metric tons of capacity will not come back? Okay. If you look, I think China last year, the total manufacturing, whatever, I think the consumption produced the sale around 300,000 tons, okay? I think of which the low cost maybe around I think right now, country, I think around like what I'm thinking is 100,000 tons. So 200,000 tons definitely is going to, I think, wipe out. The only thing is timing. And maybe some people still is bleeding, they're still running. But you have to consider new capacity coming, okay, like 130,000 tons, like Tongwei, 2 plants is going to maybe trial production. So the new capacity is adding. So what I'm thinking is, yes, the older capacity definitely I think 2 thirds will be wipe out the new capacity come in. By the I think end of next year, definitely I think the lower cost the Chinese producer should be around 300,000 tons. Really helpful. What I say is lower cost, should be below $9 per kg. Okay. That's really helpful. Thank you, Longgen. And I'll pass it on again. Okay. Thanks, This concludes our question. I apologize. There's one more question from the line of Mike Tempero with Cavallari. Please go ahead. Hi, thank you for taking the question. Sam, I just had one question on the point you were making earlier about the unsubsidized demand. Who will do who will be willing to take the financial risk for power plants that are selling into the merchant market? How do they get comfortable with the grid power price, the stability of the grid power price as opposed to a fixed subsidy? Okay. I think, Mike, I think your question is good. I think the reason is because, okay, if you look at China after the May 31 policy come out, immediately, I think the issue other regulations to the local governments, encourage them to continue to do whatever they're already doing, okay. For example, like Guangzhou province, like Zhejiang province, like Beijing province, the city, the provincial subsidized them cutting. For example, like Beijing. Beijing city subsidized the rooftop is $0.40 per kwh even some district area and another $0.30 for 5 years. So those literally cutting, they're still there. So I think that will encourage people continue to install. So that's why in Beijing area this year, it's a lot of right now, the rooftop is installation there, as I was told. So basically, if you look at that Rooftop, if you're right, the conversion, I think, yesterday, all those I think other stuff was selling, you can see that I think they're working on that. So even without any subsidized, you consider that. Today, the cost is dramatically down. If road top, the install cost per KW Edge only point 5 rmb. If per KWH can generate 1.5 kwh, that's almost without any subsidized, it's $0.60 give to you. The government is not government, the state grid give to you. So think about the returns, right? The returns also is higher. Yes, Mike. So basically in this unsubsidized environment, you actually would generally just sell power to the state grid, which actually is a pretty high quality credit. And the amount of power you generate every month is settled via payment from the state grid. Then Michael, I think let me answer your question. Who is the funding? Right now, as soon as we finish it like Beijing area, Jiangsu area, those are off top. If you can sizable, let's say, 10 gigawatt 10 megawatt, 20 gigawatt, a lot of people like to buy, okay. Asia company, some funds because the returns are high, it's stable without any subsidized because the grid is giving you the money. And then the local governments didn't like central governments you see because central government is solar funds, they delay. But those local governments will pay you by half semi half year, maybe one month delay. They pay you immediately. Right. So it's a good credit. Now on your point about you expect the next policy to have a big cut in the subsidy. Do you think it's just at the national level or both at the national level and the provincial level? Or maybe it's too early to say? I think first of all, national level should come out first, then the local level will be followed. Okay. Okay. Very good. Thank you. That's very helpful. Great. Thanks, Mike. Thank you, Mike. This concludes our question and answer session. I would like to turn the conference back over to Mr. Heave for any closing remarks. Thank you. 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.