Good day, and welcome to the Daqo New Energy fourth quarter and fiscal year 2017 results conference call. All partcipants will be in listen-only mode. Should you need assistance please signal the conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your touch-tone phone. To withdraw your question please press star then two. 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 fourth quarter and the fiscal year results of 2017, 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 our Chief Executive Officer, Mr. Longgen Zhang, and Mr. Ming Yang, 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 fourth quarter and the fiscal year of 2017. After that, we will open the floor to Q&A from the audience.
Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward-looking statements that are made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those containing any forward-looking 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 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 US dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into US dollars solely for the convenience of the audience. Without further ado, I now turn the call to our CEO, Mr. Zhang, please.
Thank you, Kevin. Good evening and good morning, everyone. The fourth quarter of 2017 was an excellent quarter for Daqo New Energy in terms of both operational and financial performance, which concluded our fiscal year of 2017 as the best year in the company's history. I would like to thank our entire team for their hard work and dedication for delivering such an outstanding performance. Despite the annual maintenance of our facilities and its impact on our operations during the quarter, we were able to produce 5,339 metric tons of polysilicon during the quarter, a new record for the company. This was a direct result of our continuing focus on improving operational efficiency and maximizing overall output.
Demand for our high-quality polysilicon products remained strong, allowing us to sell a record high of 4,730 metric tons of polysilicon during the quarter to external customers while generating total revenue of $103.7 million, an increase of 16% sequentially and 125% year-over-year. During the fourth quarter, the company generated $33.7 million in net income attributable to Daqo New Energy shareholders and $53.6 million in EBITDA, with an EBITDA margin of 51.7%. The fourth quarter earnings per basic ADS were $3.16, an increase of 38.6% from $2.28 in the prior quarter and up 710.3% from fourth quarter of 2016.
2017 was the strongest year in the company's history. We produced 20,200 metric tons of polysilicon throughout the year, 12.2% more than our nameplate capacity of 18,000 metric tons. Our financial performance in 2017 was significantly better than in 2016, with revenues of $352.9 million U.S. dollar, EBITDA of $167.5 million, net income attributable to Daqo New Energy shareholders of $92.8 million, and net cash provided by operating activities of $142.7 million, while we are in the capital-intensive industry.
Our debt ratio improved to a healthy level of 47.3% by the end of the year 2017, compared to 58.6% at the end of the year 2016, which further strengthened our competitive positioning in the market. Our focus throughout the quarter and going into 2018 remains reducing costs. Having successfully completed an annual maintenance of our facilities in October 2017, we resumed production with improved manufacturing efficiency, while average polysilicon production costs increased sequentially during the quarter, primarily due to higher raw materials prices and the impact of an appreciation of renminbi. Our two biggest polysilicon manufacturing cost components, unit electricity consumption and unit silicon metal consumption, hit their lowest levels ever in December 2017.
We are already working on several additional technological improvements that we expect will further reduce our costs in 2018. We are also devoting increasing resources to R&D and quality improvement. We continue to improve our front-end manufacturing process and post-production handling techniques to reduce impurities. This resulted in record levels of production for both electronic-grade polysilicon and monocrystalline-grade polysilicon in January 2018. We are pleased with this achievement and believe it demonstrates the strength and effectiveness of our overall strategy, and is another step towards becoming the leading supplier of electronic-grade and monocrystalline-grade polysilicon in China. In 2017, approximately 100 GW of solar PV panels were installed globally. China continued to rank as the leading solar PV market in the world, with total installations of approximately 53 GW.
The U.S., India, and Japan rank as another top solar markets globally in 2017. According to the latest solar PV market reports, we expect to see lower double-digit installation growth globally in 2018, with growth expected to pick up further in 2019. In addition, we are seeing rapid growth in demand for high-efficiency monocrystalline wafers, as well as continued growth in demand for ultra-high-purity monocrystalline-grade polysilicon, which only very few Chinese producers are able to produce. Demand for high purity polysilicon products continues to be strong. We will continue to improve the quality of our polysilicon products and expect to increase production levels of polysilicon for mono wafers applications. We completed the foundation and initial preparation work for our phase III-B capacity expansion project during the quarter. Facility design and equipment procurement are progressing well and on schedule.
With strong customer demand for our high-quality polysilicon products, we are planning to accelerate the construction pace so that we can begin production sooner. We expect to complete the entire phase III-B project and begin pilot production in the first half of year 2019, and reach full capacity of 30,000 metric tons by mid-2019. With the newly added capacity and our competitive advantages in polysilicon quality and production costs, we are strengthening our polysilicon manufacturing leadership position and are confident in our ability to meet growing demand and create additional value for our shareholders. Outlook and guidance.
The company expects to produce approximately 5,300 metric tons - 5,500 metric tons of polysilicon and sell approximately 4,900 metric tons - 5,100 metric tons of polysilicon to external customers during the first quarter of 2018. The above external sales guidance excludes shipments of polysilicon to be used internally by the company's Chongqing solar wafer facility, which utilizes polysilicon for its wafer manufacturing operation. Wafer sales volume is expected to be approximately 15 million - 20 million pieces for the first quarter of 2018. For the full-year of 2018, the company expects to produce approximately 22,000 metric tons- 23,000 metric tons of polysilicon inclusive of the impact of our annual facility maintenance.
Now, I would like to turn the call to our CFO, Mr. Ming Yang, for financial updates.
Thank you, Longgen, and good day, everyone. We appreciate your interest in the company. Revenues were $103.7 million in the fourth quarter, compared to $89.4 million in the third quarter of 2017 and $46.1 million in the fourth quarter of 2016. Revenues from polysilicon sales to external customers were $89.8 million, compared to $72.9 million in the third quarter of 2017 and $32.8 million in the fourth quarter of 2016. External polysilicon sales volume was 4,730 metric ton, compared to 4,500 metric ton in the third quarter of 2017 and 2,209 metric ton in the fourth quarter of 2016.
The sequential increase in polysilicon revenue was primarily due to higher polysilicon sales volume and higher ASPs. Revenues from wafer sales were CNY 13.9 million, compared to CNY 16.5 million in the third quarter of 2017. Wafer sales volume was 22.3 million pieces, compared to 26.4 million pieces in the third quarter of 2017. Wafer volume during the quarter was impacted by our upgrade of wafer slicing equipment as we upgraded our entire wafer facility from formerly slurry-based wire saw cutting to now diamond wire saw cutting, and we had experienced some initial ramp-up issues. However, we're seeing meaningful decline of wafer processing costs after the upgrade, and our non-silicon wafer processing cost is expected to decline by approximately 25% after the equipment upgrade is complete.
Gross profit was approximately CNY 46.9 million, compared to CNY 36.4 million in the third quarter of 2017 and CNY 14.2 million in the fourth quarter of 2016. Non-GAAP gross profit, which includes costs related to the non-operational polysilicon assets in Chongqing, was approximately CNY 47.3 million, compared to CNY 36.9 million in the third quarter of 2017 and CNY 15.8 million in the fourth quarter of 2016. Gross margin was 45.2% compared to 40.8% in the third quarter of 2017. The sequential increase in gross margin was primarily due to higher quarterly polysilicon and selling prices, offset by slightly higher polysilicon production costs, affected by a cost increase in raw material and R&D depreciation.
In the fourth quarter of 2017, total costs related to the non-operational Chongqing polysilicon assets, including depreciation, were $0.4 million, compared to $0.5 million in the third quarter of 2017 and $1.6 million in the fourth quarter of 2016. The decrease in such costs was due to relocation of the idle equipment from the company's Chongqing polysilicon plant to Xinjiang polysilicon plant. Excluding such costs, the non-GAAP gross margin was approximately 45.6% compared to 41.3% in the third quarter of 2017. Selling, general, and administrative expenses were $4.7 million, compared to $4.4 million in the third quarter of 2017.
R&D expenses were approximately CNY 0.1 million, compared to CNY 0.1 million in the third quarter of 2017 and CNY 2.8 million in the fourth quarter of 2016. R&D expenses could vary from period to period and reflected R&D activities that took place during the quarter. Other operating income was CNY 4.4 million, compared to CNY 0.8 million in the third quarter of 2017 and CNY 1.9 million in the fourth quarter of 2016. Other operating income was mainly composed of unrestricted cash incentives that the company received from local government authorities, the amount of which varies from period to period. The company recognized $3 million and CNY 0.2 million of fixed asset impairment loss for its Chongqing polysilicon facilities in the fourth quarter of 2017 and 2016, respectively.
The company has relocated and will continue to relocate some of the company's temporarily idle polysilicon machinery and equipment in Chongqing to the company's Xinjiang polysilicon manufacturing plant. However, after further evaluation, some assets were identified as non-transferable and/or not able to be re-utilized by our Xinjiang polysilicon manufacturing or expansion projects. Thus, such assets were recorded as an impairment loss of long-lived assets. This is a non-cash impairment charge and had a negative impact of $3 million on net income and $0.28 on earnings per ADS for the fourth quarter and full-year 2017. Operating income was $43.6 million, compared to $32.8 million in the third quarter of 2017 and $9.6 million in the fourth quarter of 2016.
Operating margin was 42% compared to 36.7% in the third quarter of 2017 and 20.7% in the fourth quarter of 2016. Interest expense was CNY 4.1 million compared to CNY 4.3 million in the third quarter of 2017 and CNY 4.1 million in the fourth quarter of 2016. EBITDA was CNY 53.6 million compared to CNY 42.3 million in the third quarter of 2017 and CNY 17.6 million in the fourth quarter of 2016. EBITDA margin was 51.7% compared to 47.4% in the third quarter of 2017 and 38.3% in the fourth quarter of 2016.
Net income attributable to Daqo New Energy Corp. shareholders was $33.7 million, compared to $24.1 million in the third quarter of 2017 and $4.1 million in the fourth quarter of 2016. Earnings per basic ADS was $3.16 compared to $2.28 in the third quarter of 2017 and $0.39 in the fourth quarter of 2016. As of December 31, 2017, the company had $72.7 million in cash and cash equivalents and restricted cash compared to $61.6 million as of September 30, 2017, and $31.9 million as of December 31st, 2016.
As of December 31st, 2017, the accounts receivable balance was $3 million compared to $4.6 million as of September 30th, 2017, and $4.8 million as of December 31st, 2016. As of December 31st, 2017, the notes receivable balance was $27.3 million compared to $25.3 million as of September 30th, 2017, and $13 million as of December 31st, 2016.
As of December 31st, 2017, total borrowings were CNY 212.9 million, of which CNY 113.6 million were long-term borrowings, and compared to total borrowings of CNY 216.8 million, including CNY 119.3 million of long-term borrowings as of September 30th, 2017, and total borrowings of CNY 217.9 million, including CNY 111.9 million of long-term borrowings as of December 31st, 2016. For the 12 months ended December 31st, 2017, net cash provided by operating activities was CNY 142.7 million, an increase of 44.6% from CNY 98.7 million in the same period, 2016. The increase was primarily due to the improved profitability of our polysilicon segment.
For the 12 months ended December 31st, 2017, net cash used in investing activities was CNY 63.1 million compared to CNY 66.1 million in the same period, 2016. The net cash used in investing activities in 2017 and 2016 was primarily related to the capital expenditure of our Xinjiang phase III- A polysilicon project. For the 12 months ended December 31st, 2017, net cash used in financing activities was CNY 37.4 million compared to CNY 30.3 million in the same period of 2016. Net cash used in financing activities in 2017 and 2016 primarily consisted of repayments of related party loans and bank borrowings. Now we'll provide a summary of our full-year 2017 results.
For the year of 2017, revenues were CNY 352.9 million, an increase of 54% from CNY 229 million in 2016. Revenues from polysilicon sales to external customers were CNY 294 million in 2017, an increase of 75.5% from CNY 167.5 million in 2016. During the first quarter of 2017, we fully ramped up our Xinjiang polysilicon facility to 18,000 metric tons of annual nameplate capacity and achieved full production. Our annual polysilicon production volume increased by 54.6% from 13,068 metric tons in 2016 to 20,200 metric tons in 2017.
Our external polysilicon sales volume increased as a result, by 64.9% from 10,883 metric tons in 2016 to 17,950 metric tons in 2017. In addition, our polysilicon ASPs also improved from $15.42 per kilogram in 2016 to $16.41 per kilogram in 2017. Revenues from wafer sales were $58.8 million in 2017 compared to $61.6 million in 2016. Wafer sales volume was 98 million pieces, an increase of 18.4% from 82.8 million pieces in 2016. The decrease in wafer revenue as compared to 2016 was primarily due to lower wafer ASPs.
Gross profit was CNY 143.5 million in 2017, an increase of 77.4% from CNY 80.4 million in 2016. Gross margin was 40.7% in 2016, increase from 35.1% in 2016. Improvement in gross profit and gross margin primarily attributable to our polysilicon segment. Gross profit of the company's polysilicon segment, excluding costs related to the Chongqing idle polysilicon facilities, was CNY 143 million in 2017, an increase of 83% from CNY 78.2 million in 2016. Gross margin of the company polysilicon segment was 48.7%, increase from 46.7% in 2016.
The increase in polysilicon gross profit and gross margin, excluding costs related to the Chongqing idle polysilicon facility, was primarily due to higher sales volume, higher ASPs, and improvement in polysilicon cost structure. The company sold 17,950 metric tons of poly to external customers in 2017, an increase of 65% from 10,883 metric tons in 2016. The company's annual average polysilicon production cost, including depreciation, decreased by 4.2% from $9.23 per kg in 2016 to $8.84 per kg in 2017. Gross profit of our wafer segment was $2.8 million in 2017, a decrease from $9.2 million in 2016.
Gross margin of our wafer segment was 4.7% in 2017 as compared to 15% in 2016. The decrease in wafer gross profit and gross margin was primarily due to lower wafer ASPs, despite lower average manufacturing costs compared to 2016. Total costs related to non-operational Chongqing polysilicon plant, including depreciation, were $2.4 million in 2017, a decrease from $6.9 million in 2016. The decrease was due to relocation of idle equipment from the company's Chongqing polysilicon plant to Xinjiang polysilicon plant. Excluding such costs, non-GAAP gross margin was approximately 41.4% in 2017, an increase from 38.1% in 2016. SG&A expenses were $17.7 million in 2017 compared to $16.1 million in 2016.
The increase in SG&A expenses was primarily due to increased shipping costs as a result of higher polysilicon sales volume. Total R&D expenses were $0.9 million in 2017 compared to $4 million in 2016. R&D expenses vary from period to period, reflecting the R&D activities that took place during such period. Other operating income was $6.8 million in 2017 compared to $5.3 million in 2016, which primarily consisted of unrestricted cash incentives that the company received from local government authorities, which vary from period to period at the discretion of the government. Operating income was $128.7 million in 2017, an increase of 96.7% from $65.4 million in 2016. Operating margin was 36.5% in 2017, increasing from 28.6% in 2016.
Interest expense was $18 million in 2017 compared to $14.6 million in 2016. Income tax expenses were $17.3 million in 2017 compared to $7.4 million in 2016. Net income attributable to Daqo New Energy Corp shareholders were $92.8 million in 2017, an increase of 113.5% from $43.5 million in 2016. Earnings per basic ADS were $8.76 in 2017, an increase of 111.1% from $4.15 in 2016. Adjusted net income attributable to Daqo New Energy Corp shareholders was $99.5 million in 2017, an increase of 87.3% from $53.1 million in 2016.
Adjusted earnings per basic ADS were $9.38 in 2017, an increase of 85% from $5.07 in 2016. That concludes the official part of our presentation. Now we'll have the Q&A session.
We will now begin the question- and- answer session. To ask a question you may press star then one on your touch-tone phone. If you are using a speaker phone please pick up your handset before pressing the keys. To withdraw your question please press star then two. At this time we will pause momentarily to assemble our roster. The first question comes from Philip Shen of Roth Capital Partners. Please go ahead.
Hi, Sam, Ming. Congrats on the great results. My first question is around guidance. You know, you guys, consistently, you know, produce well above your nameplate capacity. I think this quarter in Q4 was higher than normal at 25% above nameplate. On a go-forward basis, you know, for your 2018, how are you operating so much above nameplate? When you bring on your phase III- B capacity now, which is 30,000 metric tons, would you be able to continue to expect to operate at 25% greater than that nameplate as well?
Philip, I think, good morning. Thank you for the, you know, the question. It's a good question. The nameplate basically just, you know, the design, the full capacity, you know, 18,000 metric tons. We are the chemistry company, so basically, you know, the actual capacity always larger than the nameplate. As you can see that this year our guidance is around the 22,000 metric tons-23,000 metric tons. We think it is, you know, doable. In terms of the question, you know, the III-B, 13,000 metric tons, of course, I think that's our planning right now. Actually, nameplate is 10,000. Actually we maybe, conservatively speaking is 13,000, but actually we maybe can reach 15,000 metric tons.
I think, you know, to answer your question, if we finish phase III- B, we theoretically we can achieve to the annual output is above I think, you know, 35,000 tons, maybe reach to 37,000 tons. It's possible, but we cannot guarantee.
Okay.
Does that answer your question?
Yes. Thank you, Yang. That helps a lot.
It's always 30%, you know, even 60% more than the nameplate, the actual output.
Good. That's very helpful. Also for full-year 2018, can you help us understand, you know, what the wafer volumes might be? I mean, you gave the poly side for production, how much You know, we saw in the guidance for Q1, the wafer production stepped down lower than what we typically are used to by maybe 25%. Do you think the poly consumption by wafer will be similarly lower for most of 2018 because you wanna divert more of the production of poly externally? Is that the plan in general?
Okay. I think, Philip, I think, you know, since I took over the CEO position, I look at the whole industry because Daqo, we focus on polysilicon manufacturing. If you look our Chongqing wafer production, basically, okay, I spent the whole week in Chongqing. We run now the capacity only 500 MW on the wafer capacity. We have right now, at beginning of this year, we have employees 516 people. I immediately cutting people, 168 people. Right now we're cutting people to 349. Right now, if you look at our last year, 2016, our wafer gross margin only 4%.
Compare that, you know, if I only compare the benchmark company, let's say Jinko, let's say LONGi, their wafer gross margin maybe around, you know, LONGi because it's monocrystalline wafer, the high capacity, we are multi. Even you apple-to-apple, we compare with, let's say Trina and Jinko, our gross margin still is lower. They may be around, you know, 12%-15%. That's why come back we need to consider that even though we run now since the Q4, we changed to the diamond wire cutting system, but we still have the quality issue. Basically right now, we are, you know, slow down the wafer capacity, the production. We have to first to make sure the quality is 100%, use the diamond wire saw cutting. That's first.
Second is our non-silicon costs right now is high, basically. If you look at our Q4, it's almost $ 2. It's not competitive to our competitors. We have to make sure our non-silicon cash cost for, you know, to within $ 1.15. Plus with our depreciation maybe right now per piece, okay? Right now it's $ 0.39. Even $ 0.39 +, you know, $ 1.15, add together, it's almost, you know, $ 1.60 per piece. Still no, you know, no competitive, you know, the advantage compare our competitors. Basically, we have to watch right now, plus, okay, after New Year, the silicon price is fluctuates a lot.
Also the wafer price also reduce a little, slightly reduce. That's why for February, we almost, you know, the, I think, the capacity right now running maybe around at 10%. We waiting for the market to come back to see in March whether if we can, you know, make some money or not from cash flow points. For whole year, for the wafer capacity, basically, you know, we cannot give you the precisely projection. We were very importantly to continue to, you know, to, I think to maximize or whatever, you know, our wafer production in the future. We will give guidance, you know, quarter- by- quarter. In a word, our strategic, our strategy is right now the focus continue to expansion on the, I think, polysilicon, especially high quality monocrystalline-grade polysilicon.
In the meantime, we're going to continue to keep the cost, especially I think to reduce the cost of the wafer to see whether we can, you know, full capacity running the wafer capacity or not. We're maybe seeking other opportunities to working with other people, let's say, you know, to, you know, to presenting with other, you know, producers. For example, you give me the polysilicon, I help you to produce, you know, the wafer, then back to you. That's our strategy.
Great. Zhang, that's actually very helpful. Thank you for the color. It's very detailed. Shifting gears, you know, you mentioned that you wanna focus more on the high quality polysilicon for mono. You know, I noticed the ASP in Q4 was higher than we had expected. It was very much in line with the spot domestic pricing in China. You know, typically your ASP is maybe 10% lower than some of the domestic spot pricing that we see. This time it was kind of in line. Should we expect this to continue? Meaning, you're getting it seems like a, maybe a premium for your price. What's driving this premium? Is it simply just the overall supply-demand dynamics?
Are you able to actually command a bit more of a premium these days because of the greater mono demand by LONGi and Zhonghuan and some of these downstream customers, and as a result, that shift is causing the price premium to actually percolate through the overall blended ASP?
Okay. I think that's a good question. First to answer your question, you know, first of all, today, you know, our production this year especially, we've given guidance 22,000-23,000. Of which we think, you know, at least 60% we are monocrystalline products to sell to the market. That's first. Secondly is if you look our clients, mostly it's LONGi, Zhonghuan, and also JinkoSolar for the monocrystalline silicon. Also we have part, you know, small minority piece of the multi polysilicon. Speaking of the ASP, if you look our Q4, I think it's around like CNY 19 point.
21
9. whatever, $19.1 per-
Per kg.
Per kg. Just like you said, you know, this time we're even a little above the spot price. I think, you know, if you look at the whole year last year, and the price trend and always, you know, before the Chinese New Year, the price still keep a little higher. During the Chinese New Year, because we are the chemical company, we will continue continuously in the production to build the inventory. While those wafer manufacturer company, they were stopped. They were vacation, you know, holiday, so they will utilize, you know, to consume, you know, out their inventory. After Chinese New Year, especially this year, because one is the heavy snow in China postponed the installation of the downstream, the solar projects.
Second is maybe 201 U.S., you know, anti-dumping those regulations, you know, to give the market that maybe is not very confident. I think, you know, that's not the major issue. Third issue, I think, that China, if you look last year, total consumption on the polysilicon is around 370,000 tons. Of which 150,000 tons is import. The import majorly because in term of U.S. dollar, like OCI, like other, their cost is around $12 - $13. If you look the domestic manufacturer, 70% of the output produced by the Chinese, I think, a producer, their cost also is around $11 - $12, including GCL.
In 75,000 tons, their cost may be around, you know, overall cost may be around $ 12. What I want to tell you is, you know, Daqo and TBEA is only two right now the low cost in China. Their output only account for 20% of the output. Basically right now, the polysilicon price is determined by majority producer output. If we, if you today use our lower cost compare, you see the high, the average cost of the silicon, we already have what I call the cushion, you know, the margin around 20%-25%. Plus the industry overall gross margin is 20% or 25%. You can see our Q4 gross margin is almost 54%.
I think this year, after Chinese New Year, maybe the polysilicon price will slightly go down, especially right now we already see the pressure. Maybe today the market is around, mono is around CNY 130/kg-CNY 135/kg. The multi is around CNY 120/kg-CNY 125/kg. As I mentioned that this year the overall, the PV solar market, I think it should be around 110 kW-120 kW. Still continue to keep double digits increase, especially China. If you look China, the Chinese government, next five years the focus, the major two task, one is the poverty improvement in rural area. Second is environmental protection. All these is were, to, I think, to support the solar industry in China.
What I think is the polysilicon price maybe will slightly go down from now on. In the second quarter, third quarter, maybe will slightly go up. To the fourth quarter, we keep, you know, I think it acute. If you look last year, ASP is around $16. What I'm thinking this year should be still between $15-$16.
Great. Thank you, Zhang. One more if I may, on more of a housekeeping question on CapEx. You know, with your nameplate being, and then your ability to operate above nameplate being a little bit higher, for the phase III- B expansion, can you just update us on the amount of CapEx required for phase III- B? I recall the number of about $1 00+ million. Just remind us what is the CapEx for phase III- B, if it's higher than what you had expected before or the same or lower. What the timing of those expenditures could be, especially since you're pulling forward some of the phase III-B start.
Okay. Actually, the most recent focus, we've already placed order for the equipment. You know, we finalized the design, and then we're also doing the bidding for the construction. The latest expectation is CapEx for the entire phase III-B project will be about $140 million-$150 million. This is about $14-$15 per kilogram of nameplate capacity. You know, we expect not to fully ramp with some potential development, we might get squeeze more capacity out of that. This is gonna be the highest capital efficiency of the company's history. In terms of CapEx, we've already spent roughly $10 million, mostly on equipment in Q4, so mostly on the equipment prepayments and some initial foundation work, for example.
This year, we expect probably around $ 80 million-$90 million of CapEx related to this particular project. If we compare it to our cash flow for last year, we think that's still pretty healthy. The remaining CapEx is expected to finish by next year. That's the current plan right now.
Great. Thanks, Ming.
Then also-
Go ahead, Sam.
No, finish. I just add one comment, okay? If you look at right now, the current, you see the Asian company, I think Yongxiang. I think Tongwei. You know Tongwei, right?
Yes.
They just announced the, you know, CapEx for two factories. You know, each is 25,000 tons. If you look at their 2017 December 2017, I think, the dated announcement. They are 25,000 tons. Their total invest is around CNY 3.3 billion. Same calculation there, you know, per kg, CapEx is around, I've calculated, like, you know, $20-$25. If you look our 13,000 tons, our total investment is $140 million. It's around, you can calculation, right? Like $12.
Yeah.
We, the CapEx is very more efficiency.
Good. For maintenance CapEx, how much do you expect in 2018, Ming, for the model? When do you plan on the maintenance? Last year, I think it was you had one week in Q3 and one week in Q4. Would it be a similar type of timing in for 2018?
At least in terms of maintenance, we're still expecting currently, as of today, we're expecting it to be conducted in Q3, based on our normal schedule. I think last year, we ran it a little bit later than we normally would. Yeah.
Okay. Sam.
And then-
Oh, sorry. Go ahead.
I was gonna say maintenance CapEx, we're expecting roughly $10 million-$15 million for the year.
Okay, great. I will pass it on. Thank you both. Congrats on the great results again. I'll pass it on.
Great. Thank you, Phil.
The next question comes from Gordon Johnson of Vertical Group. Please go ahead.
Hey, guys. Thanks for taking the question, and congrats on a good quarter. I guess just with respect to polysilicon prices, we've noticed numbers haven't updated at least for the source we look at for the past two weeks, but the prior two weeks before that, you had some pretty sharp declines, 4.5%, two weeks ago, and three weeks ago, 4.2%. Given the numbers you guys suggested, where prices are right now from multi and mono, at CNY 120- CNY 125 and CNY 130- CNY 135, do you guys think we've reached the low point in polysilicon as of right now or do you think they can go lower?
The second question would be, the head of the China Photovoltaic Industry Association, Wang Bohua, I don't know if I'm saying that name right. He recently put out comments saying that, the China installations in 2018 would come in around 33 GW or a 40% drop from 2017. The reason given was excessive costs associated with the 130 GW that have been installed, roughly CNY 79 billion per year of state subsidies required. Do you guys have a view on those comments? Have you heard those comments? Do you see them as accurate or not? Thank you.
Okay. Let me first answer your question, maybe Ming can, you know, add more comment. First of all, I think right now, after Chinese New Year, we see, I think, you know, the demand and supply, the negotiation, you know, I think, you know, the final we see right now the price for the mono silicon is around CNY 130- CNY 135 per kg, then the multi is around CNY 120- CNY 125. Yes, we see the price maybe will continue to slightly go down. We think it may be possible go to like CNY 115- CNY 120. You know, it's possible.
It depends on how quickly the installation will quickly, you know, pick up, and also market will come back. One thing I want to, you know, emphasis, why is the U.S. market? Everybody thinking the U.S. market, you know, because Section 201, you know, regulations will reduce the market, I think, the installation PV. That's wrong because if you look at JinkoSolar, look at, you know, other Asia company, as I know, at least three company right now is going to U.S. to build up a, you know, the module or even cell manufacturing company. If they're going to do that, the wafer still come from China. The silicon still come from, you know, majority of the wafer manufacturing still in China.
In terms of the second question about the Chinese market, as I said, I just mentioned that if you look at Chinese Party, you know, this term, five years, the three major task, one is to prevent the real financial risky. Secondly is the poverty improvement in rural area. Third is the environmental protection. The two major task is related to, I think, you know, solar industry. I do not think the solar industry will be hurt. The reason why, just like you said, you know, the news, you have to look at that.
As long as the, you know, solar, the farm field you build up, let's say the projects you build up, the distributed, you know, I think, the solar projects you build up, it doesn't matter how much it costs, how much, you know, subsidize you didn't collect. For those projects, actually, electricity generated is cost is zero. don't matter because they, anyway, they're going to generate the electricity, right? The cost is zero. How much you already installed doesn't affect the future, you know, how much we're going to install. How much we're going to this year to install in China, it depends on the projects we're gonna build, what the government give the subsidies, you know, subsidies, especially in the China Eastern area.
It's not central government subsidies, but also local governments give, you know, subsidies. For example, like Shanghai, Jiangsu Province, first of all, you know, you generate, you know, per kWh, you collect the regular, you know, selling price. Let's say CNY 0.37, even CNY 0.67 per kWh. The local governments already give you CNY 0.45, you know, per kWh. Even you not collect the, you know, the central government subsidies, it's still okay, still make money, you know. What I say, all the projects is already installed. All the cost is sunk. What I'm think is sunk investments. Don't matter. Didn't affect anything. For the new adding capacity this year in China, I don't think the 73 GW is correct. Okay. I'm not saying go to 90 GW in China. What I'm thinking last year, 55 GW.
This year should be around 65 GW- 75 GW. That's I give you guidance. Did that answer your question, Gordon Johnson?
Yeah, it does answer my question. I guess one follow-up I would have is, are you guys concerned at all about the amount of polysilicon that was reported to be produced in China in January of, I think it was a record of 24,000 tons by the China Nonferrous Metals Industry Association. When you add in the 16,300 tons of imports, which was the second highest ever, I mean, we're on a run rate to do 115 GW of poly supply globally or specifically in China for the year. Does that concern you guys at all? That seems like a high level, clearly January isn't the high mark for polysilicon production or imports into China.
To answer your question, yes, this we concerned. I think I should, you know, in to speak of the poly, you know, the price, you have to consider two facts. One is in China, because always exaggerate. You know, China, the production capacity will be increased dramatically. Look, East Hope, right? Three years ago, they're going to say they're going to invest, you know, 80,000 tons capacity. We're only three years. How much do they manufacturing? Last year, maybe 5,000 tons maximum, but low quality. This year, they say they're going to run full capacity, 15,000 tons. You know? What I'm saying, you know, from starting from beginning to, you know, to enter the new, you know, to polysilicon industry like a East Hope, it take a long time.
It's not easy, you know, just like the wafer cell and the module. You can, you know, to form the capacity immediately, like three months or six months, you can build up, you know, 1 GW capacity immediately from wafer to module. But for polysilicon, it's difficult, okay, first of all. Secondly is, we have to differentiate ourselves from, you know, other people. One is right now 70%, our capacity right now is produce mono polysilicon. That's the future of, you know, the module, you know, the module market. Last year, I think LONGi and other, I think the mono module only account for maybe 27%. This year will increase to maybe more than 50%.
If you look at in China-The manufacturer only TBEA, Daqo, those two, plus maybe I think, you know, Yongxiang maybe also produce partial of them, can produce the mono, you know, polysilicon. That's the first advantage. Second advantage is, I'm just mentioning that our gross margin last year around the 40-
45.
45%. We compare our industrial average. When I say 80% of those producer, even importer, their gross margin may be around 20%-25%. Yes, we still have the cushion there. Maybe the newcomer will continue lower cost, yes, the same gross margin as us. What I think, yes, we maybe cannot continue keep such a high gross margin, 45%. We still think this year we can achieve, you know, 35%-40% gross margin.
When you say 35%-40% gross margin, given we're already almost through, clearly we're through February, and we're into March, can you give us an indication of what that margin will look like in Q1? Would you say the Q1 margin will be lower than that 30%-40% target, and it'll get higher through the year as prices rebound? Or will Q1 be higher than that 30%-40% target, and will get lower through the year?
Okay, first of all, we don't give guidance, any guidance, you know, for the future on a gross margin because it's difficult to project. I can say the month of January we are very well sale. The ASP is very well. Yes, during the February change the year. That's every year. If you look at our history, the Q1, you can look. I cannot give you guidance. I say, I give you something is, you know, for whole year we believe, I think, we can keep Daqo. I think I'm not giving guidance, I just, you know, we think we can keep, you know, maybe, you know, that even I say, I'm just saying example.
If Daqo will keep gross margin around 35%, then the industry majority, the 80%, maybe they only like say 15%-20%. I'm just assuming, okay, the lower cost compare the high cost.
Okay, you basically are saying you're not giving guidance, your gross margin could fall 5% this year, you'll still keep it around the 35% range. That's the target.
I'm not giving the guidance, okay? I'm just, you know, giving you.
Hold on. I got you. That's helpful. That's helpful. This is very helpful. Again, congrats on the solid 2017 performance. Thanks a lot, guys.
Very great. Thanks, Gordon.
This concludes our question- and- answer session. I would like to turn the conference back over to Kevin He for any closing remarks.
Yeah. 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 goodbye.
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.