Earnings Call: Q3 2017

Nov 14, 2017

Good day, and welcome to the Daaco New Energy 2017 Third Quarter Results Conference Call. All participants will be in listen only mode. Please note this event is being recorded. At this time, I would like to turn the conference over to Kevin of Investor Relations. Please go ahead, sir. Hello, everyone. I'm Kevin, 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 Q3 of 2017, which can be found on our website at www.bqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference. Today, attending the conference call, we have Doctor. Gong Hai Yao, our Chief Executive Officer and Mr. Lin Yang, our Chief Financial Officer. The call today will feature an update from Doctor. Yao on market and operations and then Mr. Yang will discuss the company's financial performance for the Q3 of 2017. 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 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'll now turn the call over to our CEO, Doctor. Yao. Please. Hello, everyone, and thank you for joining our call today. We are pleased to report strong financial and operational results for the Q3 of 2017. I would like to thank our Yintan team for their great work and contribution to the solid profitability and earnings for the Q3. Our excellent Q3 results demonstrate the robust customer demand for our high quality polysilicon products. During the Q3, we produced the 4,940 metric ton of polysilicon and sold 4,500 metric ton to external customers. Revenues for the Q3 were RMB89,400,000, an increase of 17.6% from the previous quarter. 3rd quarter earnings per basic ADS were RMB2.28, an increasing of 98% compared with the $1.15 in the previous quarter. During the Q3 of 2017, the company generated $24,100,000 in net income attributable to the Daqo New Energy shareholders and the 42 $300,000 in EBITDA with EBITDA margin of 47.4%. In particular, our operational cash flow remained strong. In the 1st 3 quarters of 2017, we generated $98,400,000 in net cash provided by operation activities. In late September early October, we conducted the annual maintenance for our Xinjiang polysilicon facilities. We are glad to report that annual maintenance have been completed successfully for this year, with less impact to production volume than anticipated by our original plan. For this year, rather than shut down the entire facility for maintenance as we have done in previous years, we conducted a maintenance in 2 phases with partial shutdown of the facility. While this was the first time we made a partial shutdown for annual maintenance, through the hard work and the dedication of our team, maintenance was completed ahead of schedule and allowed for increased production during the same period. Furthermore, through the maintenance and the related technology upgrades, we have successfully expanded our hydrocarbonation capacity and the manufacture efficiency, which laid solid ground for the potential production increasing and the cost reduction in the following quarters. Demand in China remains strong, driven by top runner and PV property elevation projects as well as distributed generation projects, which have provided strong support for demand during the second half of the year. According to industry sources, China added approximately 42 gigawatts of solar PV installation in the 1st 3 quarters of 2017, which is much stronger than most forecasts. In particular, distributor generation PV growing strong in China. It is expected that total annual solar PV installation in China will likely reach 50 gigawatts in 2017, which represents approximately 40% increase compared to 2016. In addition, the United States is expecting to install approximately 12 gigawatts in 2017, and India is expected to take over Japan to become the 3rd largest solar PV installation market with approximately 10 gigawatts installation in 2017. Based on the strong end market demand, we anticipate global annual solar PV installation will grow in the double digits rate in the 2017 as compared to 2016. For the polysilicon market, the supply of polysilicon has not kept up with the strong end market demand. And as a result, the polysilicon market remained short supplied. Polysilicon pricing increasing throughout the Q3 from approximately 15 dollars per kilo in July to about $18 per kilo by the end of September. Our 3rd quarter polysecond ASP of $16.19 per kilo reflected this trend, representing a significant increase in front of the 2nd quarter of ASP of $13.58 per kilo. As of today, we continue to see robust customer demand for our high quality products segment with pricing in the approximate range of $18.50 per kilo. In particular, prepayments from customers reached $16,700,000 at the end of the quarter, demonstrating the strong customer demand and the preference for our high quality polysilicon products. Polysilicon average total production cost was 8.9 $5 per kilo in the 3rd quarter compared to $8.53 per kilo in the previous quarter. The increase in production cost was primarily due to the cost related to our annual maintenance as well as the exchange rates related to impact and higher raw material costs. For the Q4, due to the continued impact of annual maintenance during the quarter as well as the exchange rates impact and raw material costs increasing, we expect the Q4 polysilicon production costs to remain at a relatively elevated level. For our wafer segment, with the improvement in wafer pricing during the quarter, gross margin on the stand alone basis reached approximately 10%, up from low single digit percentage in the previous quarter. With improvements in profitability, our wafer segment contributed positively to the company in the net profit this quarter. In October, our Board of Directors officially approved the company's Phase 3B project, which is expecting to increase our project and annual capacity from 18,000 metric tonne to 25,000 metric tonne. By adopting additional technology improvements and debottlenecking projects, we may be able to further increase our capacity to 30,000 metric tons per annuity by the end of 2019. Once the Phase 3B project is ramped up to full production capacity, we anticipate the overall total production cost for our Xinjiang facility could potentially be decreasing to about $7.50 per kilo. Benefiting from better operation leverage, adopting new production process and equipment with high efficiencies and achieving great economics of scale. For the Phase 3b project, we will adopt new designs, processes, technologies and equipment that could further improve the purity of our products. Products produced produced through under the Phase IIIB projects are expecting to reach electronic grade and will be targeted for monocrystal wafer anesthetic and other market. We may potentially enjoy high profit margin if we could successfully access this market with our differentiated electronic grade polysilicon products. In terms of guidance for the Q4 of 2017, we expect to produce a 4,800 metric tonne to 5,000 metric tonne of polysilicon and the sale approximately 4,300 metric tonne to 4,500 metric tonne to external customers. The above external sales guidance excludes the shipment of polysilicon to be used internally by our Chongqing Solar Wafer Facility, which utilizes polysilicon for its wafer manufacturing operation. Wafer stat volume is expected to be approximately 25,000,000 to 25,500,000 pieces in the Q4 of 2017. Now I will turn the call to our CFO, CFO, Mr. Ming Yang, for the financial update. Thank you, Doctor. Yao, and good day, everyone. Thank you for attending our call today. Now I will provide the financial updates for the Q3 of 2017. Revenues were $89,400,000 increasing from $76,000,000 in the Q2 of 2017 and CNY54,300,000 in the Q3 of 2016. Revenues from POSIT and sales to external customers were CNY72,900,000 increasing from $61,100,000 in the Q2 of 2017 and $44,400,000 in the Q3 of 2016. External polysilicon sales volume was 4,500 metric tonne, increasing from 4,497 metric tonne in the Q2 of 2017 and 2838 metric tons in the Q3 of 2016. The average selling price of polysilicon was $16.19 per kilogram in the Q3 of 2017, increasing from $13.58 per kilogram in the Q2 of 2017. The increase in polycycline revenue as compared to the Q2 of 2017 was primarily due to higher ASPs and slightly higher sales volume. Revenue from wafer sales were $16,500,000 increasing from $14,900,000 in the Q2 of 2017 $9,900,000 in the Q3 of 2016. Wafer sales volume was 26,400,000 pieces compared to 27,000,000 pieces in the Q2 of 2017 and 14,400,000 pieces in the Q3 of 2016. Gross profit was approximately 36,400,000 dollars increasing from $24,200,000 in the Q2 of 2017 $20,100,000 in the Q3 of 2016. Non GAAP gross profit, which excludes costs related to the non operational polysilicon assets in Chongqing, was approximately $36,900,000 increasing from $24,800,000 in the Q2 of 2017 $21,600,000 in the Q3 of 2016. Gross margin was 40.8%, increasing from 31.9% in the Q2 of 2017 and 37.1% in the Q3 of 2016. In the Q3 of 2017, total costs related to nonoperational Chongqing and assets, including depreciation, were $500,000 compared to $500,000 in the Q2 of 2017 and $1,500,000 in the Q3 of 2016. Excluding costs related to the nonoperational Chongqing Polytechnic assets, the non GAAP gross margin was approximately 41.3%, increasing from 32.6% in the Q2 of 2017 and 39.9% in the Q3 of 2016. For the Q4 of 2017, costs related to nonoperational Chongqing Polycycline Asset is anticipated to be approximately $500,000 dollars Selling, general and administrative expenses were $4,400,000 compared to $4,500,000 in the Q2 of 2017 and $4,900,000 in the Q3 of 2016. Research and development expenses were approximately $100,000 compared to $300,000 in the Q2 of 2017 and $1,000,000 in the Q3 of 2016. The research and development expenses vary from period to period, reflecting the R and D activities that occurred in such periods. Operating income was $800,000 compared to $800,000 in the Q2 of 2017 and $2,200,000 in the Q3 of 2016. Other operating income was mainly composed of unrestricted cash incentives that the company received from local government authorities, amount of which varies from period to period. Operating income was $32,800,000 increasing from $20,200,000 in the Q2 of 2017 $16,400,000 in the Q3 of 2016. Operating margin was 36.7%, increasing from 26.6% in the Q2 of 2017 and 30.3% in the Q3 of 2016. Interest expense was $4,300,000 compared to $5,300,000 in the Q2 of 2017 and 17 and CNY 3,100,000 in the Q3 of 2016. EBITDA was CNY 42,300,000, increasing from $29,800,000 in the Q2 of 2017 $25,000,000 in the Q3 of 2016. EBITDA margin was 47.4%, increasing from 39.2% in the same quarter of 2017 and 46% in the Q3 of 2016. Net income net income attributable to Daqo New Energy shareholders was CNY 24,100,000 in the Q3 of 2017, increasing from CNY 12,100,000 in the Q2 of 2017 and $11,200,000 in the Q3 of 2016. Earnings per basic ADS were $2.28 in the 3rd quarter, increasing from $1.15 in the Q2 of 2017 and $1.07 in the Q3 of 2016. As of September 30, 2017, the company had $61,600,000 in cash and cash equivalents and restricted cash compared to $49,800,000 as of June 30, 2017, and $29,200,000 as of September 30, 2016. As of September 30, 2017, the accounts receivable balance was $4,600,000 compared to $3,800,000 as of June 30, 2017. As of September 30, 2017, the notes receivable balance was $25,300,000 compared to $10,500,000 as of June 30, 2017. As of September 30, 2017, total borrowings were $216,800,000 of which $119 point $3,000,000 were long term borrowings compared to total borrowings of $219,300,000 including 100 and $23,100,000 of long term borrowings as of June 30, 2017. For the 9 months ended September 30, 2017, net cash provided by operating activities was CNY98,400,000, increasing from CNY70,900,000 in the same period of 2016. And for the 9 months ended September 30, 2017, net cash used in investing activities was CNY 45,000,000 compared to CNY51,200,000 in the same period of 2016. The net cash used in investing activities in 2017 was primarily related to the capital expenditure of the company's Xinjiang Phase 3a polysilicon products. For the 9 months ended September 30, 2017, net cash used in financing activities was $29,600,000 compared to $12,300,000 in the same period of 2016. The increase was primarily due to repayment of related party loans and bank borrowings. And that concludes the official part of our presentation. Now let's have the Q and A session. We will now begin the question and answer Our first question will come from Philip Shen of Roth Capital Partners. Please go ahead. Hey, guys. Congrats on the strong results. Yes. Thank you, Aafia. Great. Thank you. I'd like to explore the effective capacity that you guys have now. So you guys beat your guidance in our estimates nicely. Historically, I've always thought about your nameplate being 18,000 tons and the effective capacity being, call it 19,000 metric tons or backing into numbers closer to 20,000 or even 21,000 depending on how you take into account maintenance. Can you just talk about what the effective capacity is today? And then if you or as you pursue your Phase 3B expansion, does that mean which I believe adds about 7,000 metric tons. So hypothetically, if your effective capacity is 20 and you're adding 7, basically, are you effectively at 27,000 metric tons, which is on your way to that 30,000 goal that you have? Okay. So officially, today's nameplate capacity is still 18,000 metric tons. So we are running at a rate probably right now probably between like 2020 to 2021. But just it's not for 2017, okay? 2017 seems like total production will be around 19,500 to about 2,000 metric tons. 20,000 metric tons, that range. But to answer your question, after 3 being completed, our nameplate will be a 25,000 metric ton, but there's a potential about 10% to 20% above the nameplate is normal with through the technical debottlenecking improvement and the technical improvement of those projects. Now the production real capacity have been further released through this just finished maintenance because we mentioned the efficiency of hydrocarbonization is more effective and because we changed some equipment, enhance some capabilities. So we have around maybe every day we have more TCS variable for the full production of polysilicon. So I hope that answer your question. So nameplate still will be for 3B will be 25,000 metric ton. We have potential to have a 10% to 20% increase in through the debottlenecking. And currently, we are production actual production has exceeded our nameplate for 18,000 metric tons, but maybe around 10% increase. Okay. Yes, that's very helpful. Let's turn to ASPs. We, I believe, started this quarter off with $19 plus ASP per kilogram. You had a pretty strong one for Q3 as well. Can you talk about what you see for November, the rest of November December and also as we get into 2018? And as you talk about ASPs, obviously comment on the supply demand dynamic that you see. For example, in Q1, do you expect how much do you expect China to slow down, if at all, more than the seasonal pattern? And then on the supply side, can you talk about earlier in the year, there are a lot of announcements of supply coming online. Have you seen a delay of that supply? And what else is going on there? Thanks. Okay. So there are many questions, Phil, for you. So let me try to answer your question. So for Q4, we see the price is very stable, very strong. Like you said, it's between like $18.5 to about $19 per kilo. I think this price will last at least to end of November. There's no question. As we said, and there are some prepayment, the money already customer pay us for the November contract. So those prices are fixed. To the December, we don't do not see any cruise from December, the price softening. But as you know, we cannot guarantee the December price yet. December price will be settled by the next 2 weeks. I think before end of November, we will assign all the December contract with our customers, which means price will be settled by the next 2 weeks. Now to answer your question for next year, 2018, obviously, we do not have visibility, but we do have visibility on the mono wafer supply polysilicon side. I think there's a shortage of polysilicon for mono wafer usage in China. As you know, we just end up with all the mono wafer capacity by end of 2018 is more than 50 gigawatts of wafer supply, which means about actually you need at least 200,000 metric ton probably a second just for those usage. Of course, as I said, end of the next year is about 50 gigawatts, beginning maybe around 30 to 35 gigawatts of wafer capacity, which requires a lot of polysilicon. If you do some calculation, all the inputs from international supply like OCI or Walker, if 100% used, still cannot meet that requirement. So rely on very much significant of domestic supply. So our company is positioned for mono wafer position very well. We supply not only P type, we also supply the N type wafer manufacturer use the polysilicon. So for us, we see very strong demand for throughout of 2018 for polysilicon. So now overall market for multi crystal wafer, those are the markets, it's not very clear. But overall for mono at least, I think the supply demand will still be tight on the supply side. This price will, I believe, will continue through to the Q1. That's my personal opinion. And of course, we do not see the price yet for the Q1, yes. Great. You talked about this divergence of mono and multi and potentially the poly supply that supplies the 2 end markets. For your call it nameplate capacities, whether it's 18,000 or 25,000, can you talk about the mix of production that you're able to deliver that can serve the semi model or multi market? Thanks. Yes. For the N type wafer capacity, we probably will control at like less than like 20% to 30% because we want to control that. And that market is not huge anyway in China. But for the P type wafers, right now, we are in the 30% to 40% of our production. Next year, we target for 50%. So, half of that can be used. This requires several things we have to done internally. We need we set up some program with our key customers to test some new products And especially for mono wafer manufacturing, they require different requirement is they want a small chip, those polysilicon. We still need to ramp up our production for those markets, which is relatively new for us, but we will serve certain percent of small chip per polysilicon for mono crystal wafer manufacturers. And at the same time, also we want to keep the quality high quality. So we still need testing different products for different markets. So overall, saying, we internal target is about 50% of our total production should be in to go into that market for next year. Okay, great. One more question for me and then I'll pass it on. There's been a lot of discussion about the potential for tariffs on Korean imports. And we've heard that OCI's new tariff could be 4.4% from a current of 2.4%. Percent and then Hanwhon, HanKook could each be about 9% or 10%. Have you heard the same? What do you expect from the Korean import tariffs? And when do you expect the decision to be final? Thanks. Yes. So we heard about similar things. So there's no official saying. I think the most information we believe is come from South Korea actually. They're talking to their customer. So expecting if like 5% is almost nothing to increasing. I think the several things we see some changes as China and the South Korea relation starting getting recovered. Secondly, as I mentioned, if you cut the OCI supply, actually there's a huge shortage for polysilicon for China's market. As you know, today China's installation this year will be 50 gigawatts. If we take OCI out, probably second maybe is quantity is okay, but for mono wafer supply, there will be huge shortage, so impact. So this may be reflected, the reality is China cannot really cutting down the OCI supply on this side. So with our channel checking, all the like a workers supply is very tight. They don't have any polysilicon in China, the warehouse or any storage. They are feel also 2018 supply policy will be very tight, especially for our mono wafer supply. So this all adds up is, as I said, if you look at just for 25 gigawatts of long gs capacity, if you put the OCI and the VARQAs, all the supply together, it's just committed by one customer. So it's very, very tough situation for next year for all the mono wafer supply side. So we do not get any confirmation from government. So we heard a lot of things from your side, you and also other people. I believe most likely this will happen. I don't know when we'll officially announce it. So we were told before November finishing, so by end of November maybe. So that's what we know. Okay. Thanks, Gordon. I'll pass it on. Thank you. Great. Thanks, Phil. And our next question will come from Brad Meikle of Coker Palmer. Please go ahead. Hey, good morning. First question is, based on your model of the success of the new entrants into the market, From a supply standpoint, what do you think supply growth of polysilicon is in 2017 2018? Okay, Greg. So we 2017 this year actually there are several new entries is Easter Hope and that's the largest. But their production is not very successful. They have 3 phases to start and the first phase even not ramp up yet. They face a lot of challenges for technical mainly and plus the some environmental government regulation forced and shut down some of their other operations like electricity, power generators, etcetera. So especially with the mono wafers requirements recently in China, we see like quickly reach about 30% of the wafers so wafer supply. So the requirement for polysilicon is standard is higher, getting higher. And so the entry lab barrier actually getting higher. So for those guys, for new entrants, they cannot immediately apply their production to the mono wafer. That's very tough. But we saw the 2017, the situation is different. So I think at the East Hope, they cannot even supply good enough polysilicon for multi crystal wafer usage. So we do not see much capacity increase for 2017. As for 2018, we our expansion will be significantly increasing output only by 2019. We were expecting some small capacity increasing for like a GCL, they maybe have 20,000 metric ton. Maybe they were in line by second half of twenty eighteen, but nothing will be in 2017. And there's some other Tongwei maybe have 20,000 metric ton, maybe by sometimes second half of next year as well. So we will see around maybe 50,000 metric ton if they are all successful by adding to current capacity by next year. But if you look at the downstream, everybody very aggressively, we heard the Jinko, Longji and TZS, they're all increasing significant wafer amount, their capacity by next year. So we're still thinking, especially for the mono wafer supply side, is there still a shortage for polysilicon. Yes, overall market depends on how much installation China, India and those countries, but overall, I think the situation will continue from now to next year. Interesting. Thank you. So would you agree with like a 5% to 7% supply growth number overall for next year? Do you think that's in the right neighborhood? Or is it lower than that? We I personally believe if we just look at the mono wafer capacity, actually, supplydemand, the shortage of supply side, even more severe next year than this year. Yes. This year, because mono wafer just is starting to pick up, but next year is everybody announced a huge amount facilities expansion for the mono wafers. Actually, by the fact that they already installed some equipment right now, they're ready for production. And so people is trying to secure the polysilicon supply for 2018, and people are seeking all the domestic and international supplies very actively right now trying to secure their supply for next year's production. Thank you. A couple of quarters ago, I think I asked that if the second half of this year was solid, would you consider a stock buyback or dividend? I just want to ask what your thoughts are on that at this point. Yes. So we are trying to the of course, company first priority right now is still using cash to support the 3B project. Of course, if we have additional cash, we will consider that. That's always our option for the company. But as you know, we can discuss this. A buyback is very limited amount because our trading volume is so low and there are so many regulations you really can buy a certain percentage and the certain price range and also the volume is not that significant. So we tried several times before when historical low price, but buyback is very limited. Only maybe too certain. We're happy to see recently the trading volume is increasing significantly compared with historical data. But that's always the company's option. But at this moment, we didn't getting approval or action items yet. But as I said, the first part is trying to make 3B project successfully done by end of next year for construction. Thanks a lot. I guess just last question is with the market possibly tighter next year and most of the market is sort of buying on rolling spot contracts, do you think that the market will move to more of a long term contract or medium term contract with deposit framework like existed 5 years ago? Okay. Well, people are looking for long term contracts for quantity. They want to secure the supply. And we have seems everybody happy with the kind of locking the volume and then negotiate price every month. And the prepayment counter term is not very popular, and people hate that because they burned out all the relationship in last 5, 6 years ago. Actually, those prepayments only worked for most international polymakers. For Chinese polymakers, I think that's done firstly before 2008. After 2008, nobody is really doing that anymore. So I don't think that's feasible. So we're talking about prepayment in the statement is customer actually signed the next month's contract, immediately paid the money for us, ask us, ship us quicker as possible. So that's like a 1 month period prepayment. For a long term contract with prepayment, we don't see that. I personally don't believe that will happen next year, unless there will create a shortage of polysilicon for like mono wafers, It may be, but I don't think reality next year will not likely will happen that way. Thank you. I guess one last question. With President Trump meeting with President Xi last week, and Hemlock still really doesn't ship into the China market. There's obviously still a possibility of resolution of the Section 201 case. Do you think there's a chance that all of it gets wrapped together and that the polysilicon antidumping against the U. S. Goes away? And just what would be your thoughts on I know it's speculation, but on that type of topic? Yes. It's a very difficult task. We were talking deal with different people, different group and interesting group. So we were told by a lot of people trying to settle down the polysilicon thing, but for module side, it's a lot of conflict interest in groups. It's very difficult to work together. I received e mail from Basic Solar Association, asked us to donation some money. So they're using that money for lobby for presidency office to cut down those kind of tariff. But I don't know whether that work or not. But I personally believe in if the problem cannot be solved in the last 4 years, it cannot be solved in the next 6 months. So I mean, it's all politics. So it's more difficult than the supply demand issue we're talking about in the public sector. So that we're not solving, in my opinion, for next 6 months at least. And our next question will come from Tyler Lu of CICC. Please go ahead with your question. Hi, management. Congratulations on the results. I got 3 questions. The first question is that, what's the percentage of our high quality power steering which provide to the model wafer market in Q3? And what's our target percentage for those kind of product in the future of our total polysilicon sales? That's my first question. Okay. Kyle, thank you. So, first of all, next year, I already told you, at least 50% of our product will be in the 4 d mono wafers at least. As a current status, we are still in a trial and error for the our standard to meet the downstream customers. We normally present like 6 grades of part second. So electronic grade 1, grade 2, grade 3 and the solar grade 1, grade 2, grade 3. That's but I can only tell you about in Q3, we have more than 80% meet the electronic grade 3. So basically, all this can be used potentially used for mono wafers. But you need to be careful, so we right now is raising those 83%, but we only provide the best to our customers because we do not have experience is say everything can be used or not. So we are carefully selected the best morphology. We're talking about the density of the polysilicon. So right now, it's only supply very dense, very smooth outside to supply to our customers. Our customers request us to try to lose some standards to supply some like surface morphology as not as smooth or as not dense to supply. And then 2, we are still go through the trial experimental period. And initial data looks very good, very promising, but we are not going to larger volume shipment for Q3 yet. So if this is successful, I think the 50% of our production for mono wafer is very, very conservative estimate. But if this is a problem, then we need to go back to look at the solution again. So, on this to answer your question, in Q3, we are shipping around 30% to 40%, maybe like 35%. I don't have exact number yet, but around that range. But we have potential to go to 50% if we can work with our customer for certain requirements. Yes. Yes. Thank you. So my second question is also about the positive. In the 3B phases, we have mentioned that we're also target for the semiconductor polysilicon business. And we know one of our competitor has recently announced some product to semiconduct in near term. So it means that we kind of did follow-up. So which kind of strategy and could you please provide some color for us that how we will target market? Okay. So just to give you an example, currently, with our existing facility, we can produce electronic grade 1, but it's about 30%. So with our new yes, so 3B, we're expecting 100% will meet the electronic grade 1. So now our competitor, they're doing a great job. They're using a different approach. We approach is based on low cost facility and tightening our process to find a way to achieve the electronic grade 1 in the cheap way, so very economic way. And why we control our cost and produce high quality. That's a tough job, but this is the way we're choosing. And real product we're aimed is not semiconductor wafer users. We are aimed and the mono wafer users. So we shipped significant amount of wafers to our mono wafer manufacturer customers from last year. So we are gradually increasing every month. Our competitor is choosing different approach. They never supply a significant amount for mono wafer usage. They just jump to the semiconductor. So that's another approach. Of course, it's perfect if they can do immediately semiconductor. But my lesson experience is step by step is more solid than you jumping around. So again, they spend a lot of money. So 5,000 metro tank capacity spend like RMB 2,000,000,000 or something like that, which is I cannot afford that. So we cannot afford is 10,000 metric tonne, we will spend probably half of them the money to make the capacity. So our goal is those 10,000 metric ton we added will be 100% usable for the mono wafers for a short period of time. Now small amount maybe you can aware achieve like a semiconductor, but we don't believe there's a market, huge market in China today. Maybe 3 years, 5 years later, semiconductor market will expand in China, but not today. So now we're just using that as our objective to improve our quality. So I hope this is clear for you. So short term, we are really trying to improve quality to grab the market for mono wafer supply in China. Long term, we will aim for semiconductor, but not like within 3 to 5 years. So in the short period of time, we are only aim in the mono wafers. And I think we think we can achieve this very easily with our current technology equipment without impact a lot of cost structure we already established in China. Yes. Yes. Thank you. So my last question is actually about the cost guidance. So we are mentioning that we will have the 3B phase capacity, which also approaching the low cost. So do we have some cost, a roadmap to looking forward in 2019? So which kind of cost, average total cost will we achieve at that time? So do we have a guidance? Yes. So we will have because the new process we're using, it will be more efficient to use electricity, steam and water, everything. So we have a clear roadmap whereby I add on that, we actually in the opening remark, I said, with the new technology and the new process and with some new equipment and also some benefits from scale of the facility. So we will achieve like $7.50 So we have like about $1 kind of cost saving from current to 2019. So if you look at our announcement, so by 2019 end of 2019, we will reach the capacity potentially held at 30 solid metric tons. When that's reached, I think our cost structure will be around like $7.50 per kilo, which is a cost is a cash cost plus the depreciation. Yes. Okay. Yes. Okay. Thank you. Thank you very much. I have done the question. Thank you. Thank you, And ladies and gentlemen, showing no additional questions. This will conclude our question and answer session. I would like to turn the conference back over to Kevin 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 your lines.