大全新能源 (DQ) 2020 Q1 法說會逐字稿

Good day, and welcome to the Daqo Energy First Quarter 2020 Results Conference Call. (Operator Instructions) 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 first quarter of 2020, 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 first quarter of 2020. 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 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 now turn the call over to our CEO, Mr. Zhang. Please go ahead.

Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are pleased to report an outstanding quarter with excellent financial and operational results. I would like to thank our entire team for their hard work and dedication to make these outstanding results possible. Despite the outbreak of COVID-19 in China in January and the subsequent domestic lockdown and the travel restrictions that created a particular difficult environment for securing raw materials, managing on-site operations and facilitating product shipments and logistics, we overcame these challenges successfully and operated at full capacity during the quarter.

The company produced record volume of 19,777 metric tons for the quarter and sold 19,101 metric tons of polysilicon. Thanks to growing economies of scale, significant savings on energy consumption and improved operational efficiency, our total production cost decreased to $5.86 per kg during the quarter, a decrease of 8% from $6.38 per kg in Q4 2019. Our cash cost during the quarter also decreased to $5.01 per kg, down from $5.47 per kg in Q4 2019. In addition, we continued to make improvements in quality and were able to sell approximately 95% of our products to mono-wafer customers. All in all, we are very proud of the achievements we made in expanding production volume, optimizing our cost structure and enhancing quality within only 2 quarters following the start of Phase 4A pilot production. Our exceptional results this quarter reflect the strong capabilities of our Xinjiang facilities at full production following the completion of the Phase 4A expansion project. We believe this also demonstrates our extensive experience and expertise in polysilicon manufacturing and it further solidifies our position as a global leader in the industry.

Despite the challenging market environment, we successfully expanded our gross margin by further optimizing our cost structure during the quarter. Gross margin during the quarter was 33.5% compared to 29.5% in the fourth quarter of last year. An expanding gross margin and increasing sales volume resulted in $63.1 million in EBITDA, up 39% sequentially; and $37.7 million in adjusted net income, up 53.5% sequentially.

Towards the end of this quarter, the spread of COVID-19 globally and related lockdowns, particularly in the U.S., Europe and certain other emerging markets, resulted in significant disruptions to end market demand for solar PV products. This has created short-term market uncertainty and volatility across the solar PV industry during the second quarter with significant impact to our customers' orders and pricing. Fortunately, the spread of COVID-19 has begun to ease in May and things are gradually returning to normal across all walks of life particularly in China. We expect to see some rush orders from solar PV developers in China for legacy projects delayed from last year in order to meet the grid connection deadline set for the end of June. However, a recovery of demand from markets outside of China is critical going forward as overseas markets currently account for approximately 75% of total global solar end market demand.

With many economies beginning to reopen, we expect to see a gradual recovery of solar PV demand in the third quarter as the impact from COVID-19 fades over the next 2 to 3 months. We are optimistic that the long-term solar PV growth prospects remain intact despite the near-term challenging market environment as solar PV energy continues to attract investors seeking to benefit from lower cost and interest rates. We are also confident in our ability to navigate this challenging market environment, leveraging our competitive advantages in product, quality and cost structure.

Now I will discuss outlook and guidance for our company. We are currently conducting scheduled annual maintenance for parts of our Xinjiang facility. Our facility has grown significantly over the years. And for this year, we will be conducting any maintenance by project phases on a rolling basis, starting with early phases of the Xinjiang facilities, which had conducted risk -- conducted its previous scheduled maintenance in the second quarter of last year. As such, we expect to produce approximately 15,500 metric tons to 16,500 metric tons of polysilicon and sell approximately 14,500 metric tons to 15,500 metric tons of polysilicon to external customers during the second quarter of 2020. For the full year of 2020, the company expects to produce approximately 73,000 metric tons to 75,000 metric tons of polysilicon, inclusive of the impact of the company's annual facility maintenance. This outlook reflects Daqo New Energy's current and preliminary view as of the date of this press release and may be subject to change. The company's ability to achieve these projections is subject to risks and uncertainties.

Now I will turn the call over to our CFO, Mr. Yang, who will discuss the company's financial performance for the first quarter of 2020.

Thank you, Longgen, and hello, everyone. Thank you for joining our call today. I will now discuss the company's financial performance for the first quarter of 2020. Revenues were $168.8 million compared to $118.9 million in the fourth quarter of 2019 and $81.2 million in the first quarter of 2019. The increase in revenue was primarily due to higher polysilicon sales volume. Gross profit was $56.6 million compared to $35.1 million in the fourth quarter of 2019 and $18.3 million in the first quarter of 2019. Gross margin was 33.5% compared to 29.5% in the fourth quarter of 2019 and 22.6% in the first quarter of 2019. The increase in gross margin was primarily due to lower production costs.

For the first quarter, our average total production cost was $5.86 per kilogram, a decline of 8% as compared to the fourth quarter of 2019 production cost of $6.38 per kilogram. With full production of Phase 4A project and an optimized production process, we were able to achieve a cost structure that was better than our original plan. In particular, we achieved per unit electricity usage reduction of approximately 7% compared to the previous quarter and a reduction of approximately 10% as compared to Q1 last year. Cost reduction also benefited significantly from economies of scale.

Selling, general and administrative expenses were $8.9 million for the quarter compared to $8.5 million in the fourth quarter of 2019 and $7.9 million in the first quarter of 2019. SG&A expenses during the quarter included $4 million in noncash share-based compensation costs related to the company's share incentive plan. R&D expenses were $1.7 million compared to $1.7 million in the fourth quarter of 2019 and $1.3 million in the first quarter of 2019. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. R&D projects this quarter includes new research projects for removal of impurities from production process, a reduction of metal contamination to enhance our product's quality. As a result of the foregoing, income from operations was $45.8 million compared to $30.1 million in the fourth quarter of 2019 and $9.1 million in the first quarter of 2019. Operating margin was 27.1% compared to 25.3% in the fourth quarter of 2019 and 11.3% in the first quarter of 2019.

Interest expense was $6.3 million compared to $3.9 million in the fourth quarter of 2019 and $2 million in the first quarter of 2019. EBITDA from continuing operations was $63.1 million compared to $45.4 million in the fourth quarter of 2019 and $19.9 million in the first quarter of 2019. EBITDA margin was 37.4% compared to 38.2% in the fourth quarter of 2019 and 24.5% in the first quarter of 2019. Net income attributable to Daqo New Energy shareholders was $33.2 million in the first quarter of 2020 compared to $20.1 million in the fourth quarter of 2019 and $6.6 million in the first quarter of 2019. Earnings per basic ADS was $2.37 in the first quarter of 2020 compared to $1.45 in the fourth quarter of 2019 and $0.50 in the first quarter of 2019.

Now I will discuss the company's financial condition. The company remains in solid financial condition and has ample liquidity to meet its operational requirements and financial obligations. As of March 31, 2020, the company had $120.8 million in cash and cash equivalents and restricted cash compared to $114.4 million as of December 31, 2019, and $113.7 million as of March 31, 2019. As of March 31, 2020, notes receivable balance was $4.4 million compared to $5.6 million as of December 31, 2019, and $0.7 million as of March 31, 2019. As of March 31, 2020, total bank borrowings were $265.6 million, of which $149 million were long-term bank borrowings compared to total borrowings of $280.1 million, including $151.5 million of long-term borrowings as of December 31, 2019.

For the 3 months ended March 31, 2020, net cash provided by operating activities was $31.1 million compared to $48.5 million in the same period of 2019. And for the 3 months ended March 31, 2020, net cash used in investing activities was $12.9 million compared to $38.6 million in the same period of 2019. The net cash used in investing activities in 2020 and 2019 was primarily related to the capital expenditures on Xinjiang Phase 3B and Phase 4A polysilicon projects. For the 3 months ended March 31, 2020, net cash used in financing activities was $10 million compared to net cash provided by financing activities of $7.2 million in the same period of 2019.

And that concludes our prepared remarks. We will now open the call to questions from the audience. Operator, please begin.

(Operator Instructions) The first question today comes from Phil Shen of ROTH Capital Partners.

The first one is on pricing. I was wondering if you could comment on -- for poly pricing, what you see for Q2 and also Q3. Your pricing has obviously come down this year due to the COVID demand disruption. A couple of months ago on the Q4 call, you suggested that pricing could dip in Q2 and then there could be a rebound in pricing as high as $11 to $12 a kilogram, I believe, in Q3 and 4. But what's your latest view? And do you see -- well, just what's your latest view by quarter in Q2, 3 and 4?

Thank you, Philip from ROTH Capital. This is Longgen. I think if you look at our Q1, ASP is $8.79 compared -- Q4 last year $8.70 is a slight increase. The reason is because I think in Q1, even though China hit by the COVID-19 in January and February but most of factory is still running, still running. So I think the order still is -- especially, I think, the order to our downstream clients, especially LONGi, Jinko, still, I think, at full capacity running. So we overcame all the challenges, shipping -- continue shipping goods to them. Then I think starting end of March, especially beginning in last month and this month, I think the reason is because the U.S., the Europe, I think the COVID-19, I think, caused the whole market or restriction, traveling restrictions and shut down working factory. I think the order downstream, I think, ending market demand suddenly, I think, has stopped. So pushback to wafer sale, even silicon demand, is dramatic go down.

Today, we also face a lot of challenge. But we strategically signed long-term contracts with, I think, LONGi and Jinko, especially LONGi. During the Q1, difficult times, we still oversupply to our big clients. So they are also very supported in the second quarter. But the price we see in Q4 is around $7.20 to $7.50. And in May, we see the price continue go down to $7 to $7.20. So we think this price -- basically, a lot of polysilicon company is losing money. And our competitors, even Tier 1 competitors, I think, they may be, I think, shut down to do the annual maintenance or reduce their capacity, running the capacity by discount.

So we believe -- I think May and June is the most, I think, the lowest quarter on the silicon price. And the silicon price, I think, on the Q3, were back to $7 to -- or $7.50 to $7.80. Then on the fourth quarter, I think we're back to normal, $80.50 (sic) [$8.50] to $9 because that's the industry average gross margin, I think around 25%. The ASP is around, I think, $9 -- or $8.50 to $9. Just want to remind you, in Q1, our monosilicon almost account for 95%. So that's why our ASP is $8.79. If you look at detail monosilicon price, Q1 actually is $8.97 compared last quarter is $8.99. It slightly go down. ASP go up. The majority -- the major things is because our monosilicon percentage from Q4 2020, 89% to 95% in Q1. So we continue to keep such high monosilicon percentage to keep the ASP as leading in the industry.

Great. Longgen, I think on the Q4 call, you talked about being 72% booked for 2020 production and perhaps leaving 10% to 15% for the spot market. Where are you now with -- after being done with Q1 and through much of May?

Okay. Our sales pipeline still is very good. Today, our sales contract, if account our sales book, inventory is a negative 3,010, okay? And basically, this month, most -- the big client, LONGi, is shipping over our original long-term contracts. So sales is not -- to us, is not a big issue, okay? The big issue is the price. Then also -- we also -- on the annual maintenance, one by one by routine on the production line. We have 5 production lines. So basically, if you look at our guideline, we're still at full capacity running besides that the maintenance production line, and we still sell everything. So we're making efforts to make the inventory by this Q4 into 0.

Okay. Got it. And can you comment about the inventory in the downstream? How much polysilicon inventory is with your clients? I know you -- it sounds like you're selling everything, but is there oversupply from -- or too much inventory in the channel or the -- as your customers from other suppliers, for example?

Basically, Philip, I'm a little -- maybe different opinion from you. The reason is because I think the end market demand for module somehow stopped. So LONGi take advantage, along with Jinko basically, okay? I think maybe somehow together. They're going to -- actually, their inventory, their silicon product, we call it raw materials. So that's why -- let's say suppose for April contracts, we're supposed to sign contracts in March 20. So they delayed signed contract to make 0 inventory. So that's delayed the contract. So if you look at our operating cash flow, why the operating cash flow go down, because the advances, cash from our clients, especially LONGi, the contract is delayed to -- from March 20 delayed to April 15.

So we think right now, the downstream, especially our clients, the raw materials, especially silicon materials, almost it's only 1 day or 2 days. Like Jinko, almost 3 days, then order from us, 3 days order from us. So basically, they will now keep a low inventory. I understand the reason because silicon price continue to go down. And also, the downstream demand is weak or when they come -- the market come back is uncertainty. So I think at this moment, I think silicon price, especially -- I think we're hit by the demand side. We are a chemical company, continued production, you see. So we see our competitors some -- our competitors have inventory. But most of the inventory is multi-silicon. So it's unsellable. For monosilicon, it's not too much there. We know that. So we're very confident, I think, in third quarter, the silicon price -- monosilicon price will come back.

Great. That's really helpful color. Thank you, Longgen. One other one, if you don't mind, what's your outlook for the -- your cost structure? You delivered a very strong Q1 cost structure. How much more can that come down in Q2. What do you expect it to be relative to Q1 and Q2 as well as Q3?

Okay. Basically, if you look at our Q1, cost of goods sold almost dropped down $0.50, right, $0.51. I think the majority of costs go down is utility and electricity. It's almost $0.31 go down. Then also the accessory materials like package, like the core is $0.13 per kg, then also salary and wages, $0.08 per kg. So you add up together. I think -- we have to remind you Q1 is our full capacity running, the production, almost 19,777 tons. And Q2, we -- because of maintenance, we don't think the cost will continue to go down. Basically, the only item will go down in Q2 is the -- I think the metal power -- silicon metal power -- powder, right, yes, will go down. I think the rest of them, I don't think will go down. So basically, I think Q2, the cost maybe keep the same or even slightly go up.

The next question comes from Gary Zhou of Crédit Suisse.

So my first question is on the demand side. So what does management expect for the China demand this year and how much for the ex China demand and whether -- does management have any expectations for next year?

Okay. We are very prospects, I think, in the solar industry. I think there are still very optimism on the Chinese market. The reason because China may be hurt by COVID-19 in January and February. And March -- at the end of March, almost all the factories is -- come back. I think because to connect the grid I think by the end of June, rush to connect it, I think for China market, I think this year definitely, will be around 40 gigawatts to 45 gigawatts. Even I think it will be higher. The reason is because the distributor, I think -- distributed, I think, solar power implement. I think it will go up.

For the rest of the world, the reason because I think this COVID-19, or if you like, U.S., European, when they come back, I think it's uncertainty. Let's say if U.S., European, all the market come back in May, end of this month or June, then I think the industrial will come back in the third quarter. So -- but I think for the rest of the world, besides China, I think this year maybe around 70 gigawatts. So for overall, I think for all globally, I think this is maybe around 105 to 115. That's my range. I think next year definitely are very confident. The reason is because all these, I think, virus, the module price continue to go down. If you see, China are now selling module per watt, it's CNY 1.4 to CNY 1.6 per W and overseas even cheaper below USD 0.20 per watt. The demand and the grid parity is there. So next year, I think it definitely -- globally, I think it will be above 115 gigawatts. Gary, I think that's my projection.

Okay. And my second question is on the finance costs. I noticed that in the first quarter, your company's interest expense was relatively higher on quarterly basis. So is there any reason behind that? And what is our expectation for the full year?

Okay. So there were 2 parts related to it. So one is from a higher debt balance and also with higher bank fees related to notes payables and note receivables, Chinese banknotes, and also in the fourth quarter because we were at the end of our construction period. So during construction, interest costs related to new construction projects, we could capitalize part of it. But I think in Q1, the project has been finished, so there's been no capitalization of interest in Q1. So that's the main difference. I think going forward, interest expense will be approximately $5.5 million to $6 million per quarter run rate.

Okay. So my last question is on the capacity expansion. So can the management share with us whether there's any current plan for further expansion and when we can expect to have further kind of clarity on that?

I think for the 4A, we -- even though we right now run smoothly, I think still have some CapEx, I think it didn't pay. I think around like -- obviously, I think still have like -- should be like renminbi is around like CNY 1 billion, right, unpaid. Sorry, I think around CNY 600 million to CNY 700 million unpaid. So basically, right now, also, we faced that in Q2, the ASP continue to go down. We want to keep our balance sheet healthily. So we will not consider any expansion for this year. But as our financial statements continue to improve, yes, we will do revaluation to see whether we have to expand into the 4B.

The next question is from Jeffrey Campbell of Tuohy Brothers.

At high level, your forecast for 2020 volumes was 73,000 to 75,000 million tons (sic) [73,000 to 75,000 metric tons]. I was just wondering, first, how does this compare to your pre-COVID expectations? And second, do you have any sense of the preliminary 2021 outlook, again, relative to pre-COVID expectations and the world we're in now?

Okay. So actually, the production forecast has not changed before or after COVID in terms of total volume. I think what we're doing is because a lot of the impact to the end -- to our market for silicon products is very much in the near term, and we think the market will recover towards the end of this year -- in the second half of this year. So we actually are conducting our annual maintenance a little bit ahead of our original plan so that we're shifting production volume between quarters so that in Q2, we'll be producing slightly less and then we'll produce more in the second half of this year. And so that's for this year. And our total sales volume, we think, will be similar to our production volume because of the strong demand for our products, in particular, for our customer.

And then right now, for 2021, our outlook is, overall, the end market demand is likely to improve significantly compared to this year with market recovery. And so I think our production will -- we don't have a concrete guidance for production, but right now, based on our process optimization efforts, it should be higher than the production volume this year.

Also, I just want to add a comment, okay? Because at this moment, we want 0 inventory by the end of Q2 even though the ASP continue to go down. We don't want to accumulate any inventory. So that's why we moved the annual maintenance ahead. So basically on Q2 -- Q3, Q4, the production capacity, the output will come back to Q1. So that's why we keep a whole year guidance there because we believe Q3, Q4, the ASP will come back.

That's helpful. And kind of thinking toward that recovery in demand. We're hearing both at the utility level and at the residential level that there's been -- some stress is showing up in financing, particularly in the U.S. financing related to the various safe harbor and tax benefits. Just wondering, are you seeing that? Is this something that you're watching closely? And your view for solar coming back in the second half of the year, does this also include an expectation that there's not going to be major financing problems?

No. I think the U.S. -- we can see the U.S. is a big market, potentially, I think, grid parity and also potentially, I think the market is so big. But also, you can -- you have to consider in the last year, over 1 gigawatt, almost 19 countries. So basically, right now, this industrial hit is by the virus, COVID-19 virus. So we believe if this virus is gone, so the market will come back. If without this COVID-19, we think this year should be around like 140 gigawatts, even 145. So basically, we very optimized the whole market because module is so cheaper and so easy to install and to use. So basically, we're very confident, I think the market demand for the -- starting from Q3 to Q4 even next year because the module price also dramatically go down.

So let me follow up on your point. So I think if you look at end markets like Europe or Japan or China, so for these markets, the cost of credit or interest rate for debt financing for the projects are coming down. So there's excess liquidity in the market. So it's actually improved. And then with the cost of solar modules and solar projects coming down as well, the yield for the solar projects are becoming more attractive. I think the issue you raised about -- especially about, I guess, the tax credit market in the U.S., I think -- we don't have too much color on that. But just very generally, I think because this year, with the economy, right, a lot of the companies will have a reduction in profit and reduction in taxes that they would need to pay. So generally in this kind of market environment, the cost of tax credit will go up, right? So this actually would make monetizing these tax credits more expensive for the solar projects. I think the flip side is that because -- and then you have the U.S. Fed with the market stimulus that's keeping interest rates very low. So that could potentially offset some of this impact. But I think that's a very specific issue to the U.S. end market.

The next question comes from Alan Hon of JPMorgan.

I have questions -- follow-up questions on costs. Firstly, congrats on very solid cost control in first quarter. I understand that the second quarter production costs may go up a little bit as you are scaling down production. But in assuming like we ramp up to full capacity in third and fourth quarter this year, I mean how much more room might do we have on cash cost going down or further cost improvement on the cash cost versus that of the first quarter level?

I think to answer your question, if you look at our Q1, cash cost is $5. I think renminbi is around $35. Basically, we believe, okay, for the materials, for the silicon metal powder with all the long-term contracts. So we still have some room to continue to improve, especially, I think, silicon metal -- silicon powder, the price we see continue -- will go down. But for the utilities, we don't think any more room to improve. The only thing I think we can improve is the salary and wages. So basically, $5 if we continue in Q3, Q4, we continue to improve maybe, I think, have like a 5% room to improve basically -- frankly speaking. It all depends on silicon powder continue to go down. Silicon powder today, I think, account for almost CNY 4.45 per -- CNY 13.32 per kg, around $1.91 out of my cash cost of $5. So number one, cash cost is around -- account for 32.6%. It actually only account for 28.7%.

The next question comes from John Segrich of Luminus.

Just wanted just to make sure I've got the housekeeping things right. So what is the total CapEx that you're expecting for 2020? And how much of that is maintenance CapEx? And then is there any remaining CapEx that has to be paid for the expansion in 2021 that we should be modeling? And then I've got 2 more follow-ups, if I can.

Okay. So actually, I think due to the COVID-19 situation and the impact to the market, we're actually controlling our finances very carefully and strictly. And we're actually extending the payment schedule for a lot of our suppliers particularly related to CapEx. So for this year, the total CapEx is expected to be approximately $75 million to $85 million total. And of that, about $15 million to $20 million is for, you can call it, maintenance CapEx, but a lot of it is for project upgrade. And then the rest is for -- mostly for project 4A. And for next year then, there's another about $50 million to $60 million of CapEx related to project 4A.

Okay. And is that on top of any amounts that are included as payables for PP&E? Just to be clear.

It's inclusive. It's within the payables.

Within the payables, okay.

So the payables are actually -- are contractual payment obligations, but we are able to negotiate with our equipment suppliers due to the current market situation.

Okay. And then I know you gave a lot of figures kind of around percentages of everything, but I think you said electricity usage per kg was down about 7%. So what are you kind of down to about per kg now?

So we're around 66 kilowatt hour per kilogram today.

Okay. Was there anything in particular that allowed you to make that big sequential reduction? It's quite a big improvement.

Yes. So it's truly process optimization, where we've optimized our process so that we could reduce electricity usage relative to what we've done in the past, also the equipment. So I think if you remember the Phase 4A projects now have either 72 or 80 [rod] reactors versus our older reactors or maybe, for example, 48 rod in the past (inaudible). So -- because these longer reactors also have a more efficient usage of electricity. And for our front-end process as well with our new capital equipment. So that allowed for electricity usage reduction.

The unit price go down, unit price.

And then also, our electricity cost came down as well.

Okay. Where is that now?

We cannot disclose specific numbers, but overall, it declined approximately 10% around -- Q-over-Q.

We can tell him the total usage per kg. The average is actually -- I think consumption is 66 kWh, and our cost is CNY 11.75 per kg, so calculating by yourself the unit cost.

Okay. And then last one, I know at the end of 2018, you guys acquired a subsidiary company, Daqo Investment, I guess?

Yes.

And I think you have $18 million or $16 million -- or had $16 million to pay for that. What does that company do? And what was the point of the acquisition?

I think -- okay, let me just reflect you, okay. The Daqo Investment company original is owned by the group. The reason is because the company buy a piece of land due to 2 -- I think, 1 dormitory for our employee to -- lodging, okay, a building actually like the employee lodging facilities. So at that time, we needed investments to do the construction of the building. So we don't want to touch the business. So Daqo Group, I think, invested money in the investment company. Then I think in 2019, because we want to go -- I think domestic third -- we call third exchange -- or user exchange board. So we have to change the Xinjiang plant -- company, limited company, energy limited company, 1% is selling to this company. So this company also own 1% of the Xinjiang facilities, okay? So then later because we withdraw from the New Third Board, so we buy back this company, okay, with 1% ownership plus the building, the employee building. So that's why the part of evaluation you see, the $16 million that you're talking.

The next question comes from Colin Yang of Daiwa.

This is Colin from Daiwa. I got a follow-up question on polysilicon price. Understood Mr. Zhang said about we expect a recovery in price in third and the fourth quarter this year probably due to the recovering of global demand. But on the other hand, our major clients, the wafer producers, including LONGi, Zhonghuan, they were still in the middle of the price war of wafer. So wafer price is likely to keep dropping in the second half despite a recovery in global demand. So do you think it's still likely to see the polysilicon price goes up even the wafer price will keep dropping? And do we see a lot of the price cutting pressures from the wafer producers?

Okay. To my concern is because I think LONGi, Jinko, the downstream major player used to take advantage of that virus situation to 0 their inventory. Then besides that, they may be on the supply side, demand side on the wafer side, the price continue go down. So push -- I think the silicon price continue go down because silicon -- we manufacture silicon perpetually. You know that. It's a chemical company. For example, if LONGi supposed to sign contract with us for April, should be signed the contract in March 20, if they move to April 15, so almost 1 month delay. So of course, the demand and supply totally has changed the situation.

So that's why I think today, the monosilicon price go down. But you have to consider that. If, let's say, they import silicon from OCI, from Wacker almost become 0, then the domestic monosilicon supply is there. It's not too much there, okay, even though some players have inventory. Majority of their inventory is the multi-silicon. It's not unsellable multi-product, okay? So we believe, as far as the demand come back, the downstream module, majority right now, even I think 90% of module is a mono module. So then as the wafer capacity continue full capacity running also expansion, we believe silicon price definitely will go up. Today, if, let's say under -- if today it is $7.20, how many silicon company can make a profit? Because we -- our ASP is a little higher really because -- where 95% of our product is monosilicon. Only 5% is multi-silicon. We even use partial, 50%, of multi-silicon to produce our own core. So basically, if you look at today's price, a lot of company, most of the company is -- lose money. Even Daqo, maybe Q2, you can calculate it, our gross margin may be deteriorated, you see. And the bottom line, maybe -- I think it is just up -- just above -- maybe above 0.

Understood, understood. Okay. The second follow-up question is still about our financing expense because our total interest borrowing debt was just up like 38% year-on-year from 1Q '19 to 1Q '20. However, our interest expense was like up by over 200%. Understood Mr. Yang who's explained that it was some -- partially because of higher banking fees. So I want to learn if you can share the exact interest rate from 1Q '19 to 1Q '20.

So the interest rate currently is roughly 6% per annum on our debt balance. And actually, for last year, I believe it was similar as well. So the interest rates haven't really changed. Well, maybe it came up slightly because we have higher amounts of longer-term duration debt for our capital projects, which carries a higher interest rate.

I think -- yes, the short-term banking loan average cost is 5.5%. The long term, I think, fixed asset loan is around $5.67 per -- annually. No, I think -- yes, the banking loan total is around $265 million. I think the temporary reason because, you see, in the rush payments on the Q4 -- 4A project, but step by step, as the cash continue to flow from operating side, I think the interest -- I think expenses should keep around like 5 million to 5.5 million, I think, per quarter.

Next question is from [Satyan Shah], a private investor.

The question I have is more due to the political tensions between United States and China currently. I'm not sure if you're aware, but there is a new legislation going into the Senate today that basically, it would require Chinese companies to establish that they're not owned or controlled by the government and that they would be required to submit to an audit that could be reviewed by the public company accounting oversight board. How would that -- if that legislation was to pass, would that -- how would that affect U.S. investors' ability to still invest with you guys here? What are your views?

I think, first of all, I won't comment on PACOB (sic) [PCAOB], yes, what are they doing. But in the history, I think in 2009 -- 2010, if you look back in that 2010, I think also some crisis, a lot of Chinese company, I think from OTC at least to main exchange. Also, I think PACOB also looking for worksheets from auditor. I think Chinese government, at that time, I think, opened certain number of public company to let the PACOB review. I think today, for example, like Daqo is almost listing in the United States, New York Stock Exchange, 10 years. So our Board is, I think -- thoroughly, I think, auditable and transparency. So we're not afraid of that basically, and we support any, I think -- we support any transparency and -- because we are public company and we have to follow the law. So no more comments on that -- your question.

Okay. No, that's fine. And then my bigger question is for the company in general. Over the next year or 2 as the solar industry sort of recovers as you've elaborated on, what does Daqo look like a year from now in your estimation as a company?

I think we -- okay, basically, today, we almost account for the market share 15% on the -- I think, on the silicon supply on the PV industry, the up, I think, segment. So we definitely is the key player right now in this industry. As you can see, the silicon imported from overseas, I think from this year, almost gradually, I think, were to 0. So basically, the Chinese silicon was substitute for the imports, the first. Second is if you look at the PV industry in the future, I think -- definitely, I think it's very, I think, optimistic. So we believe -- I think this industry will continue to grow. And definitely, we also see all players, for example, the Asia company continue to expansion, but we will watch the market. And we will do our -- I think, because we believe we will, I think, strengthen our efforts. So basically, when we look at the market to see whether we will continue to expansion or not on the polysilicon side, meantime, we're also looking for both, I think, domestic or overseas opportunities. So basically, we're also doing other -- for example, the special gas, other projects to see -- continue to increase our revenue avenues, you see, and to, I think, strategically to make, I think, Daqo more strong to continue to grow on the revenue side and also on the cash statements.

The next question is from Robin Xiao of CMBI.

My question is regarding -- about the capacity from the industry. So basically, a lot of factory is making the same margin for the current price, but we didn't observe lots of maintenance from May. So what do you see your competitors' maintenance schedule? Were they focused in July or April? So -- or August. So what's the color for these peers' capacity plan?

Okay. Basically, I think if you look today, I think, especially during the Q2, a lot of company -- even Q1, you see the ASP continue to go down. A lot is in actually already consolidation. So in China, basically right now, the major 5 company is there. I think besides Daqo, Tongwei, TBEA, right -- TBEA, New Hope, New Horizon and also [Foreign Language] GCL. I think that's the major player there. So if you look at those 5 players, I think New Horizon because of the quality issues and also the capacity only, I think, can achieve around 40,000 tons to 50,000 tons. And also, they're going to go downstream, vertically integrated. So basically, in the future, I don't think they are the competitors in the polysilicon segment. Then GCL basically is a joint venture with Zhonghuan. I don't think they will continue expansion that facilities, around 40,000 tons right now running. And basically, the majority supply to Zhonghuan. Zhonghuan also buy some from us. So the only, I think, major 3 player is TBEA, Daqo and Tongwei.

So today, on the quality side, we are -- almost 95% is monosilicon. And our competitors -- I'm not mentioning, okay, especially, I think other 2, they also have new, I think, projects -- new facilities just opened last year. The production is not stable. And also, quality is not stable. I'm not saying -- go ahead, you can call them to dig on their inventory. Basically, we -- right now, the inventory almost is 0, okay? We sell whatever we produce. So basically, in this market right now, today's price is opportunity for consolidation. And I think also good opportunities for our future. So after maybe Q2, even half of Q3, I think the survivors will enjoy the market.

So for maintenance, do you see a lot of factories which choose to have their maintenance plans in July?

No. I think there are some plans. We know that they also move to second quarter because second quarter right now, the selling price is so weak. So I believe, I think, some is more. Some still will be in, I think, September, October. The reason is because the maintenance for the winter. So I think I only can say maybe right now 50% of the company is -- any maintenance right now happened in Q2, then 50% will -- maybe occurred in Q3, Q4, early Q4.

Okay. My final question is regarding about the monthly supply/demand balance. So from the monosilicon products perspective, what do you see? What's the monthly supply and demand balance in the market? If you can, would you please share in gigawatt basis also?

I think basically, as the technology continues to improve, you have to remember -- I'll remind you that per gigawatt wafer basically -- per gigawatt, whatever the downstream products, the consumed silicon is -- continue go down, okay? If, let's say, 2 years ago, maybe consumed 4.5 grams silicon per watt. So that's why the module price went -- the module cost -- of the module cost, silica is not #1 cost right now. The #1 cost is glasses, okay? So basically, we believe on a mono module right now, per watt cost of silica is around like 3 grams to 3.2 grams. So if you -- calculation, let's say, this year, it is around, let's say -- I think if you -- calculation based on the wafer capacity, this year, I think it's around like 135 gigawatts, okay? So that will consume, I think, around 400,000 tons of silicon. So per month, I think it's around like 35,000 to 36,000 tons average speaking. But right now, I think maybe around 30,000 to 32,000 per month. That's the demand side.

The supply side, I think -- okay, basically, because of the -- I think Q1, the COVID virus caused some small wafer plants shut down. So then -- we are chemical company, continue running. So one of -- besides our -- Daqo, maybe other silicon producers have some inventory there, then LONGi, Jinko, when they, in March, come back, they consider -- they want to 0 inventory, the sale -- the wafer price go down, reduce, go down. So that's why they push the demand, go down, then supply still is there, then push the price, ASP go down today. Basically, I think solar wafer is around 55 to 58. But I think this is, I think, almost a bottom. I don't believe we'll continue to go down further.

I have still one follow-up question about the inventory strategy from downstream. You've mentioned about Jinko and LONGi. They're trying to maintain very low inventory level for now. So they keep ordering for maybe 2 to 3 days. So at what time -- point you think they will change that strategy? Could you please share any color on this?

I think maybe by the Q3 when the module -- the end market come back and I think the sale and wafer demand is -- come back to normal. And not only besides LONGi and Jinko because also other companies like (inaudible) Zhonghuan, all the companies running, and the demand will be, I think, more. So definitely, I think that they have to accumulate some inventory. Otherwise, their supply will be interrupted. We cannot -- I don't think that they can keep like this way. The reason is because right now, it's not too much. Other players is doing small. Maybe players right now cut their capacity. But when all capacity is running, then also the wafer capacity expansion continue to -- going on for the next year because people will foresee next year, the potential market is there. So I think it will come back at least 1 week inventory. So the demand definitely will come back.

The next question is a follow-up from Gary Zhou of Crédit Suisse.

Just a quick follow-up question. So as you said, some of your key foreign polysilicon producers are currently under suspension. So just wondering when do you expect we may hear further kind of a final kind of exit -- capacity exits on those companies.

Basically, I think, Wacker, you already heard that. I don't think the major -- I think they focus on the semiconductor polysilicon, maybe have some byproducts, continue to provide to the solar industry, but it's not too much. It's not -- number is not accountable. The only thing that I think, maybe OCI, I think Malaysia, right -- Indonesia, Malaysia, I think, their plants. And we know that. Malaysia, right now, today, we supplied LONGi the selling price around $7.20, we believe, okay? The Malaysia plant also is not compatible. So their capacity right now is around 30,000 tons. So that's only right now the overseas, I think, capacity there. Gary, does that answer your question? So then you -- also coming to -- I think the silicon association, they have, every month, the import figure, China import silicon figure there. We can give to you if you want.

Yes. Okay. That's very helpful.

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin He for any closing remarks.

All right. Thank you, everyone, again for participating in today's conference call. Should you have any further questions, feel free to contact us. Thank you, and bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.