大全新能源 (DQ) 2023 Q1 法說會逐字稿

Good morning, and welcome to the Daqo New Energy First Quarter 2023 Results Conference Call. (Operator Instructions) Please note the event is being recorded.

I'd now like to turn the conference to Kevin He, Investor Relations for the company. 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 just issued its financial results for the first quarter of 2023, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have prepared a PPT presentation for your reference, which also you can find in our website.

Today attending the conference call, we have our CEO, Mr. Longgen Zhang; and CFO, Mr. Ming Yang and myself.

So today, 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 contained in any forward-looking statements. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's conference 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.

Now, without any further ado, I now will turn the call to our CEO, Mr. Longgen.

Thank you, Kevin. Good evening or good morning, everyone. Our efficient operation of polysilicon facilities in the first quarter of 2023 resulted in a production volume of 33,848 metric tons. Our production cost decreased by 5.5% in renminbi terms, primarily due to a reduction in the procurement cost of metallurgical-grade silicon powder. For the quarter, we generated USD 490 million in EBITDA, with strong operating cash flow and maintained a healthy balance sheet. Our cash balance further improved to USD 4.1 billion, and our combined cash and banking note receivable balance reached to USD 4.9 billion.

In April, we completed the construction of our Phase 5A, which is 100,000 metric tons polysilicon project in Inner Mongolia and successfully started initial production of polysilicon. We expect to ramp up production to full capacity by the end of June 2023, bringing our total polysilicon nameplate capacity to 205,000 metric tons per annum. Therefore, we expect our total production volume to be approximately 44,000 metric to 46,000 metric tons of polysilicon in Q2. 2023, an increase of 30% to 36% as compared to Q1 2023, and approximately 193,000 metric tons to 198,000 metric tons of polysilicon in the full year of 2023, an increase of 44% to 48% as compared to last year.

In addition, based on the latest project schedule, our new semiconductor-grade polysilicon project with 1,000 metric tons annual capacity is expected to be completed and start pilot production by the end of September 2023. With its new fully digitized and highly automated production system, we believe our Phase 5A Inner Mongolia project will bring in the company to a new level of -- to new level in terms of the overall competitiveness, including its production capacity, lower cost structure and superior product quality.

Polysilicon demand was weak in January due to the seasonal slowdown in the solar PV industry. In February, lower module prices stimulated end-market demand, causing a meaningful recovery in demand and price improvement across the solar value chain. In March and April, polysilicon ASPs declined gradually due to increased supplies and constrained short-term demand for wafers caused by the limited supply of high-purity quartz used in silicon-ingot production process.

Despite the ASP decline in the quarter, in our major operational subsidiary, Xinjiang Daqo, we still achieved very strong gross margin of 71.4%, and robust net income after tax per unit of polysilicon sold of approximately RMB 115 per kg, which we believe are significantly high than those for many of our competitors and reflect our outstanding quality and cost structure.

Recently, we have seen a clear trend that the ASP gap between the high quality and low-quality polysilicon has started to enlarge and the demand for high quality N-type products is increasing We expect that this trend will enable us to differentiate ourselves from our competitors based on our high quality and low cost polysilicon ready for the next-generation N-type technology. We believe that the overall demand for solar PV will continue to grow in the coming quarters and that continued capacity expansions by downstream manufacturers will lead to further increases in polysilicon demand.

In the second quarter of 2023, our Phase 5A project will start to continue a meaningful output of approximately 10,000 metric tons to 12,000 metric tons of polysilicon. We plan to reduce our inventory to approximately 5,000 metric tons by the end of the second quarter. To achieve this, we will need to increase our shipment to 59,000 metric tons to 61,000 metric tons in Q2, an increase of 133% to 141% as compared to Q1.

In November 2022, our Board of Directors approved a USD 700 million share repurchase program, effective until December 31, 2023. As of now, we have already spent USD 85.1 million and repurchased approximately 1.688 million ADS. On April 6, 2023, our subsidiary, Xinjiang Daqo's cash dividend plan for 2022 was approved by its shareholders' meeting. Therefore, as a 72 7% shareholder of Xinjiang Daqo, we expect Daqo New Energy to receive the dividend distribution in May with an amount of approximately RMB 4.96 billion after tax, which could be the financial resource to implement the improved share repurchase plan.

We believe a new era for solar PV has just begun. The continuous cost reduction in solar PV products is expected to create substantial additional of green energy demand, likely exceeding most analysts' expectations. It is generally expected that solar PV will eventually become one of the most important energy to power the world.

In addition, as solar PV technology keeps evolving, we believe that the increasing needs for polysilicon of very high purity will help differentiate us from our competitors, thanks to our ability to produce the type of polysilicon required for the next generation of N-type technology. We will continue to maintain solid growth and make sure to have one of the best balance sheets in the industry in order to capture the long-term benefits of our global solar PV market.

Now, let's move to the outlook and the guidance. The company expects to produce approximately 44,000 metric tons to 46,000 metric tons of polysilicon during the second quarter of this year. The company expects to produce approximately 193,000 metric tons to 198,000 metric tons of polysilicon for the full year of 2023, inclusive of the impact of the company's annual facility maintenance.

Now, I'll turn the call to our CFO. Ming, please?

Thank you, Longgen, and good day, everyone. Thank you for joining our earnings conference call today.

Let me start with the discussion on our company's balance sheet and our strong cash position. As Longgen indicated, the company ended the first quarter of 2023 with cash balance of $4.1 billion, which is an increase of more than $600 million as compared to the end of 2022. Inclusive of the company's bank note receivable balance of $791 million, total cash and bank note receivable balance reached $4.9 billion at the end of the quarter. These bank note receivables are notes issued by major domestic banks used for trade financing purpose and can be either immediately redeemed for cash or used to pay suppliers for raw materials and equipment purchases.

On a per share basis, reflecting Daqo New Energy Corp's 72.7% ownership of our operating subsidiary, Xinjiang Daqo, this equates to approximately $45.70 per share of ADS. This represents the value of the cash alone, an exclusive value of our property, plant and equipment, which at the end of the quarter has a $2.88 billion value on the balance sheet as represented by our 2 world-class polysilicon production facilities, which has combined nameplate capacity of 205,000 metric tons and continue to generate healthy operating cash flow on quarterly basis with our leading product quality and low-cost structure. And this is witnessed by more than $800 million in cash flow from operating activities in the first quarter of this year.

With regard to our capital expenditure and capacity expansion plans, for the first quarter of 2023, purchase of PP&E was approximately $277 million, which was primarily related to our polysilicon projects in Baotou City, Inner Mongolia. At the end of March, approximately $1.2 billion had already been spent on the Inner Mongolia Phase 1 project, with total planned CapEx of approximately $1.4 billion.

We expect the remaining $200 million will be spent by the end of this year. For Inner Mongolia Phase 2, we expect total CapEx will be approximately $1.4 billion as well. We currently expect CapEx related to this project will be approximately $800 million for this year and the remainder will be paid in 2024 and 2025. For the Inner Mongolia Phase 2 project, the project construction schedule may be adjusted based on market conditions and we may adjust both project construction schedule and project progress and capital expenditure plan accordingly.

Now, I will discuss the company's financial performance for the first quarter of 2023. Revenues were $709.8 million compared to $864.3 million in the fourth quarter of 2022 and $1.28 billion in the first quarter of 2022. The decrease in revenue compared to the fourth quarter of 2022 was primarily due to a decrease in average selling prices.

Gross profit was $506.7 million compared to $668 million in the fourth quarter of 2022 and $813 million in the first quarter of 2022. Gross margin was 71.4% compared to 77% in the fourth quarter of 2022, and 63.5% in the first quarter of 2022. The decrease in gross margin compared to the fourth quarter is primarily due to lower average selling prices, mitigated by lower production cost.

SG&A expenses were $41 million compared to $44 million in the fourth quarter of 2022 and $15.5 million in the first quarter of 2022. SG&A expenses during the first quarter includes $28 million in non-cash share-based compensation costs related to the company's share incentive plan compared to $28.4 million in the fourth quarter of 2022.

R&D expenses were $1.9 million compared to $2.7 million in the fourth quarter of 2022, and $2.1 million in the first quarter of 2022. R&D expenses can vary from period-to-period and reflect R&D activities that take place during the quarter, which primarily related to our quality improvement initiatives.

Income from operation was $463.8 million compared to $623 million in the fourth quarter of 2022, and $796.9 million in the first quarter of 2022. Operating margin was 65.3% compared to 72% in the fourth quarter of 2022 and 62% in the first quarter of 2022.

Net income attributable to Daqo New Energy Corp. shareholders was $278.8 million compared to $332 million in the fourth quarter of 2022, and $535.8 million in the first quarter of 2022. Earnings per basic ADS was $3.56 compared to $4.26 in the fourth quarter of 2022, and $7.17 in the first quarter of 2022.

Adjusted net income attributable to Daqo New Energy shareholders including non-cash share-based compensation costs -- excluding non-cash share-based compensation costs was $310 million compared to $363 million in the fourth quarter of 2022 and $538 million in the first quarter of 2022.

Adjusted earnings per basic ADS was $3.96 compared to $4.65 in the fourth quarter of 2022, and $7.20 in the first quarter of 2022. EBITDA was $490.2 million compared to $648.5 million in the fourth quarter of 2022 and $826.8 million in the first quarter of 2022. EBITDA margin was 69% compared to 75% in the fourth quarter of 2022 and 64.6% in the first quarter of 2022.

Now on the company's financial condition. As of March 31, 2023, the company had $4.13 billion in cash and cash equivalents and restricted cash compared to $3.52 billion as of December 31, 2022 and $1.12 billion as of March 31, 2022. And as of March 31, 2023, notes receivable balance was $791 million compared to $1.13 billion as of December 31, 2022 and $1.5 billion as of March 31, 2022.

Now on the company's cash flows. For the 3 months ended March 31, 2023, net cash provided by operating activities was $807 million compared to $231 million in the same period of last year. And for the 3 months ended March 31, 2023, net cash used in investing activities was $268.9 million compared to net cash provided by investing activities of $170.4 million in the same period of 2022.

And for the 3 months ended March 31, 2023, net cash provided by financing activities was $59.9 million and this was zero for the same period of 2022. The net cash provided by financing activities in the first quarter of 2023 was primarily related to the net proceeds of $140 million from bank borrowings, offset in part by $80.1 million spent in share repurchases.

And that concludes our prepared remarks. Now, operator, we'd like to open the call for Q&A from the audience.

(Operator Instructions) Our first question will come from Phil Shen with ROTH Capital Partners.

First one is on your shipment volumes. Why have volumes been so low as a percentage of production for 2 quarters in a row? We thought you might ship more than 100% of your production in Q2 because of the inventory -- sorry, in Q1 because of the inventory that you didn't ship in the prior quarter. When do you think you'll release that inventory?

I think I feel -- I think our first quarter still is Chinese New Year. I think at January, the sales really very slow. And also remember that the downstream, the wafer producer, the capacity in the last year, starting November, December, they almost reduced the capacity to the minimum capacity, the maintenance capacity. We call maybe 20% or 30%. As the capacity quickly come back, so we are starting selling actually in February and March. And some March shipments to the end of the month, we have to move to second quarter.

So basically so far this quarter, as of today, the April, we already signed contracts more than 20,000 tons right now. So, we see second quarter, the selling volume should be high. So, we expect we can reduce our inventory. By the end of last quarter, it's 20,000 tons, by the end of this quarter -- second quarter to 5,000 tons, just the regular shipping goods in the way. So basically this month, sales volume mostly we're shipping this quarter.

Great. And I did see your Q2 shipment guidance there, I think 59,000 metric tons to 61,000 metric tons. So, that's great. Can you talk about the outlook for poly pricing for Q2, Q3? And what -- how you're seeing 2024, given the supply-demand situation for poly?

Basically, I cannot give you the projection of the future. But basically, if you look at our Q1, our selling price is $27. We see the selling price, especially as the wafer prices go down. Then if you look at China, the future Q3, Q4, the module selling price, the contract price, bidding price also is slowed down, you see. So basically, what that tells you is, if from silicon wafer cell module, the cost right now today is around like RMB 0.98. So, you selling module -- for Q4, you're selling like $0.175. You divide by value-adding tax, so the net may be is around like $1.50. So, the gross margin whole industry is around like $0.50 or even $0.45. Compared to last year, selling last year is around $0.74 as the module selling price to renminbi per watt.

So basically, we will see second quarter, definitely, I think the ASP will slightly go down. And how much, I cannot tell you? Because we see right now the price is stable around RMB 180 per kg, maybe in the next 2 months with a continued slowdown. But I think still, the ASP will be, I think, between the US dollar around 20 to 25. In the third quarter, it all depends on how many the new, I think, production come out, how big the demand pick up.

So really, we think, Q3, the selling ASP will be stable, maybe as Q2. Then Q4, mostly is challenging every year, okay? Not only because of holiday Western, but also I think in China, the traditional, I think the bargain between silicon and wafer. So basically, Q4 is a challenging quarter. So maybe I think it will go down to 150, even 120. So, I cannot tell you the exact figure. And if you look at 2024, as we said, the demand is continuing to grow. Of course, silicon output in China also continued to increase. So Daqo is differentiating ourselves to selling more high quality of N-type silicon to differentiate ourselves from other people.

So we, hopefully, OSP selling a little higher than our competitors in China. Today, Wacker, OCI, they're still selling around like $35, $37 per kg. The reason is because use their silicon outside of China, can ship into US market. So the differentiator is already there, you see. That's a logistic differentiator. And our efforts is on quality, our costs. So even though we think that 2024 is a challenging year, okay? Let's say the industry maybe gross margin is around like 5% or even 10%, we hope Daqo can achieve premium 10% to 15% little more, so we can do 15% to 20%. That's only I can tell you.

Okay. That's a lot of color. You talked about the pricing premium that you think you might be able to get. I think you just talked through that a little bit. But specifically, I think in Q1, I think your ASP was close to $27 per kilogram and the average spot price was closer to $24. Can you talk about the realized -- what your realized premium is due to your quality? Is it about $4 a kilogram? Or is that difference in the first quarter primarily due to better timing of your poly sales versus spot pricing?

Basically, right now N-type and P-type, we already see the difference, I think is there, around RMB 15 to RMB 20 per kg. We think that difference will be enlarged maybe later, because you see, as the top account capacity continue to come out, then the demand for N-type were more. So basically, we think in the future, our selling price should be -- if we can sell 70% of our product is N type, so basically, I think the price maybe $5 difference. It's possible. But I can tell you, you see exactly the future how the future is going, you see. Really, it's a lot of challenge.

But most important to us -- yes, the most important to us is we have a fortress balance sheet. As Ming just said, we're now today, the banking notes receivable plus cash is almost USD 5 billion. We continue to generate the cash -- operating cash and we try to control our CapEx as the market continue growing. For example, if the market go into more worst scenario, then Inner Mongolia 5B, we can slowdown CapEx. So, we continue to focus our -- I think, strengthen our balance sheet. That's the most important, I think.

Great. Okay. And given that -- this is my last question here. Are you planning to do additional buybacks this year beyond the $700 million approved? What are your thoughts on that given the cash that you have?

At this moment, I think we just declared $700 million. We already used, I think, around 85 million, so we're only left with $615 million. And the dividends, I think, to slow the foreign exchange, I think were heated accounts, I think the early of May. So even, let's say, we still have like a $615 million compared to the capital market, it's almost 18% of our total shares -- outstanding shares. That's a lot. So basically, all the repurchase program we have to change to from renminbi to foreign exchange. So the only right now reliable source is the dividends declared. So basically, I only can tell you so far only is the -- I think, today by the end of this year, we still forecast USD 700 million repurchase program.

Our next question will come from Gary Zhou with Credit Suisse.

This is Gary Zhou from Credit Suisse. So 2 questions from my side. So firstly -- so also to follow-up on the buyback. So as Longgen had mentioned, basically, the rest of the amount is quite a significant amount to proceed. So just wondering if the company have kind of a more -- can you give us more color on the timing, how we are going to proceed all those buyback? Or if there is kind of a price range that we would think we would have more -- do more kind of a share buyback?

And secondly, a quick question, just wondering if management can give us some color on the April kind of polysilicon sales? So have we kind of start to see our inventory start to going down in April? And basically, just one time more. Kind of idea on how confident the management believe that our inventory can reduce quite a lot in the second quarter?

I'll let Ming answer your first question, buyback color. I'll answer your second question. Ming?

Okay. Gary, thank you for your question. So as Longgen indicated earlier, so we do have our $700 million share repurchase program, of which $85 million has been used and there is $615 million left. And this program is really through the end of 2023. So, we did just receive the dividend distribution from Xinjiang Daqo. It's en-route right now and needs to be transferred offshore. So in total, this will be approximately RMB 4.96 billion or just north of $700 million. So certainly, we do anticipate this would be the financial source that could be used to fund our share repurchase plan. I think in terms of timing, there's really no specific timing, except that it will be repurchased throughout the year. And we will definitely take opportunity to look at the share price, especially if share price is really attractive, we will look for opportunities to repurchase plan.

Gary, I think -- I just answered, I think a few question about the April, I think, shipment movement. By the end of first quarter, we have an inventory around the 20,000 tons. And in April, I think we saw the contract right now so far today is more than 20,000 tons. So, we see is very quick right now the rollout. Especially, we see a lot of customer come back, book more silicon. Because today, the scenario is different from the history.

The history is every month, we sign the contract. Right now, almost every week we sign the contract with clients because most of clients is little worried. You see the fluctuation of the silicon price. What we see right now is the price is stable, almost stable between RMB 170 per kg to RMB 200 per kg. Hopefully, I think that price can stick on that or even gradually slow down. So basically, we think in May, next month, we will sell more. So our expectation, the guidance we already gave out. I think we will keep at the end of this quarter, the inventory to 5,000 tons, that is in the shipments. We cannot recognize as the revenue, hopefully.

Our next question will come from Alan Lau with Jefferies.

So, I would like to ask from a more long-term perspective because some of the peers have been very aggressive, capacity expansion plan. More than 400,000 tons next year and also some of the peers are having very low cost with FBR technology. So, I would like to know your strategy in maintaining your market share. Or will there be acceleration in capacity expansion, or there will be partnership with some of your peers to stabilize the price?

Okay. Alan, thank you for your question. So, we did see our peers aggressive capacity expansion plan. I think it is subject to, for example, their funding from the Asia capital market in terms of their additional capital raising. And also, I would say a lot of these projects also more or less will be subject to market conditions, for example. So as we indicated, right, market condition is good. So for example, if demand in the second half remains strong and polysilicon pricing remain healthy, then we may decide to, for example, move our Inner Mongolia Phase 2 project on track and looking at additional capacity plan.

But let's say if polysilicon pricing does become less than attractiveness, then certainly we will delay our project expansion and we would not look to accelerate capacity expansion for us. And if that's the case, we also would think that a lot of the planned projects expansion would slow down or cancel, and actually some of the new capacities that do not reach either quality or cost targets actually might shutdown or close down as the industry has seen in the past. Okay.

And with regard to costs, we do believe that, at least in terms of the Siemens process type polysilicon, where we are now more than 99% of our production is mono-grade and we are also one of the largest supplier of N-type poly in the market within China right now. So, I think we continue to have some of the best quality, especially for the entire -- I think our products are really accepted by customers.

I think our understanding is even though maybe some manufacturer with different process might have lower costs, we do believe that the product, I think once go into N-type products where, especially, I think in the second half of this year and next year, we do believe as quality becomes more important, when polysilicon become more available, we do think that quality will make a big difference, especially with regard to pricing.

And what we're seeing in the market already is that -- in the lower quality product, it does have much lower pricing than the higher quality product. I think, in fact, what we are seeing in the past month is that a lot of the price, the gradual price decline that we saw in the market actually was the result of more of these lower quality products moving into the market and they had to offer a lower price to the market. But that is pulling down the overall average pricing of polysilicon in the market currently.

Understood. So another question from my side is, how do you see the costs going forward like? Do you think our production costs can get below RMB 50 eventually with optimization and ramping up of new plants?

Okay. So actually, Alan, so for example, right, so if you compare our Q4 production costs compared to our Q1 as we indicated, actually it went down almost 6% quarter-over-quarter RMB basis. So, I think in terms of RMB , our Q4 cost was close to RMB 55 per kilogram and then our Q1 cost is actually already close to RMB 51 per kilogram. So, I would say we do anticipate that once we ramp up our Inner Mongolia facility, which has, I think in terms of one single site, it has a similar or even better manufacturing process compared to our Xinjiang facility with less people with an updated process. So, we do think that we have very good opportunity to see additional price reductions as this facility ramps up. And I think in terms of our internal planning, we do think that it has very good opportunity to reach the price -- the cost targets that you've indicated.

Our next question will come from Rajiv Chaudhri with Sunsara Capital.

Congratulations for producing a strong quarter in very challenging circumstances. I just want to follow up on the cost question. You are also beginning to produce the raw material internally now or at least the capacity is being built for that. How will that shape your cost structure in the coming quarters?

I think -- yes, as you already know, we're planning to invest silicon metal in Mongolia. But we are still in the proceeding to get to the license and the improvement -- the energy improvement. So hopefully, right now, the schedule is all of those licenses, we'll maybe get by the end of the July. So basically, if we got everything smoothly, then we're starting, I think the build-up for the polysilicon metal plant. Hopefully by the end of this year or the Q1 next year, we can produce silicon metal. I think that will dramatically reduce our costs maybe. But now, I think silicon powder is around like 20,000 tons -- 18,000 tons per ton. I think we can go down to 10,000 tons per ton. So basically, I think the cash costs are at least reduced, I think $7 to $8. Yes.

Okay. So $7 to $8. So that would reduce your...

RMB 7 to RMB 8 per kg. Right now, for example, our cash cost right now first quarter is $45. So if we produce our own, I think silicon metal, we can reduce to maybe around RMB 37, RMB 38.

RMB per kilogram.

(Operator Instructions) Our next question will come from [Rocky Lin] with [AIIM Investments].

Congratulations for the good earnings. My first question is, could you tell me our repurchase program, the pace of our repurchase program? I mean, will you repurchase your 600 million in this year?

Yes. I think the current plan is still to complete the program for the current year. And I think in terms of pace, it should be more or less stretched out over the year. At least that's the current plan right now.

Okay. Got it. And my second question is, the other competitors are expanding their capacities, but I'm thinking maybe somehow our supply. So is it possible that you will stop your expanding plans for the second stage of the phase funding plan in Inner Mongolia?

Okay. So I would say, overall, there is no oversupply of polysilicon in the market today. I think right now the supply and demand is relatively balanced overall. And there is actually a very healthy demand from the end market. What we are seeing is -- because right now we're in April, right, so the peak market demand and installation and timeframe has only reached generally in the summer and starts from June really through October, okay.

So, we think really Q2 and certainly Q3 demand should be much stronger than Q1. And what we are seeing at least in the very near-term is, as a polysilicon manufacturer, we do sell our products to wafer manufacturers. And also wafer manufacturers are running at very high utilization levels. We're looking at production from industry estimate somewhere in the range of 40 gigawatts to 45 gigawatt per month. Right now, the overall capacity is actually -- production is actually constrained by the availability of high quality -- high-purity quartz used to make these quartz crucibles. So in the very near term that's limiting their total production and availability, or the ability to utilize polysilicon to be made into a wafer.

So, we do estimate that the industry current consumption on monthly basis of polysilicon is somewhere between 100,000 metric ton to 110,000 metric ton. And that's actually similar to the amount of production of polysilicon currently in the market. So, I think that the demand and supply condition is relatively balanced right now. And I think unless we see substantial, let's say, increase in polysilicon production availability without an increase in, say, end market demand or in wafer production capacity, for example, then that may have the kind of scenario you've indicated. But we're not seeing that currently.

Yes. See if the pricing kind of contracts down, really low, like less than -- maybe less than $10 -- less than maybe like [RMB 10 per kg]. I mean, will you stop your expansion plant?

If polysilicon pricing, let's say, yes, goes down to less than USD 10 per kilogram as an assumption base, I think we will slow down our capacity expansion.

Our next question will come from Chao Ji with Goldman Sachs.

Can I ask, if you would have any guidance for the production costs for the second quarter? And also, would it be possible for you to share your current and second quarter expected cash cost level?

Okay. Chao, thank you so much for your questions. So this is Ming, the CFO. So, I would say that for our Q2 costs, I think, looking at the most recent trends of our raw materials, especially for silicon metal as well as for electricity, for example, we expect these to be very stable. And so overall, we believe our Q2 costs -- so even though we're ramping up Inner Mongolia currently, we do think that our Q2 costs should be fairly similar on a RMB basis compared to our Q1 cost structure. And actually, going to Q3, the cost should decline as Inner Mongolia starts to be close to fully ramped.

For the second quarter, the cash operation -- operating cash should be higher than, I think, at the end of Q1. The reason is because sales volume is high. It's almost 133% to 141% increase compared to Q1.

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

Thank you, everyone, again for participating in today's conference call. Should you have any further questions, please don't hesitate to contact us. Thank you, and bye-bye.

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