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Edited Transcript of DQ earnings conference call or presentation 9-May-17 12:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Daqo New Energy Corp Earnings Call

Wanzhou, Chongqing Jun 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Daqo New Energy Corp earnings conference call or presentation Tuesday, May 9, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gongda Yao

Daqo New Energy Corp. - CEO and Director

* Kevin He

* Ming Yang

Daqo New Energy Corp. - CFO

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Conference Call Participants

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* Gordon Lee Johnson

Axiom Capital Management Inc., Research Division - MD and Analyst

* Paul Strigler

* Philip Lee-Wei Shen

Roth Capital Partners, LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Daqo New Energy 2017 First Quarter 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 for the company. Please go ahead.

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Kevin He, [2]

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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 2017, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference.

Today attending the conference call, we have Dr. Gongda Yao, our Chief Executive Officer; and Mr. Ming Yang, our Chief Financial Officer. The call today will feature an update from Dr. Yao on market and operations, and then Mr. Yang will discuss the company's financial performance for the first quarter of 2017. After that, we will open the floor to Q&A from the audience.

Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward-looking statements that are made under the safe harbor provisions of the 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 statement. 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 the preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today, and we undertake no duty to update such information, except as required under applicable law.

Also, during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience.

Without further ado, I now turn the call over to our CEO, Dr. Yao, please.

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [3]

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Hello, everyone, and thank you for joining our call today.

We are pleased with the strong financial and operating results we achieved for the first quarter of 2017. I would like to thank our entire Xinjiang polysilicon team for their great efforts to make the first quarter of 2017 our best quarter ever in terms of cost structure, production volume and polysilicon quality.

During the quarter, we fully ramped up our Xinjiang polysilicon facility to 18,000 metric ton annual capacity and achieved full production. Our capacity ramp-up progressed ahead of schedule. We produced 4,927 metric ton of polysilicon in the first quarter, an increase of 100% as compared to the first quarter of 2016.

While achieving a substantial increase in sequential polysilicon production volume, we also saw strong demand for our high-quality products from our customers, as polysilicon external sales volume reached 4,223 metric ton in Q1 2017, an increase of 91.2% from Q4 2016, achieving highest sales volume in the company's history. This is in light of recent reports from some of our competitors who have seen their Q1 2017 revenue decline from Q4 2016 despite a sequential increase in polysilicon ASP. We are clearly gaining meaningful market share during the quarter.

Polysilicon market demand started strong in the beginning of the year, but weakened towards the end of March, primarily due to the inventory management at downstream PV manufacturers. This resulted in a temporary polysilicon inventory buildup across the industry, with price adjustments reflecting the weakness.

Market conditions stabilized towards the end of April, with strong demand recovery, and the industry poly inventory situated -- readjusted to a healthy level. Polysilicon pricing also improved meaningfully in the late April, with robust customer demand and orders for our high-quality polysilicon product. Based on industry forecast, the global PV installations is expected to be approximately 75 to 80 gigawatts for 2017 compared to approximately 75 to 78 gigawatts for 2016. Overall, the annual PV volume demand for this year is anticipated to be rather evenly spread between the first and the second half of the year.

While PV end-market demand environment is very dynamic and may lead to polysilicon ASP volatility, we believe overall volume demand for the year is solid and healthy. Our cost leadership should help the company to weather through the market volatility.

During the quarter, we also achieved the lowest ever cost structure, with total production cost of $8.41 per kilo and cash cost of $6.68 per kilo. With our low production cost, gross margin was 42.8% for the first quarter of 2017. The company generated $22.9 million in net income and $41.7 million in EBITDA, with EBITDA margin of 49.8%. In addition, thanks to the various quality improvement projects we initiated starting from the second half of last year, the first quarter of 2017 was the best quarter in our history in terms of product quality.

As part of our ongoing quality improvement program, we recently implemented new automated back-end package system in the clean-room environment. Programs like these have helped increasing production volume of polysilicon for mono wafer manufacturers.

Going forward, we will continue to focus our efforts on cost reduction. We have identified several cost-reduction opportunities, with potential reduction in unit energy usage and the raw material usage, which should allow us to continue to reduce our costs.

At the same time, we continue to pursue various program and initiatives on the polysilicon quality improvement, which will help the company to meet the ongoing demand -- growing demand for ultra-high-purity polysilicon, such as demand from the monocrystalline wafer manufacturers. We are currently undergoing qualification of the additional monocrystalline wafer customers for high-purity polysilicon. With additional high-efficiency mono wafer capacity coming online in the second half of this year, we believe we are well positioned to supply the growing demand from this market.

The combination of our cost reduction and quality improvement initiatives should increase our corporate flexibility and reinforce our competitive position as one of the leading polysilicon suppliers in China, which will allow us to take advantage of additional opportunities in 2017 and beyond.

Now let me provide the outlook for the second quarter of 2017. With fully ramped up capacity, we expect to produce 4,800 metric ton to 5,000 metric ton polysilicon and the sale of approximately 4,200 metric ton to 4,500 metric ton to external customers during the second quarter of 2017. The above external sales guidance excludes shipment of polysilicon to be used internally by our Chongqing solar wafer facility, which utilize polysilicon for its wafer manufacturing operation. Wafer sales volume is expected to be approximately 23.5 million to 24 million pieces in the second quarter of 2017.

Now I will turn the call to our CFO, Mr. Ming Yang, for the financial updates.

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Ming Yang, Daqo New Energy Corp. - CFO [4]

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Thank you, Dr. Yao, and good day, everyone. Thank you for attending our call today. Now I will provide the financial updates for the first quarter of 2017. Revenues were $83.8 million, an increase of 82% from $46.1 million in the fourth quarter of 2016 and an increase of 45% from $57.7 million in the first quarter of 2016.

Revenues from polysilicon sales to external customers were $70.4 million, an increase of 115% from $32.8 million in the fourth quarter of 2016 and 76% from $39.9 million in the first quarter of 2016. External polysilicon sales volume was 4,223 metric ton, an increase of 91% from 2,209 metric ton in the fourth quarter of 2016 and an increase of 45% from 2,905 metric ton in the first quarter of 2016. The average selling price of polysilicon was $16.66 per kilogram in Q1 2017, an increase of 11.4% from $14.96 per kilogram in the fourth quarter of 2016. The increase in polysilicon revenue as compared to the fourth quarter of 2016 was primarily due to higher polysilicon sales volume and higher ASPs.

Revenues from wafer sales were $13.4 million compared to $13.4 million in the fourth quarter of 2016 and $17.8 million in the first quarter of 2016. Wafer sales volume was 22.4 million pieces compared to 21.3 million pieces in the fourth quarter of 2016 and 22.1 million pieces in the first quarter of 2016.

Gross profit was approximately $35.9 million, an increase of 153% from $14.2 million in the fourth quarter of 2016 and an increase of 115% from $16.7 million in the first quarter of 2016. Non-GAAP gross profit, which excludes costs related to the nonoperational polysilicon assets in Chongqing, was approximately $36.9 million, an increase of 133.5% from $15.8 million in the fourth quarter of 2016 and 95% from $18.8 million in the first quarter of 2016.

Gross margin was 42.8%, increased from 30.7% in the fourth quarter of 2016 and 29% in the first quarter of 2016. The increase in gross margin as compared to the fourth quarter of 2016 was primarily due to higher quarterly polysilicon ASPs and lower polysilicon production costs.

In the first quarter of 2017, total costs related to the nonoperational Chongqing polysilicon assets, including depreciation, were $1 million, decreased from $1.6 million in the fourth quarter of 2016 and $2 million in the first quarter of 2016. As we have already relocated the majority of the idle equipments from our Chongqing site to Xinjiang site and successfully reutilized them in our capacity extension projects, the total costs related to the nonoperational Chongqing polysilicon assets have been significantly reduced. In the near future, we expect such costs will remain at a level that is similar to that in Q1 2017. Excluding costs related to the nonoperational Chongqing polysilicon assets, non-GAAP gross margin was approximately 44%, increased from 34.1% in the fourth quarter of 2016 and 32.6% in the first quarter of 2016.

Selling, general and administrative expenses were $4.1 million compared to $3.5 million in the fourth quarter of 2016 and $4.1 million in the first quarter of 2016.

Research and development expenses were approximately $0.4 million compared to $2.8 million in the fourth quarter of 2016 and $0.1 million in the first quarter of 2016. The restructuring and development expenses fluctuate from period to period according to the R&D activities occurring in such period.

Other operating income was $0.8 million compared to $1.9 million in the fourth quarter of 2016 and $0.7 million in the first quarter of 2016. Other operating income was mainly composed of unrestricted cash incentives that the company received from local government authorities, the amount of which varies from period to period.

Operating income was $32.2 million, an increase of 235% from $9.6 million in the fourth quarter of 2016 and 142% from $13.3 million in the first quarter of 2016.

Operating margin was 38.4%, increased from 20.7% in the fourth quarter of 2016 and 23.1% in the first quarter of 2016.

Interest expense was $4.3 million compared to $4.1 million in the fourth quarter of 2016 and $3.9 million in the first quarter of 2016.

EBITDA was $41.7 million, an increase of 137% from $17.6 million in the fourth quarter of 2016, an increase of 90% from $21.9 million in the first quarter of 2016. EBITDA margin was 49.8%, increased from 38.3% in the fourth quarter of 2016 and 38% in the first quarter of 2016.

Net income attributable to Daqo New Energy shareholders was $22.9 million in the first quarter of 2017, increased from $4.1 million in the fourth quarter of 2016 and $8.3 million in the first quarter of 2016.

Earnings per basic ADS were $2.18, increased from $0.39 in the fourth quarter of 2016 and $0.80 in the first quarter of 2016.

As of March 31, 2017, the company had $61.2 million in cash and cash equivalents and restricted cash, compared to $31.9 million as of December 31, 2016, and $35.7 million as of March 31, 2016. As of March 31, 2017, the accounts receivable balance was $13.1 million compared to $4.8 million as of December 31, 2016. And as of March 31, 2017, the notes receivable balance was $11.7 million compared to $13 million as of December 31, 2016. As of March 31, 2017, total borrowings were $236 million, of which $129.2 million were long-term borrowings compared to total borrowings of $217.9 million including $111.9 million of long-term borrowings as of December 31, 2016.

And for the 3 months ended March 31, 2017, net cash provided by operating activities was $28.6 million, increased from $22.5 million in the same period of 2016.

For the 3 months ended March 31, 2017, net cash used in investing activities was $16.6 million compared to $17.5 million in the same period of 2016. Capital expenditures related to purchase of PP&E were $16 million for the quarter, which was primarily related to the capital expenditure of Xinjiang polysilicon projects. For the full year of 2017, the company expects to spend approximately $45 million to $50 million in capital expenditures. For the 3 months ended March 31, 2017, net cash provided by financing activities was $16.5 million compared to net cash used in financing activities of $3.3 million in the same period of 2016. The increase was primarily due to the drawdown of long-term project bank loans related to the company's recent polysilicon capacity expansion.

And that concludes the official part of our presentation. Now let's have the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Philip Shen of Roth Capital Partners.

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Philip Lee-Wei Shen, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [2]

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In your release, you indicated you expect demand to be evenly spread between the first and second half. Can you share a bit more detail as to why you see that to be the case? And how do you expect the step-down in the feed-in tariff in China on June 30 to impact demand?

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Ming Yang, Daqo New Energy Corp. - CFO [3]

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So that's really based on conversations with our downstream customers. Most of them are engaged in international business for modules and also from some of the recent industry reports on supply and demand for PV and downstream. It looks like, overall, the first half, I think, most forecasts are looking at maybe 30 to 35 gigawatts from installations -- maybe more than that, I'm sorry, 35 gigawatts, in that range, and in the second half, probably higher than that. And I think that's what most of the analyst reports we looked at indicated.

And also, our downstream customers are also looking at that as well. I think the rush for Chinese demand is less than it was, for example, for 2016, but they're also seeing increase in projects, like the projects for distributor generation and other like bidded projects within China that's geared for the second half installation.

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Philip Lee-Wei Shen, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [4]

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Great. So in terms of China demand, can you share -- I think we saw 7 gigawatts in Q1. How much do you see in Q2, Q3 and 4?

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Ming Yang, Daqo New Energy Corp. - CFO [5]

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I think, at this point, it's hard for us to tell what the actual number looks like, but I think Q2 should be higher than Q1. That's what it looks like.

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [6]

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Yes, so the semi -- middle year, there's some issues with tariff cut is already built in the market. And we saw -- Q2 will be relatively weak. Actually, we saw the weakness show up in the second half of March. So clearly show indication of recovery from that weakness already.

So obviously, we don't know yet, because probably, we will clearly see that by end of May this month. We'll see what's happening in June. But it seems like so far, we see the demand is much stronger than first quarter right now at this moment compared with the average of quarter, and especially compared with the end of last quarter, which is March, it's very strong.

So we believe most likely it will be evenly distributed. So for Q1, like you mentioned, it is 7 gigawatts. So roughly, sales will be like 30 to 35 gigawatts annually. So it's roughly right. So normally, Q1 is slow, and hopefully, we'll catch up in a few quarters after that. But as you say, all the forecasts from our point of view is just a feeling from -- our customers' feeling. So it's not direct feeling. We don't have any installations for our business. So that's just -- through the business for our customers, we see that. So there's no guarantee that our view is right. But we think -- we look like there's more evenly distributed for 4 quarters.

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Philip Lee-Wei Shen, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [7]

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Great. So how do you see that more even distribution of demand impacting ASPs for polysilicon?

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [8]

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Yes, ASP, recovery from the low point in the second half of March to right now is already around $2 higher, roughly, averagely speaking. So it's still below -- right now, ASP is still below the high peak in the Q1. But we still see that recovery in first half.

Secondly, we will sign more contracts with more of the wafer manufacturers for whole year in a few -- multiple years. So it seems like people don't worry about the short term of up and down, and they aim in the long-term stability of business.

So as a poly maker, we really need to look into large scale of the things. So the market we are positioning, as I've said in previous -- at the beginning is, we're aiming more and more in mono wafer supply, because -- which is very, very tight supply and will be huge demand in China in the future. So we are positioning that. We also enhanced our quality. So our market room is much larger compared with traditional multicrystalline wafer demand in the market.

Of course, at this moment, we serve the best markets, but it seems that mono wafer business will grow in the second half of this year. So from our point of view, we do not see much difference from first half and the second half. And actually, mono wafer may be better in the second half. There's a certain opportunity there we are trying to address.

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Philip Lee-Wei Shen, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [9]

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Great. Can you remind us in Q1, what percentage of your polysilicon was for suitable for mono? And then by Q4, how does that mix change?

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [10]

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Well, Q1 is still like around 20% to 30%, but we're trying to ship more actually during the end of the quarter, actually, because the price is going down a lot. So it is causing a lot of people stop the buying. They're using a lot of inventories to consuming inventory to try to purchasing after stabilized poly price. And so we see a lot of ordering actually inventory-wise.

When we exited the quarter, actually, some people, who ordered, didn't want to take the poly. So most likely, they will take poly in the Q2 instead of the Q1. So looking at Q1, it's relatively low than our expectation, because we really shipped only first 2 months. Third month, we didn't ship any much for the mono wafer manufacturers, but we were starting like April, and May, we starting pick up. So those demand we see in Q2 is really high.

So again, we like to ship more than 30%. I think we can manufacture that. Again, the mono wafer product is slightly different technically due to some adjustment to the growing your poly. So we normally only do that according to orders and shipment schedule. So if you don't have much shipment order in hand, so we will make a polysilicon more tuned to fit into the multiwafer crystal kind of polysilicon.

But for the basic parameters, spec is same. So for boron and phosphorus, impurity level is very low right now. We achieved more than 50% in the March for the, we call it, E3 kind of grade. And through the end of the year, we were gradually increasing that percentage to 80%. So we were ready for the transition, for example, in future, if the mono wafer supply and demand is get going, and while we were increasing -- improve our quality to meet that demand.

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Philip Lee-Wei Shen, Roth Capital Partners, LLC, Research Division - Senior Research Analyst [11]

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Okay. So could we say that by the end of the year, you will be capable of shipping as much as 80% of your volume to the mono customers? Is that fair?

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [12]

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Yes, there's a possibility, but it's tough, because right now, we are doing a lot of testing with our customers. So there's 2 criteria to meet the mono wafer: first is, we call it, impurity is higher; and then second one is morphology of the polysilicon. So currently, we only are shipping very dense material for those mono wafers. But we are trying to testing different morphology with our customer. If that can be done or proving is also suitable, then our volume for mono wafer -- production percentage for mono wafer were increasing dramatically to more than 50%, like you said, to 60% or 70%. That depends on the testing result.

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Operator [13]

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The next question comes from Paul Strigler of Esplanade.

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Paul Strigler, [14]

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I was pleasantly surprised by your test pass, but I'm a little bit confused. You guys started production at your new 3A facility, what, in early February or so. I would have expected a little bit of expense drag and with all the mono upgrade projects going on at the facility, I would have expected actually, I guess, smaller quarter-over-quarter cost improvement. Can you sort of explain why we didn't see much drag, and I guess, what was the drag? So what would have cash cost been had you not been ramping the facility during the period?

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [15]

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Okay. So if you just look at the major driving down, I think it's because of average for depreciation costs sort of going down, because we added a project -- the capital investment for depreciation is very limited. So that's why we're going down as manufacturing costs. I think your point out is why cash cost is not going down as much compared with total cost.

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Paul Strigler, [16]

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No, actually, the opposite. I thought cash cost would have been maybe down sequentially, but not down so much. You were ramping a new facility that didn't -- according to the press release, I think you didn't start ramping that facility until early February. I would have expected some sort of drag on expenses for the quarter. Actually, I would have expected cash costs to be a little bit higher. So I was wondering what was the expense drag from the new facility 3A in the quarter, so that I can net out what the cash would have been had that facility been operating at full capacity.

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [17]

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Well, there are 2 points. Actually, overall, the added capital investment is less. So we do expecting this for depreciation were going down a little bit, at least maintains same, although it's a new facility. But new facility -- we added a new reactor. It's more efficient, because we will see some saving -- for the output increasing and also saving the electricity consumption. So we see -- actually you mentioned that in the February ramp-up, actually, we're starting ramp in the beginning of January, and we're almost a little bit less -- behind in the January, but February already catch up 100% ramp-up. So first quarter, we see is already ramp up to full capacity we designed for, at 18,000 metric ton per year.

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Paul Strigler, [18]

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So what was the -- on a per kilogram basis or just overall, how much do you think the Phase 3A facility costs you incrementally for Q1, just from the ramp from being underutilized over the first...

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [19]

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We gave the guidance already. We gave the guidance last time we say it will be like $8.50 average. So this means, including maintenance will be scheduled for Q3 right now. So during the maintenance, we will shut down around a few weeks, 3 weeks. So the average cost will be going up a little bit. And then again, fourth quarter will be low. I think we're trying to achieve fourth quarter will be lower than first quarter definitely. So we're expecting to see the cost will be going lower in the second quarter, then first quarter, then Q3 maybe is slightly higher, and then Q4 will be lower, again. So as of this year and when we exit the 2017, we shall see lower costs than Q1 we reported at $8.41. We have some identified area we're trying to do that, and most likely, we will realize in Q4 or Q1 next year for sure.

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Paul Strigler, [20]

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And then just one last question for me. When you do think you will be shipping your last polysilicon that will be converted into wafers and modules in the first half of the year? How long -- what's the lead time? So if you ship polysilicon today, when does that actually turn into wafers, then into a module? I guess, when...

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [21]

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The time duration from they receive the polysilicon to making modules. Is that what you're asking?

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Paul Strigler, [22]

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No. When will your shipments and pricing reflect sort of the second half of Q3? If you're shipping today, I expect that polysilicon's being converted into a module that will be installed in the first half of the year. But when will you start shipping polysilicon that reflects demand in the second half of the year?

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [23]

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That will be immediately in the second half will be like normally is 3 weeks before.

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Ming Yang, Daqo New Energy Corp. - CFO [24]

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Two to three weeks before the end of the quarter.

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [25]

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Yes.

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Ming Yang, Daqo New Energy Corp. - CFO [26]

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Like mid-June likely will be the cutoff.

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Operator [27]

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(Operator Instructions) The next question comes from Gordon Johnson of Axiom Capital.

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Gordon Lee Johnson, Axiom Capital Management Inc., Research Division - MD and Analyst [28]

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I guess, just looking to Q3, it seems like the expectation, I think, broadly is that there's going to be a big fall off in demand. Can you guys give us some sense of how you expect pricing trends to unfold in Q3? As well us I guess, you may have touched on this a bit, but what do you expect your cost to do?

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [29]

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Okay. Originally, we think, again, the forecast of price is difficult job, and I we just tell you what do we think. We think at the beginning, price will be Q1 is strong, Q2 is strong and Q3 we're weak and Q4 we're recovering. That's the original kind of V-curve or whatever curve you saw.

But right now, actually what happens in the end of Q1, price suddenly dropped a lot. So it dropped like several dollars, $3 to $4. And then right now recovering back $2. So it's hard to say. So if we combine with original vision for next 2 quarters, so we will see already like kind of a little bit W shape kind of thing. So if you believe me, if Q1 looks strong and when we exit the Q1 it's weak going down and then Q2 slightly going up and then everybody says that second half is weak because of the tariff cuts. So we'll be going down a little bit and in Q4, we will be recovering.

So it's -- definitely we know it is not a straight line. So it's not long term of going up or long term of going down or flat, that's not the case. Well, fluctuation is always reflecting the demand and supply. So when poly price is going down below $12.30 or $12.50 and manufacturers of polysilicon were restrained and they reduced production, because some manufacturers were losing money, they were causing the supply tight and driving the price up. And up to some point and then oversupply may be too much high cost for the downstream producers, and they will buy less and pull the price back. So that's always the mechanism of the market that we're playing and that give you some kind of instead of in a straight line into kind of W shape or M shape, whatever the shape is. So it's a fluctuation.

But as we see, this time, it is -- the fluctuation is much less than in the history. So it's like $2 to $3 up and down. So it's manageable for the industry. So we do not see much problem for whole year as we enter the year. So we still believe roughly it's evenly distributed for first half and the second half. That's why we say that.

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Gordon Lee Johnson, Axiom Capital Management Inc., Research Division - MD and Analyst [30]

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Okay. That's helpful. And then when we look at it, there's quite a bit of capacity coming online -- new polysilicon capacity coming online. And I think as we've seen recently, there's been some pressure on prices. Clearly, that's lifted recently. Are you concerned at all that all this incremental capacity coming online looking into...

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [31]

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No. Nothing come out in the first half. We probably are the only guy really bring to the real thing, real polysilicon. Whatever you've heard is -- we heard a lot in the paper or news media whatever voice, but there's no solid silicon. So they said they will start producing solid silicon in the first half. We don't see those guys. Most likely, they will maybe, if lucky, will be second half or maybe later. I know what you are saying, and they announced a lot of things. They announced like 200,000 metric ton or even higher, some guys. They will do, but we don't see those silicon come up yet.

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Gordon Lee Johnson, Axiom Capital Management Inc., Research Division - MD and Analyst [32]

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Okay. So you're not concerned at all that, that silicon maybe come online now?

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [33]

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No. Well, maybe they can produce some silicon, but it's not high-purity silicon. So we are totally in different market and they maybe can sell to some other people to using for some other purpose. But we know our Chinese market and manufacturer very well, and it's not as straightforward. We wish them good luck. But if you've just heard a lot of things, if you have any, please confirm that if they have already silicon to sell. As we know, there's no such sales in the market right now today.

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Gordon Lee Johnson, Axiom Capital Management Inc., Research Division - MD and Analyst [34]

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Okay. So if I'm hearing you right, you're saying that a lot of the new capacity coming online from the various players, some of which are established, you're saying you're not seeing that in the market right now?

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Ming Yang, Daqo New Energy Corp. - CFO [35]

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They're not funded. They haven't started construction.

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [36]

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No. We're talking about the larger, the significant amounts, like more than 20,000 metric ton or those kind of things. Add to that like a few thousand metric ton, we obviously cannot see from the market. I'm talking about the new suppliers, okay. And there's no -- we know that several projects is to be delayed, like (inaudible) project with IEC has been delayed for -- to next year. This year it will not happen. And other things we heard is delay for [trial] production, but it's not officially announced, so I cannot quote those things. But you can find out. So if anybody from downstream customers, if they get any shipment from those new supplies, you will find out.

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Gordon Lee Johnson, Axiom Capital Management Inc., Research Division - MD and Analyst [37]

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And then lastly, just looking at the broader Chinese market and looking at the project market, what are you guys seeing with respect to curtailments and actual payment of the feed-in tariffs? Have you seen any improvement there, and specifically, in any provinces, have you seen any improvement? Or are things still somewhat the same with respect to 30% to 40% curtailments and lack of payments?

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Gongda Yao, Daqo New Energy Corp. - CEO and Director [38]

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No. Actually, we do not see a significant change from the situation. Actually, last year, we saw some payment of our historical due to payment, but this situation is still lasting. I think they're trying to find a way for trading new trendy market for those things, but it's still in the early stage. Implementation for the new method most likely will be next year.

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Operator [39]

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

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Kevin He, [40]

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

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Operator [41]

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