Daqo New Energy Corp. (DQ) Q3 2017 Earnings Report, Transcript and Summary

Good day and welcome to the Daqo New Energy 2017 Third Quarter Results conference call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. At this time, I would like to turn the conference over to Kevin of Investor Relations. Please go ahead, sir.

Hello, everyone. I’m Kevin, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the third 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 third 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 containing 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 views as of today and maybe subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today’s call is as of today, and we undertake no duty to update such information, except as required under applicable law. Also during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience. Without further ado, I’ll now turn the call over to our CEO, Dr. Yao, please.

Hello, everyone, and thank you for joining our call today. We are pleased to report strong financial and operational results for the third quarter of 2017. I would like to thank our entire team for their great work and the contribution to the solid profitability and earnings for the third quarter. Our excellent third quarter results demonstrate the robust customer demand for our high-quality polysilicon products. During the third quarter, we produced 4,940 metric ton of polysilicon and sold 4,500 metric ton to external customers. Revenues for the third quarter were $89.4 million, an increase of 17.6% from the prior quarter. Third quarter earnings per basic ADS were $2.28, an increasing of 98% compared with $1.15 in the prior quarter. During the third quarter of 2017, the company generated $24.1 million in net income attributable to the Daqo New Energy shareholders and $42.3 million in EBITDA with EBITDA margin for 47.4%. In particular, our operating cash flow remains strong. In the first three quarters of 2017, we generated $98.4 million in net cash provided by operating activities. In late September and early October, we conducted the annual maintenance for our Xinjiang polysilicon facilities. We are glad to report that annual maintenance had been completed successfully for this year, with less impact to production volume than anticipated by our original plan. For this year, rather than shutdown the entire facility for maintenance as we have done in previous years, we conducted the maintenance in two phases with partial shutdown of the facility. While this was the first time we made a partial shutdown for annual maintenance, through the hard work and the dedication of our team, maintenance was completed ahead of schedule and allowed for increased production during the same period. Furthermore, through the maintenance and the related technology upgrades, we have successfully expanded our hydrochlorination capacity and the manufacturing efficiency, which lays a solid ground for the potential production increase and cost reduction in the following quarters. Demand in China remained strong, driven by Top Runner and PV Poverty Alleviation projects, as well as distributed generation projects, which have provided strong support for demand during the second half of the year. According to industry sources, China added approximately 42 gigawatts of solar PV installation in the first three quarters of 2017, which is much stronger than most forecasts. In particular, distributor generation PV growing strong in China. It is expected that total annual solar PV installations in China will likely reach 50 gigawatts in 2017, which represents approximately 40% increasing compared to 2016. In addition, the United States is expecting to install approximately 12 gigawatts in 2017. And India is expected to take over Japan to become the third largest solar PV installation market with approximately 10 gigawatts installation in 2017. Based on the strong end market demand, we anticipate global annual solar PV installation would grow in the double-digits rate in 2017 as compared to 2016. For the polysilicon market, the supply of polysilicon has not kept up with the strong end market demand. And as a result, the polysilicon market remains short supplied. Polysilicon pricing increasing throughout the third quarter from approximately $15 per kilo in July to about $18 per kilo by the end of September. Our third polysilicon ASP of $16.19 per kilo reflected this trend, representing a significant increasing from the second quarter ASP of $13.58 per kilo. As of today, we continue to see robust customer demand for our high-quality polysilicon with the pricing in the approximate range of $18.50 per kilo. In particular, prepayments from customers reached $16.7 million at end of the quarter, demonstrating the strong customer demand and the preference for our high-quality polysilicon products. Polysilicon average total production cost was $8.95 per kilo in the third quarter compared to $8.53 per kilo in the previous quarter. The increase in production cost was primarily due to the cost related to our annual maintenance as well as exchange rate related impact and higher raw material cost. For the first quarter due to the continued impact of annual maintenance during the quarter as well as the exchange rate impact and the raw material cost increasing, we expect the fourth quarter polysilicon production cost to remain at a relatively elevated level. For our Wafers segment, with the improvement in wafer pricing during the quarter, gross margin on the stand-alone basis reached approximately 10%, up from low single-digit percentage in the previous quarter. With the improvement in profitability, our Wafer segment contributed positively to the company in the net profit this quarter. In October, our Board of Directors officially approved the company’s Phase 3B Project, which is expecting to increase our polysilicon annual capacity from 18,000 metric ton to 25,000 metric tons. By adopting additional technology improvement and debottlenecking projects, we may be able to further increase our capacity to 30,000 metric ton per annum by the end of 2019. Once the Phase 3B Project is ramped up to full production capacity, we anticipate the overall total production cost for our Xinjiang facility could potentially be decreased to about $7.50 per kilo, benefiting from better operation leverage adopting new production process and equipment with high efficiencies, and achieving greater economies of scale. For the Phase 3B Project, we will adopt a new design, processes and technologies and equipments that could further improve the purity of our polysilicon product. Polysilicon produced under the Phase 3B Project are expecting to reach electronics grade and will be targeted for mono-crystalline wafer and semiconductor markets.We may potentially enjoy higher profit margin if we could access these markets with our differentiated electronics grade polysilicon products. In terms of guidance for the fourth quarter of 2017, we expect to produce 4,800 metric ton to 5,000 metric ton of polysilicon and the sale of approximately 4,300 metric ton to 4,500 metric ton to external customers. The above external sales guidance excludes the 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 25 million to 25.5 million pieces in the fourth quarter of 2017. Now I will turn the call to our CFO, Mr. Ming Yang for the financial update.

Thank you, Dr. Yao, and good day, everyone. Thank you for attending our call today. Now I will provide the financial update for the third quarter of 2017. Revenues were $89.4 million, increasing from $76 million in the second quarter of 2017 and $34.3 million in the third quarter of 2016. Revenues from polysilicon sales to external customers were $72.9 million, increasing from $61.1 million in the second quarter of 2017 and $44.4 million in the third quarter of 2016. External polysilicon sales volume was 4,500 metric ton, increasing from 4,497 metric ton in the second quarter of 2017 and 2,838 metric ton in third quarter of 2016. The average selling price of polysilicon was $16.19 per kilogram in the third of quarter of 2017, increasing from $13.58 per kilogram in the second quarter of 2017. The increase in polysilicon compared to the second quarter of 2017 was primarily due to higher ASPs and slightly higher sales volume. Revenue from wafer sales were $16.5 million increasing from $14.9 million in the second quarter of 2017 and $9.9 million in the third quarter of 2016. Wafer sales volume was 26.4 million pieces compared to 27 million pieces in the second quarter of 2017 and 14.4 million pieces in the third quarter of 2016. Gross profit was approximately $36.4 million, increasing from $24.2 million in the second quarter of 2017 and $20.1 million in the third quarter of 2016. Non-GAAP gross profit, which excludes costs related to the non-operational polysilicon assets in Chongqing, was approximately $36.9 million, increasing from $24.8 million in the second quarter of 2017 and $21.6 million in the third quarter of 2016. Gross margin was 40.8%, increasing from 31.9% in the same quarter of 2017 at 37.1% in the third quarter of 2016. In the third quarter of 2017, total costs related to non-operational Chongqing polysilicon assets, including depreciation, were $0.5 million compared to $0.5 million in the second quarter of 2017 and $1.5 million in the third quarter of 2016. Excluding costs related to the non-operational Chongqing polysilicon assets, the non-GAAP gross margin was approximately 41.3%, increasing from 32.6% in the second quarter of 2017 and 39.9% in the third quarter of 2016. For the fourth quarter of 2017, costs related to non-operational Chongqing polysilicon assets, is anticipated to be approximately $0.5 million. Selling, general and administrative expenses were $4.4 million compared to $4.5 million in the second quarter of 2017 and $4.9 million in the third quarter of 2016. Research and development expenses were approximately $0.1 million compared to $0.3 million in the second quarter of 2017 and $1 million in the third quarter of 2016. The research and development expenses when you compare to period reflecting the R&D activity that occurred in such periods. Other operating income was $0.8 million, compared to $0.8 million in the second quarter of 2017 and $2.2 million in the third quarter of 2016. Other operating income was mainly composed of unrestricted cash incentives that the Company received from local government authorities, amount of which varies from period to period. Operating income was $32.8 million increasing from $20.2 million in the second quarter of 2017, and $16.4 million in the third quarter of 2016. Operating margin was 36.7%, increasing from 26.6% in the second quarter of 2017, to 30.3% in the third quarter of 2016. Interest expense was $4.3 million, compared to $5.3 million in the second quarter of 2017, and $3.1 million in third quarter of 2016. EBITDA was $42.3 million, increasing from $29.8 million in the second quarter of 2017 and $25 million in the third quarter of 2016. EBITDA margin was 47.4%, increasing from 39.2% in the same quarter of 2017 and 46% in the third quarter of 2016. Net income attributable to Daqo New Energy Corp. shareholders was $24.1 million in the third quarter of 2017, increasing from $12.1 million in the second quarter of 2017 and $11.2 million in the third quarter of 2016. Earnings per basic ADS were $2.28 in the third quarter, increasing from $1.15 in the second quarter of 2017 and $1.07 in the third quarter of 2016. As of September 30, 2017, the Company had $61.5 million in cash and cash equivalents and restricted cash, compared to $49.8 million as of June 30, 2017 and $29.2 million as of September 30, 2016. As of September 30, 2017 accounts receivable balance was $4.6 million, compared to $3.8 million as of June 30, 2017. As of September 30, 2017 the note receivable balance was $25.3 million, compared to $10.5 million as of June 30, 2017. As of September 30, 2017, total borrowings were $216.8 million, of which $119.3 million were long-term borrowings, compared to total borrowings of $219.3 million, including $123.1 million of long-term borrowings as of June 30, 2017. For the nine months ended September 30, 2017, net cash provided by operating activities was $98.4 million, increasing from $70.9 million the same period of 2016. And for the nine months ended September 30, 2017, net cash used in investing activities was $45 million compared to $51.2 million in the same period of 2016. The net cash used in investing activities in 2017 was primarily related to the capital expenditure of the company’s Xinjiang Phase 3A polysilicon projects. For the nine months ended September 30, 2017, net cash used in financing activities was $29.6 million, compared to $12.3 million in the same period of 2016. The increase was primarily due to repayment of related party loans and bank borrowings. And that concludes the official part of our presentation. Now let’s have the Q&A session.

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Philip Shen of Roth Capital Partners. Please go ahead.

Hey guys, congrats on the strong results.

Yes thank you Philip.

Great, thank you.

I’d like to explore the effective capacity that you guys have now, so you guys gave your guidance in our estimates nicely. Historically, I’ve always thought of your nameplate being 18,000 metric tons and the effective capacity being, I would it, 19,000 metric tons. We’re backing into numbers closer to 20,000 or even 21,000 depending on how you are taking the account maintenance, can you just talk about what the effective capacity is today? And then if you or as you pursue your Phase 3B expansion, does that mean which I believe adds about 7,000 metric tons, so hypothetically if your effective capacity is 20,000 and you’re adding 7,000, basically are you effectively at 27,000 metric tons, which is on your way that 30,000 goal that you have?

Okay, so officially, today’s nameplate capacity is still at 18,000 metric tons. So we are running at a rate probably between like 20,000 to 21,000 but it’s not for 2017. 2017 seems like total production would be around 19,500 to about 20,000 metric tons that range. But to answer your question, after Phase 3B is completed, our nameplate would be at 25,000 metric ton, but the potential about 10% to 20% above the nameplate is normal through the technical debottlenecking improvement and the technical improvement on those projects. Now the production real capacity has been further released through this just finished maintenance, because we mentioned that the efficiency of hydrochlorination is more effective and because we changed some equipment, enhanced some capabilities, so we have around maybe – every day we have more PCS available for production for polysilicon. So I hope that answer your question. So nameplate still where we foresee will be 25,000 metric ton. We have potential to have a 10% to 20% increasing through the debottlenecking. And current, our actual production has exceeded our nameplate for 18,000 metric ton by maybe around a 10% increase.

Okay, yes, that’s very helpful. Let’s turn to ASPs. We, I believe, started this quarter off with $19 plus ASP per kilogram, you had a pretty strong one for Q3 as well. Can you talk about what you see for November, the rest of November and December, and also as we get into 2018? And as you talk about ASPs, obviously, comment on the supply-demand dynamic, the ECG? For example, in Q1, how much do you expect China to slowdown, if at all more than the seasonal pattern and then on the supply side, can you talk about – earlier in the year, there were a lot of announcements of supply coming online, have you seen a delay of that supply and what else is going on there?

So there are many questions here from you. So let me try to answer your questions. So for fourth quarter, we see the price is very stable, very strong, like you said it’s between like $18.5 to about $19 per kilo. I think this price will last at least to end of November, there is no question. As we said, and there’s some prepayment, the money already customer pay us for the November contract. So those prices are fixed. To the December, we do not see any clues from December the price softening, but as you know, we cannot guarantee the December price yet. December price will be settled by the next two weeks, I think before end of November, we will sign all of the December contract with our customers, which means price will be settled by the next two weeks. Now to answer your question for next year, 2018, obviously, we do not have visibility, but we do have visibility on the mono-wafer supply polysilicon side. I think there’s is a shortage for polysilicon for mono-wafer usage in China. As you know, we just end up all the mono-wafer capacity by end of 2018 is more than 50 gigawatts of wafer supply, which means about – actually need at least 200,000 metric ton polysilicon just for those usage. Of course, I said end of the next year it’s about 50 gigawatts, beginning maybe around 30 to 35 gigawatts of wafer capacity, which requires a lot of polysilicon. If we do some calculation, all the imports from international supplier like OCI or Wacker, if 100% used, still cannot meet that requirement. So rely very much significant of domestic supply. So our company is positioned for mono wafer position very well. We supply not only P-type, we also supply the N-type to wafer manufacturers who use the polysilicon. So for us, we see very strong demand for throughout 2018 for polysilicon. So now, overall market for multi-crystal wafer, those market, it’s very clear. But for mono at least, I think the supply/demand will still be tight on the supply side. This price, I believe, will continue through to the Q1, that’s my personal opinion. And, of course, we do not see clearly the price yet for the Q1.

You talked about this divergence of mono, multi and potentially the poly supply that supplies the two end markets. For your, call it, nameplate capacities, whether it’s 18,000 or 25,000, can you talk about the mix of production that you’re able to deliver that can serve the some mono or multi market? Thanks.

Yes, for the N-type wafer capacity, we’re probably able to control at like less than like 20% to 30% because we want to control that and that market is not huge anyway in China, but for the P-type wafers, right now we are in the 30% to 40% our production, next year we target for 50%, so half of that can be used. This requires several things we have to do internally. We need to – we set up some program with our key customers to test with some new product and especially for mono wafer manufacturing, they require different requirements, if they want to small chip this polysilicon, we still need to ramp up our production for those markets, which is relatively new for us, but we will serve certain of small chip polysilicon for mono crystal wafer manufactures. And at the same time, also we want to keep the quality high quality. So we still need testing different products for different markets. So overall saying, internal target is about 50% of our total production should be at the end – going to that market for next year.

Okay, great. One more question from me and I’ll pass it on. There’s been a lot of discussion about the potential for tariffs on Korean imports and we’ve heard that OCI’s new tariff could be 4 – I believe 4% from current of 2.4% and then Hanwha and Hankook could each be about 9% or 10%. Have you heard the same? What do you expect from the Korean import tariffs and when do you expect the decision to be final? Thanks.

Ming?

Yes. So we heard about similar things. So there is no official saying, I think the most information we believe is coming from South Korea actually. They are talking with their customer. So expecting, if like 5% is almost nothing to increasing, I think there’s several things we see some changes as China and South Korea relation starting getting recovered. Secondly, as I mentioned, if you cut the OCI supply, actually there is a huge shortage for polysilicon for China’s market. As you know, today China’s installation this year would be 50 gigawatts. If we take OCI out, polysilicon maybe is – quantity is okay, but for mono wafer supply there will be huge shortage, so impact. So this may be reflected the reality China cannot be cutting down the OCI supply on this side. So with our channel checking all the – like Wacker’s supply is very tight. They don’t have any polysilicon in China, the warehouse or any storage. They feel also 2018 supply polysilicon will be very tight, especially for mono wafer supply. So this all adds up, as I said, if you look just before 25 gigawatts of Longi capacity, if you put the OCI and the Wackers all the supply together just can meet that one customer. So it’s very, very tough situation for next year for – on the mono wafer supply side. We do not get any confirmation from government. So we’ve heard a lot of things from your side, you and also other people, I believe most likely this will happen. I don’t know when we’ll officially announce it. So we were told before November finishing, so by end of November maybe. So that’s what we know.

Okay. Thanks. I’ll pass it on.

Thank you.

Great. Thanks Phil.

And our next question will come from Brad Meikle of Coker & Palmer. Please go ahead.

Hey, good morning. First question is based on your model of the success of the new entrants into the market from a supply standpoint, what do you think supply growth of polysilicon is in 2017 and 2018?

Okay. So 2017, this year actually there are several new entrants, is East Hope and that’s the largest, but their production is not very successful. They have three phases to start and the first phase even not ramped up yet. They faced a lot of challenges for technical mainly and towards some environmental government regulation forced them to shut down some of their other operations like electricity, power generators, et cetera. So especially with mono wafers requirements recently in China, we see like we should quickly reach about 30% of the wafers supply. So the requirement for polysilicon is extended higher – getting higher and so the entry level barrier actually getting higher. So for those guys for new entrants, they cannot immediately apply their production to for the mono wafer, that’s very tough. But we saw the 2017, the situation is different, for I think the East Hope they cannot even supply good enough polysilicon for multi-crystal wafer usage. So we do not see much capacity increasing for 2017. As for 2018, our expansion will be significantly increasing output only by 2019. We are expecting some small capacity increasing for like GCL they maybe have 20,000 metric ton, maybe they were in line by second half of 2018 but nothing will be in 2017. And there’s some other Tongwei maybe have 20,000 metric ton, maybe sometimes second half of next year as well. So we will see around maybe 50,000 metric ton, if they are all successful by added to come into capacity by next year. But if you look at the downstream, everybody very aggressively, we heard that the Jinko, Longi and TGS they are all increasing significant wafer amount capacity by next year. So we are still thinking, especially for the mono wafer supply side, is still a shortage for polysilicon. The overall market depends on how much installation in China, India and those countries. But overall, I think the situation will continue for now to next year.

Thank you. So would agree with like a 5% to 7% supply growth number overall for next year, do you think that’s in the right neighborhoodor is it lower than that?

I personally believe, if you just look at the mono wafer capacity actually supply/demand – the shortage for supply side even more severe next year than this year. Yes, you are right, this year because the mono wafer just is starting pick up but next year is – everybody announced a huge amount facilities expansion for the mono wafers actually by the fact that they are already installing some equipment right now, they are ready for production and so people is trying to secure the polysilicon supply for 2018 and people are seeking all the domestic and international supplies very actively right now trying to secure their supply for next year’s production.

Thank you. A couple quarters ago, I think, I asked that if the second half of this year was solid, would you consider stock buybacks or dividend, I just want to ask what your thoughts are on that at this point?

Yes. So we are trying to – of course, company’s first priority right now is still using cash to support the 3B project. Of course, if we have additional cash, we will consider that. That’s always an option for the company. But as you know, we can discuss this buyback is very limited market, because our trading volume is so low and there are so many regulations, you only can buy a certain percentage and the certain price range, and also the volume is not that significant. So we tried several times before when historical low priced, but buyback is very limited, only maybe to a certain. We are happy to see recently the trading volumes increasing a lot significantly compared with historical data, but again that’s always the company’s option. But at this moment. we didn’t getting approval or action like that yet. But as I’ve said, the first priority is trying to make 3B project successfully done by end of next year for construction.

Thanks a lot. I guess this last question is with the market possibly tighter next year and most of the market is sort of buying on rolling spot contracts, do you think that the market will move to more of a long-term contract or medium term contract with deposit framework like existing five years ago.

Okay. Well, people looking for long-term contract for quantity, they want to secure the supply. And we have seen everybody happy with the kind of locking the volume and then negotiate price every month. And the prepayment that comes to term is not very popular and people hate that, because they burned out all the relationship last five, six years ago. Actually those prepayments only worked for mostly international poly makers. For Chinese poly makers, I think they have done first phase before 2008, after 2008, nobody really doing that anymore. So I don’t think that’s feasible. So we talking about prepayment in the statement is customer actually sign the next month’s contract immediately pay the money for us, ask us to ship as quicker as possible. So that’s like one-month period prepayment. For long-term contract with prepayment, we don’t see that. I personally don’t believe that will happen next year, unless the decreasing shortage of polysilicon for like mono wafers maybe but I don’t think relative next year will not – not likely it will happen that way.

I guess one last question with President Trump meeting with President Xi last week, and you know that Hemlock still really doesn’t ship into the China market, and there is, obviously, still a possibility of resolution of the Section 201 case, do you think there’s a chance that all of that all of it gets wrapped together and that the polysilicon anti-dumping against the U.S. goes away. And just what would be your thoughts on – I know it’s speculation but on that…

Yes, it’s a very difficult task. We were talking here with different people, different group, an interesting group. So we were told by a lot of people trying to settle down the polysilicon thing, but for module side there’s lot of contra interesting groups. It’s very difficult to work together. I received an email from basic Solar Association asked us to us to donate some money, so they’re using them for lobby for President Xi office to cut down those kind of tariffs, but I don’t know will that work or not. But I personally believe if the problem cannot be solved in last four years, it cannot be solved the next six months. So it’s all politics, so it’s more difficult then the supply-demand issue we are talking among the polysilicon, so they were not solving in my opinion for next six months at least.

Great. Thank you.

And our next question will come from Kai Lu of CICC. Please go ahead with your question.

Hi management. Congratulation on the result. I got three questions. The first question is that, what’s the percentage of our high quality polysilicon, which is provided to the model wafer market in third quarter, and what’s our target percentage for those kind of product in the future of our total polysilicon sales? That’s my first question.

Kai, thank you. So first off, next year, our order intake, I told you, at least 50% of our product will be for the mono wafers at least. As a current status, we are still in a trial and error for our standard to meet the downstream customers. We normally put like six grades of project, and so electronic grade 1, grade 2, grade 3 and a solar grade 1, grade 2, grade 3. But I can only tell you about in Q3, we have more than 80% meet the electronic grade 3. So basically all this can be used – potentially used for mono wafers, but you need to be careful, so we right now is we think those 83%, but we only provide the best to our customers because we do not have experience if everything can be used or not. So we have carefully selected the best morphology. We are talking about the density of the polysilicon. So we right now is only supplying very dense, very smooth outside to supply to our customers. Our customers request us to try to lose some standard, so we can supply some surplus morphology as not smooth or as not dense to supply them too. We have to still go through the trial experimental period. And initial data looks very good, very promising. But we are not going to large volume shipment for Q3 yet. So if this is successful, I think that 50% of our production for mono wafer is a very, very conservative estimate. But if this have a problem, then we need to go back to look at the solution again. So honestly to answer your question, in third quarter, we are shipping around 30% to 40%, maybe like 35%, I don’t have a exact number yet, but around that range, but we have potential to go to 50% if we can work with our customers for certain requirements.

Thank you. So my second question is also about the polysilicon in the 3B Phase, we have mentioned that we’ll also target for the semiconductor polysilicon business. And we know one of our competitor has recently announced some product to semiconductor in Youchan. And so it means that we’re kind of the follower. So what kind of strategy and could you please provide some color for us that how you will target these markets?

Okay. So just give you a example. Currently with our existing facility, we can produce about electronic grade 1 is about 30%. So with our new – so 2B, we’re expecting 100% will meet the electronic grade 1. So our competitors, they are doing a great job, but they’re using different approach, our approach is based on low cost facility and taking our process to find a way to achieve the electronic grade 1 in the chip way. So very economical way. And while we control our cost, and produce high quality. That’s a tough job, but this is the way we are choosing. And real in the product, where aim is not semiconductor wafer user, so we at the mono wafer users. So we ship significant amount of wafers for our mono wafer manufacturer customers from last year. So we are gradually increasing every month. Our competitors choosing different approach. They never supply a significant amount for mono wafer usage, they just jump to the semiconductor. So that’s another approach, of course, it’s perfect if they can meet the semiconductor. But my lesson, experience is the step by step, it’s most solid than you are jumping around. So again they spend a lot of money, so 5000 metric ton capacity you spend like 2 billion R&D assumption like that, which is I can afford that, which is – I cannot afford that. So we can afford is 10,000 metric we were spend probably half of than the money to make your capacities. So our goal is those 10,000 metric ton we added would be – 100% useful for the mono wafers for a short period of time. Now a small amount maybe you can – were achieved like a semiconductor, but we don’t believe there is a market, huge market in China today, maybe three years five years later semiconductor market will expand in China but not today. So now we are just using that into – as objective to improve our quality. So I hope this is clear for you. So short- term, we are really trying to improve our quality to grab the market for mono wafer supply in China. Long term, we will aim for semiconductor market but not like within three to five years. So in the short period of time, we are only in the mono wafers. And I think – we think we can achieve this very easily with our current technology equipment without impact to lot of cost of structure, we already established in China.

Yeah, yeah. Thank you. My last question is on the cost guidance. So we have mentioned that we will have the 3B Phase capacity, which is also approaching the low cost. So do we have some cost road map to looking for in 2019, which kind of cost – average total cost we will achieve at that time, so if we have guidance?

Yeah. So we will have – because the new process we’re using would be more efficient to use – and I trust the steam and the water everything. So we have a clear road map – where if I add on that. We are actually in the opening remark I said with the new technology and the new process and with some new equipment and also some benefit from scale of the facilities, so we will achieve like $7.50. So we have like about $1 kind of the cost saving from current to 2019. So if you look at the our announcement, so by end of 2019 we will reach the capacity potential to have 30,000 metric ton, when that’s reached I think our cost structure will be around like $7.50 per kilo, which is the cost is cash cost plus the depreciation.

Okay. Thank you very much.

[Operator Instructions] Ladies and gentlemen showing no additional questions. This will conclude our question-and-answer session. I would like to turn the conference back over to Kevin for any closing remarks.

Thank you everyone again for participating today’s conference call. So 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 your lines.