Kevin He - Investor Relations Gongda Yao - Chief Executive Officer Ming Yang - Chief Financial Officer.

Philip Shen - ROTH Capital Partners Sheng Zhong - Morgan Stanley Wei Feng - Luminus Management Manya Chen - PHOTON Consulting Paul Strigler - Esplanade Capital.

Welcome to the Daqo New Energy Corporation First Quarter 2016 Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to Kevin He, Investor Relations for the company. Please go ahead..

Hello, everyone. I am Kevin He of 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 2016, 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 2016, 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 provision 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 preliminary view 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 now turn the call over to Dr. Yao. Please..

Hello, everyone, and thank you for joining our call today. I would like to thank our interim team for delivering strong operation and the financial results for the first quarter of 2016.

During the quarter, we produced 3,405 metric ton of Polysilicon representing full utilization of our manufacturing facilities which is surpassed our name plates capacity of 12,150 metric ton per year.

The slight decrease in Polysilicon production volume compared to Q4, 2015 was primarily due to the smaller number of calendar days in Q1 and the impact of the Chinese New Year holidays. We also implemented the programs to further improve the quality of Polysilicon to meet the demands of the monocrystalized [ph] solar customers.

This had a slight impact to production volume during the quarter. In Q1, we sold 2,905 metric ton of external customers compared to 3,092 metric ton in Q4, 2015.

The difference is primarily due to the greater shipment of polysilicon for use by our Chongqing wafer facilities, which was a 520 metric ton in Q1 2016, compared to 415 metric ton in Q4 2015, as well as lower polysilicon production volume.

As we ramp up our Chonqing solar wafer capacity and aim to increase our wafer production volume from 21 million pieces per quarter in Q4 of 2015 to about 25 million pieces per quarter by mid of 2016, it is necessary that we ship an increasing volume of polysilicon to our wafer manufacturing subsidies in order to meet its raw material needs.

Our polysilicon average total production costs were $9.65 per kilo and a cash cost of $7.62 per kilo, during Q1 of 2016. As a result, despite lower ASPs in Q1 this year versus Q4 last year, we were able to achieve better gross margin.

Our adjusted EPS which excludes cost related to now operation Chongqing polysilicon assets and an all cash share based compensation were about $1.12 in Q1 2016, compared to $1.14 in Q4 2015.

We continue to make progress toward our goal to further reduce our production cost and improve quality, and further enhance our profitability and competitive positioning. Since February 2016, polysilicon ASPs have improved meaningfully due to the strong downstream demand.

We saw significant addition to new wafer capacities in the market, which have increased polysilicon consumption and created an environment of relatively tight polysilicon supply.

While spot market poly pricing improved substantially during the quarter, particularly during March, we believe the improvement was not fully reflected in our first quarter ASP, as we are primarily engaged in contracted sales with solar manufacturing customers and there is typically a two or three weeks' delay from pricing and contracting to subsequent shipping and customer acceptance, which is when revenues are recognized.

During April and May, we saw further improvements of polysilicon market prices, which by now are up by approximately 40% to 45% from the January level, driven by low levels of channel inventory and an increase in downstream customer demand.

Demand from customers remained very strong with many customers request to purchasing two to three times the volume of polysilicon than we are able to provide them. To provide you with more color, we recently signed the poly sales contract for product delivered in May have exceeded about $19 per kilo.

As we continue to expand our wafer capacity in Chongqing, our wafer sales volume increased from 21.0 million pieces in Q4 of 2015 to about 22.1 million pieces in Q1 of 2016. As a result of the increase in wafer production capacity and sales volume, we also increased the shipment of polysilicon to Chongqing during the quarter.

Gross margin of our Chonqing wafer facility, on stand-alone basis, improved to 28.3% in Q1 of 2016, compared to 27.0% in Q4 of 2015. Our Chongqing wafer operations continue to contribute meaningfully to the Company's profitability. In April, we received the approval to have the shares of Xinjiang Daqo listed on China's New Third Board.

This is very exciting for us, as we believe the listing will afford us more flexibility to fund our future growth as the global cost leader in the high-purity polysilicon manufacturing industry through access to capital market in both the Chinese and U.S. capital markets, two of the most active in the world. Now looking for the second quarter of 2016.

Now, let us provide outlook for second quarter of 2016. Excluding shipments of polysilicon to be used internally by our Chongqing solar wafer facility, the Company expects to sell about 2,850 metric ton to 2,950 metric ton of polysilicon to external customers during the second quarter of 2016.

The above guidance reflects increased internal consumption of polysilicon by our own wafer subsidiary due to increased wafer production and wafer capacity expansion. Wafer sales volume is expected to be approximately 23.5 million to 24.0 million pieces in the second quarter.

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

Thank you, Dr. Yao, and good day, everyone. Thank you for attending our conference call. Now, I will provide the financial updates for the first quarter of 2016. Revenues were $57.7 million compared to $59.3 million in the fourth quarter of 2015 and $41.9 million in the first quarter of 2015.

Revenue from polysilicon sales to external customers were $39.8 million compared to $42.9 million in the fourth quarter of 2015 and $27.2 million in the first quarter of 2015. External sales volume was 2,905 metric ton in Q1 2016 compared to 3,092 metric ton in Q4 2015.

Lower external sales volume relative to the fourth quarter was primarily the result of the increased in polysilicon shipment to the company’s internal wafer facility which increased by more than 100 metric ton in Q1, as well as lower production volume.

Average selling price of polysilicon was $13.72 per kilogram in the Q1 2016, compared to $13.86 per kilogram in Q4 of 2015.The decrease in polysilicon revenue from the fourth quarter of 2015 was primarily due to lower external sales volume and slightly lower ASPs.

As [Indiscernible] discussed in March we started to see meaningful recovery of Polysilicon ASP and ASPs moved up further in April and May. While this was not fully reflected in our Q1, ASP due to the timelag from contracting to revenue recognition, we believe our Q2; ASPs will better reflect this trend.

Revenue from wafer sales were $17.8 million compared to $16.4 million in the fourth quarter of 2015, a $14.6 million in the first quarter of 2015. Wafer sales volume was 22.1 million pieces, compared to 21 million pieces in the fourth quarter of 2015 and 18.1 million pieces in the first quarter of 2015.

The increase in wafer revenue from Q4 2015 was primarily due to higher sales volume. Gross profit was approximately $16.7 million, compared to $16.9 million in Q4 2015 and $8.5 million in Q1 2015.

Non-GAAP gross profit, which excludes costs related to the non-operational polysilicon operations in Chongqing, was approximately $18.8 million, compared to $18.9 million in the fourth quarter of 2015 and $11.7 million in the first quarter of 2015. Gross margin was 29%, compared to 28.5% in the Q4 2015 and 20.2% in Q1 2015.

In the first quarter of 2016, total costs related to our non-operational Chongqing polysilicon plant including depreciation were $2 million, compared to $2 million in the fourth quarter of 2015 and $3.3 million in the first quarter of 2015.

Excluding such costs, the non-GAAP gross margin was approximately 32.6%, compared to 31.9% in the fourth quarter of 2015 and 28.0% in the first quarter of 2015. SG&A expenses were $4.1 million, compared to $2.3 million in the fourth quarter of 2015 and $4.6 million in the first quarter of 2015.

The increase in SG&A in the first quarter of 2016 compared to the fourth quarter of 2015 was primarily due to higher non-cash share-based compensation expenses, which were approximately $1 million higher in Q1, 2016 compared to Q4, 2015. This was first half cost related to Chinese New Year and expenses related to our new third board listing.

R&D expenses were approximately $0.1 million, compared to $0.5 million in the Q4 2015 and $0.1 million in Q1 2015. Other operating income was $0.7 million, compared to $1.7 million in the fourth quarter of 2015 and other operating expense of $0.3 million in Q1 2015.

Other operating income mainly consists of unrestricted cash incentives that the Company received from the local government authorities, the amount of which varies from period to period. Income from operations was $13.3 million, compared to $14.3 million in the Q4 2015, and $4.1 million in Q1 2015.

Operating margin was 23.1%, compared to 24.1% in Q4 2015, and 9.7% in Q1 2015. Interest expenses were $3.9 million, compared to $4.3 million in Q4 2015, and $3.2 million in Q1 2015. Earnings before Interest Taxes, depreciation and amortization was $21.9 million, compared to $23.4 million in Q1 2015 and $11.4 million in Q1 2015.

EBITDA margin was 38%, compared to 39.5% in Q4 2015, and 27.3% in Q1 2015. Net income attributable to Daqo New Energy Corp. shareholders was $8.3 million, compared to $9.6 million in Q4 2015, and $1.2 million in Q1 2015. Earnings per basic ADS were $0.80, compared to $0.92 in the fourth quarter of 2015 and $0.12 in the first quarter of 2015.

Adjusted net income attributable to Daqo New Energy shareholders which excludes cost related to our non-operational Chongqing polysilicon assets of non-cash sharebased compensation was $11.7 million in Q1 2016 compared to $11.9 million in Q4 2015 and $6.4 million in Q1 2015.

Adjusted earnings per basic ADS were $1.12 in Q1 2016 compared to $1.14 in Q4 2015 and $0.66 in Q1 2015. As of March 31, 2016 the company had $35.7 million in cash and cash equivalents and restricted cash compared to $33.6 million as of December 31, 2015.

As of March 31, 2016 accounts receivables balance was $15.4 million compared to $19.9 million as of December 31, 2015. Notes receivable balance was $25.3 million, compared to $11.1 million as of December 31, 2015.

As of March 31, 2016, total borrowings were $241.3 million, of which $114.8 million were long-term borrowings, compared to total borrowings of $242.5 million, including $118.5 million long-term borrowings, as of December 31, 2015. As of March 31, 2016, notes payable balance was $28.1 million, compared to $20.2 million as of December 31, 2015.

Now for cash flow. For the three months ended March 31, 2016, net cash provided by operating activities was $22.5 million, compared to $1.3 million in the same period of 2015. For the three months ended March 31, 2016, net cash used in investing activities was $17.5 million, compared to $16.3 million in the same period of 2015.

The net cash used in investing activities during the first quarter of 2016 was primarily related to the capital expenditure of our Xinjiang polysilicon facilities.

For the three months ended March 31, 2016, net cash used in financing activities was $3.3 million, compared to net cash provided by financing activities of $22.7 million in the same period of 2015. And that concludes the official part of our presentation. Now let’s have the Q&A session..

[Operator Instructions] The first question comes from Philip Shen of ROTH Capital Partners. Please go ahead..

Hi everyone, congrats on the nice results there..

Hi, Phil.

Hello Phil..

Hi Gongda. Good evening. So let me ask you about ASPs for the quarter, you know they have gone up meaningfully, you know were averaging about $15.50 a kilogram so far for this quarter.

What kind of ASP do you think we could see in Q2 and then can you talk about how you expect ASPs to trend in the subsequent months? You know there is a lot of discussion especially about you know module prices and selling wafer also maybe coming down in the back half, how do you expect that to impact poly pricing going forward as well? Thanks..

Okay, thanks Phil.

So let us give you a little bit more color on what we are seeing in the market and what we are seeing that’s driving the trend for upward pricing for polysilicon and this really started in the beginning of the year around the February or March timeframe which we believe is really driven by the supply and demand dynamics within China.

And our demand for poly is very strong right now with broad base increase in volume from our customer base as well as new customers. And this is really driven by significant domestic wafer capacity expansions that start to ramp up starting in February and resulting increase poly consumption and demands from these wafer manufacturers.

And with the rising wafer pricing that we saw in the previous quarters we also saw some significant upstart of mono crystalline wafer capacity in addition to increase of the multi crystalline wafer capacity.

And if you recall what happened in the second half of last year the price come down we saw was primarily a result of a shortage of wafer capacity in the market that was the primary constraint. And the wafer capacity at that time could not process the poly inventory into wafer, which led to a increase in wafer pricing and the decline of poly pricing.

And with the substantial margin increase for wafer manufacturers. So if you recall, our wafer margin was only around 11% in Q2 of last year and that really improved to 28% now. So what we are seeing right now is really this process being more normalized.

But even if you look at the current higher poly pricing that we are seeing in the market today, and with today’s wafer pricing, the wafer manufacturers were still making a very healthy high teens [ph] to even close to 20% gross margin and that’s what we are seeing with our own wafer manufacturing subsidiary.

So this is still very profitable for wafer manufacturers.

And so, this is really what’s driving the fundamental increase in the demand for poly and I think recently, I think what we are seeing right now is also that the Chinese customs is now cracking down on what we call, what they say is smuggling of polysilicon imports into China, they are attempting to avoid the input tariff.

And what we are seeing is the immediate impact has reduced calling imports. So and this is particularly significant for previously U.S.

manufactured polysilicon which we saw in previous months have tried to re route significant volumes to -- from countries like Taiwan and Malaysia that they trying to avoid this import activity ensuring our customers related to that have made many arrest in connection with this polysilicon investigation.

So we believe the investigation into poly smuggling will have this long term impact in enforcement and reduction of non-compliance poly import. And on the supply front, we're not seeing any new poly manufacturing capacity addition in 2016 other than poly that's made in the U.S.

But with this recent strict enforcement of the anti-dumping tariffs we don't think these new poly can make its way into China. So, I mean, if you look at this Q2 pricing, so in turn quarter where we're seeing pricing, let's say closer to $16 and higher range, and now as Dr.

Yao has discussed, and we're actually signing contract in the $19 pricing range. So that's kind of like what we're seeing in Q2 right now. And with prices for polysilicon that we're seeing in the marketplace that's truly what's supporting and driving the higher poly pricing. And we think this trend can, I think continue to the remainder of the year.

So that's kind of our current perspective right now..

Okay. That's really helpful.

So, can you talk about the dynamics behind customers wanting two to three times the capacity you can provide? Are they building or rebuilding inventory or it a function primarily of the wafer capacity expansion?.

Yes, Pierre, I think it’s a wafer capacity and maybe it's also primary due to the – they cannot get any import polysilicon, originally they sign the contracts through this that the – buying this polysilicon from outside China and now because of investigation, so all the imports has stopped. As we know that will continue to the June at least.

And then, looking at second half of 2016 as Ming already has mentioned, we don't believe the poly demand and supply issue will be resolved or relax before the demand, because two factors, one is China installation for 2015 were continues strong.

Secondly, we saw in the downstream customer they slightly changing happening right now is thus would be more increased than more and more capacity of the wafer in the industry.

This has never happened before, because while the industry continues to produce more multi-crystal wafers and also they are increasing the mono-crystal wafer capacity in the market. China had already announced this year alone increased of 7 gigawatts of the mono-wafer sale manufacturing.

As for the – you mentioned that the module and the sale price trending down a little bit, we notice that, but we're looking at industry as current price about $18 to $19 per kilo polysilicon.

We still see the margin of wafers around 15% to 20%, so which means it still have some room to go and I think polysilicon price will be – maybe will stop at about $20 per kilo. And I think that will be continue at least passed Q2, and perhaps most likely will go into Q3. Yeah..

Okay.

So, in terms of demand can you talk about how much demand there is at $19 a kilogram? Is it fair to say there's still a substantial amount of demand for polysilicon at that higher pricing and…?.

Yes. We cannot accept the orders because our manufacture, we are full utilize and produced as much as can and we think as Ming already mentioned, we already increasing from Q1 from last Q4 internal shipment by about more than 100 metric tons. And this trend will continue for the Q2.

So, also company trying to change some process to make more parts that it can suitable for mono-crystal wafer qualification purpose. So right now we are working with many downstream customers trying to qualify high-end mono-crystal wafer, those applications, which maybe were significant increase for next three years.

But right now at this moment still most customers using for multi-crystal wafers application using for polysilicon, but this is something changing maybe on the second half of this year. So, actually more shifted to the mono-wafers in compared with anytime in the history last two, three years.

So, that's why we believe the internal in China high purity and good polysilicon market is still very tight and in the long run maybe low end of kind of low quality polysilicon maybe in demand will be more ease because of multi-crystal wafer size maybe want to increasing in the next three years.

But seems like mono-crystal wafer demand were increasing significantly in next few years, so that's why we're looking from the second half of this year and through that.

So, we still believe this year's market in China for polysilicon is very good and we believe the second half price definitely will be more strong than the first quarter, which is reported..

So, let me just add to Dr. Yao's comments. So, I mean, $19, we won't have the enough products to sell.

Our customers want to buy a lot more products than we were able to provide to them and all of them are under allocation basis right now?.

Okay. That's really helpful. I'll jump back in the queue. Thanks..

Great. Thanks Bill..

[Operator Instructions] The next question comes from Sheng Zhong of Morgan Stanley. Please go ahead..

[Indiscernible] and congrats on the results. Here actually you mentioned about the wafers. We also have wafer production and all the wafer is multi-crystalline products.

Is that right?.

Yes. That's correct..

Yes.

So, based on your view and also your order backlog, can you share with us your wafer price? Are your wafer price changed in the second quarter?.

We're looking at roughly 3% to 4% decline in Q2 versus Q1 for ASP, wafer ASP..

Are you mean per piece?.

Per piece or per watt that's pretty much the same..

Are you mean, 3% to 4%, right?.

Over Q2 versus Q1, yes..

Okay..

Q1 always – almost in the peak in the last six or nine months, so from Q2 slightly ease, but still we think their wafer at such their margin will be very close to like middle at about 15% to 20% for whole industry, so yes..

Yes, understand. So, and also we noticed that you have receive the approval to listing in the New Third Board.

Yes..

Yes.

So, after your listing what's the net next step from this capital market that company is obtaining?.

As a fact you know, this is a very new market. The capital activity for raising capital in this fold is virtually very light at this moment, so according to Chinese government they will – because about – right now about to 5,000 to 6,000 companies listed, plan to listed in this market.

So, according to government plan we're first to classify different companies. We believe our company will deserve -- we deserve the first class Tier 1 kind of company listing in this market.

And from that moment maybe any capital activity in this market would be follow-up today, classification is done, so we believe would be done by second half of this year..

Okay.

So, that means you will issue shares in the market?.

There are two – actually particularly there are different way and they first like listing as the price for the shares, and they maybe have no significant trading and also you can do if you have – its more like you have, if the investor want to buy your shares is it possibly it can be done also by that time, yes..

At this moment if you look at the Third Board trading is not as heavy as Asia or any other market yet, but we believe after they -- for the different company on a different classes they probably will be more focused on their first tier companies trading will be much heavier compared with the remaining companies.

Right now, every company treated same at this moment, so hopefully after Q3 they will done this according to the plan they announced, so then we will see significant trade value increase for the first tier companies..

So, [Indiscernible] outcome in, so I think we will look forward to optimistically raise capital within the Chinese market, which as of today I think you're seeing a much higher valuation for solar companies relative to the U.S. market and even these companies arguably are less quality relative to the U.S.

solar company as well, so I think there is good opportunities for us to tap into this market at a more attractive valuation..

Yes. Understand. So, let's take a look at the -- what's happening in the next quarters of this market..

Yes, yes. Thank you..

And that's from me. Thank you, Dr. Yao and Mr. Yang..

You're welcome..

Hey, great. Thank you..

The next question comes from Wei Feng of Luminus Management. Please go ahead..

Hi, guys. First of all, I heard you said that China added 7 gigawatts wafer capacity last year.

Is that right?.

No. The sale manufacturing for the – in recent the sale capacity added is mono-crystal sale and high efficiency. So this is new trend. Use to be China only focused on the multi-crystal wafer sales.

So which means they have more market for polysilicon, so that's why we are very optimistic compared with last year, because last year Chinese market 80% for sale manufacturing, but most focused on the multi-crystal wafers and the multi-crystal sales. Right now, we have -- eventually this market is growing.

We saw lot of construction facilities in Xinjiang [ph] based for customer like Longji [ph] and other customers they are busy and their several lines is already starting to – starting or producing sales in China for the mono-wafers..

So, 7 gigawatt sale capacity and what's your estimate on wafer capacity expansion last year?.

Wafer, we have announcement for several companies whereas you know Longji is heavy focus on expansion for mono-wafers and GCL [ph] announced a week ago lots of wafer expanding. We do not see any more other people for mono-wafers, but we notice some shipments for some other companies also starting to have small increasing of mono-wafer crystal.

So its just starting from end of last year and this year, and we expecting meaningful volume were coming maybe next year from second half of this year and also next year.

So this is something never happened before, because normally mono-crystal wafer sale and that manufactured mainly in the outside of China market in Japan, in South Korea and the Taiwan and the U.S., but this is happening in China too. So, but by saying that, but the multi-crystal wafer demand is very strong still.

And our multi-wafer sales is very strong and there is no – almost no inventory and every month close or add a quarter we basically only one day kind of production inventory remaining for each quarter, so in last few quarters. So it's very strong field. It's still the mainstream of the shipment for the poly usage for 2016, still [Indiscernible].

What is interesting is we are seeing more people focused on the mono-wafers in future for additional capacity focusing will be about mono-wafers, yeah..

That's interesting. And on the supply side, Ming mentioned that's the Chinese customer is investigating on the poly smuggling activity. Just looking at the Bloomberg data from Taiwan and Malaysia, China has been importing less than 1,000 ton per months early 2015. The latest data shows roughly 2,500 ton in March from those two countries.

What's your best estimate? What's the impact from the investigation on the import? Do you think it's going back to 1,000 ton per month or its stay at maybe 2,500 per month run rate, because we don't have any poly production plant in Taiwan, right?.

Yes. So, I don't believe those imports from our customers, probably its imported from some trading company. So those kind of poly we believe is still in a custom. I don't think they are releasing to internal customer yet.

So, actually there are several things, one is some imports came from Taiwan which we knew and like Chinese government knew that's not true, so those were in big trouble, I think they probably change the original producer countries coming to China.

Second, also there's – remember in last two years there is some wafer processing trades, those investigate some rendering during that time, because of take advantage of avoiding the tax by claimless wafers from certain amount of polysilicon they import.

And third one is more serious, I think they varies on a few cases is they claim is a metallurgic silicon, actually instead of polysilicon. So, that's would be more severe for this situation.

So, as we know still some people in holding by the government and is not release yet and also they relates to poly and also the filing for the – they ask how many payback some -- pay the tax those things has not done yet, so we believe this solution was at least maybe were opted to and when we will solve this problem we just don't know but we know that order input through those companies we're stopping right now.

So the number still going to China, but it still the custom not release to the inside China market..

Yes. So our understanding is with the strict enforcement of polysilicon import, we don't think U.S. may probably can reroute to for some countries like Taiwan or Malaysia. And in fact we've heard, we've know the poly traders, importers in Taiwan that actually would not want to touch any U.S.

type of poly and try to get them into China because the current situation right now?.

Yes. So we believe U.S. poly would not able to going to China for the second half of this year. And also China restudying another investigation for the Wacker's poly for European manufacturer, so the new investigation will cover 2015 whole year. So this will continue. So I think a pressure for the Wacker import to China also still on.

And this is announcement we saw on Chinese news. So, situation would be imports from – if we're assuming imports from Wacker, OCI, those companies will continue same as last year. But import from U.S. were significantly lower compared with last years that's what were our expectation..

So, if March import from Taiwan is 2,000 ton and Malaysia is roughly 600, you would think those numbers should trend down in April and May?.

It should be zero, because….

Yes. We think by May it should be close to zero..

Even this is imports but I think those materials still in the custom. I meant to probably seize those polys, I don't think they will come to the market..

Yes..

Do you think those two countries imports go to zero in May?.

Yes. We believe so..

With May number come out you'll be a short of 2,500 tonnes import?.

Yes. Because even the people buying those polys maybe shipping to China, but still right now in the custom. They've not released it. They probably were asking to pay money for all the tariffs, so I don't – people will continue buying next two months, because if they cannot sell it, so that's a big trouble right now.

So in March, because the investigation started in April, so probably that's why and probably we suppose not see anything in April, unless some trader company is very stupid, they continue buying and the silicon actually would be in the Chinese government hands. I don't think they can sell it..

Understand.

So, you believe your Chinese custom going forward will enforce anti-dumping tax and you enforce..?.

Yes. So I think this is the first time actually in last three years and first time the Chinese government is very serious in doing that, as such it's surprising us. We know tht the fact is Taiwan is not making any Polysilicon but Taiwan continue shipping along the 1,000 metric ton every month. So….

So, 2,000 almost 2,000 in March?.

Yes. We also close some – it's not the verified new phase, some company even playing the granular polysilicon probably from U.S. is coming as metallurgic silicon. So they pay less almost no tariff at all and come to China is as those companies, so which means that loophole is more than just Taiwan has also classify as different material totally.

So we hold a lot of people right on still basically arrested by China's authority. So its not – no sign will be resolved very soon, so we don't know exactly when they were resolved. Probably some people would be sent in and big penalty for smuggling will be done before they can open those goods or any imports can be plan by those companies..

Understand. Thank you. Appreciate it..

Thank you..

Thank you. .

The next question from [Indiscernible]. Excuse me. Okay, we have a question from Manya Chen from PHOTON Consulting. Please go ahead..

Hi. This is Manya. Thank you for your presentation and congratulations to Daqo's good performance. So I guess the data you have given us for to calculate polysilicon's operating margin and you can see it's almost up to nice 30%, which is very high and it’s a exciting performance.

And my question is actually in February or March polysilicon price has been increasing and I saw Daqo has actually reported their prices 13.72 which is lower than last quarter.

And for only the margin, could you share more about like if you lower your price and your volume is also lower down because of Chinese New Year and what other access, how to make your company have that high operating margin?.

Yes. Okay. First let me clear, the volume for production is a fact from Q4 to Q1. We expand because Q1 have less calendar days, so it's almost same and if you look at that number..

Okay..

The pricing is – Q1 – okay, Q1 pricing, the averages shipment from January, February and March, okay. So January shipment normally contract signed in the last year which means December normally we have before in the December – from December sign a contract so that we shipment it, price is determined by previous months.

So basically in March price of the Q1 last month we believe is the high price compared with any month is sign a contract in the February, Chinese New Year time. So real effect of the price is in the March and will reflect in the April, so that's we have a high confidence our Q2 ASP will have big improvement from the Q1 performance.

So, that's normally – actually if noticed price downturn also is exactly same trend. So we have about three weeks delay for the pricing, contracts and delivery and revenue. So, please remember that. So that's the reason.

So, if there's volume, there's no much change, its about same, so we – because we're shifting more high quality polysilicon, so we trying to serve the market, new market which I already explain to you is mono-wafer crystal market. So, we are not in the high volume.

But in the Q2, we were trying to extend those areas, it high demanding, its multi-crystal wafer as well as, so we expecting the volume were coming is the fact with Q4 and Q1 level and the price with the big improvements from the Q1..

Okay. Thank you for clarifying. And you have mentioned April price for the polysilicon price will be still up since you're already April [Indiscernible] your March orders..

Right..

Yes. And also you – go ahead please, go ahead..

Yes. So, it's the same thing, but today's market price, real shipment and mostly likely will be end of the May and also beginning of June. So, that's why we believe Q2 pricing is we have a high confidence for the whole quarter the price, ASP, will be much high than Q1, yes..

How much percentage of the price do you think it will go up to?.

Well, that's – we are not very good at that, but we can guess, we say the price can go to up to maybe around $20 and its more than that, its unlikely because wafer manufacturing margin maybe were going to like a 10% or below, and that would indicate of the polysilicon price too high, because as each sector needs some profitability to sustaining the business, so we believe that's why $19 to $20 probably is movement of prices to the high end.

And unless something significant happening I think the price will stay there for a while and I don't think we see that going high and the wafer were impact to the downstream too much..

Yes. And, actually, Daqo has to also sell wafers and I see their operating margin is about 8% right now. And if Daqo.

I mean, its 28%..

Go ahead..

Yes. Our margin is 28% for Q1..

Yes. That's for the whole company, right..

No. for wafer also, for wafer its 28% and….

For operating margins?.

I would say, our gross margin..

Gross margin, okay. Yes, cool. Good to know, thanks.

And do you think could you talk about fee-in-tariff, it's that on polysilicon and wafer price to Daqo?.

Tariff -- the import tariff..

Yes. As customer….

That's for polysilicon only --that's for polysilicon only. That continued. There's nothing change.

Only thing is that by the end of April to tariff for Europe, especially for Wacker and the European company suppose is stopped but the Chinese announced they will continue investigation for the Wacker and so as stated before I think the older tariff will continue, older managers will continue the post on the for the Wacker, but we don't exact results would be, because investigation takes time, so most likely will be second half of this year.

Hopefully, Chinese will give the conclusion about how to deal with European company. For U.S. company of course is same as we discussed in last conversation is basically is basically the U.S. poly. We don't believe we'll come to China for the second half of this year..

Great. Okay. Thank you. Thank you for answering my questions..

You're welcome..

Thank you..

The next question comes from Paul Strigler of Esplanade Capital. Please go ahead..

Hey guys. Just a question on your decision to send poly to the wafer fab versus selling poly in the market.

You don’t break out sort of your cost of goods to polysilicon, did you breakout the total cash cost, which includes SG&A? So at what price is poly, given where wafer prices are, and where they are going, does it make sense just to shift that poly to a third party versus running it through your wafer facility?.

Yes well -- its Paul it’s actually it’s the same. You know we internal shipments the prices are the same but the -- count is revenue for polysilicon because as we are U.S. listed company the auditing is very fair. So we have to see how the internal sale shipment has not counted as far second revenue as we count as wafer revenues.

So its about same price. While the reason is we are increasing the price significantly. When our party is running at about 6000 metric ton capacity sometimes we have to buy some polysilicon to meet our long term customer, long term contract customer’s needs.

But right now, in the second half of last year we doubled our capacity for the polysilicon so we are able to provide all polysilicon needs for our wafer facilities. So right now we will continue doing that, especially when the market is tight so it’s very difficult to buy polysilicon for onsite sourcing.

So, and the Q2 at least we will continue to do that and the second half this year we will see markets. So if for example our polysilicon is real tight for our customer and the market also other polysilicon whether we like we used it, we also buy the polysilicon in the free market also end market too.

But as of Q1 and Q2, we have decided we’re shifting our polysilicon to internal customers because our long-term contract and it covers like 80% of our output, of course at this moment demand is very high for segments reported but our wafer manufacture is it’s not that big as we first of all we shift our 500 metric ton, the amount is about 3,400 metric ton of that..

Maybe a better way to finish that, maybe a better way to finish the question.

So it appears you are selling polysilicon or contracting out $19 a kilogram in the second quarter of May, what’s your gross profit per kilogram for polysilicon and then sort of when you equate sort of that 500 tons a quarter of wafer, how much gross profits per kilogram are you generating from a wafer set?.

So the profit is still -- polysilicon $19, okay. So we are not give them for free. They have, see how we will contribute the positive margin.

So let me put it this way, so if we just sell polysilicon to outside customer we shut down the wafer manufacturing, we will still make less money because the wafer is still positive [ph] to margin and we put this way..

Ming, wait a second, so the 28.3% gross margin in Q1 for your wafer business, you are flowing through polysilicon at your average selling price in that cost of goods..

Yes, that’s right. So if you combine….

What would the gross margin be if you were flowing through like you were flowing [Indiscernible] cost, not your selling price, so over $9.65 [ph]..

We need to do some calculations, so let’s get back to you on that..

Okay. Thanks guys, good quarter. Good luck in future..

Great. Thank you..

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

Thank you everyone again for joining us conference call today. Should you have any further questions, please don’t hesitate to contact the Investor Relations of the company. Thank you. Bye, bye..

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