Daqo New Energy Corp
NYSE:DQ
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Daqo New Energy Corp
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Good day and welcome to the Daqo New Energy Second Quarter 2018 Results Conference Call and Webcast. 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. I would now like to turn the conference over to Mr. Mr. Longgen Zhang, CEO; Mr. Ming Yang, CFO; and Mr. Kevin He, Investor Relations. Mr. He, please go ahead.
Hello, everyone, I’m Kevin He, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the second quarter of 2018, which can be found on our website at www.dqsolar.com. To facilitate today’s conference call, we have also prepared a PPT presentation for your reference.
Today, attending the conference call, we have Mr. Longgen Zhang, our Chief Executive Officer; and Mr. Ming Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, and then Mr. Yang will discuss the company’s financial performance for the second quarter of 2018. 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 alter these translations into U.S. dollars solely for the convenience of the audience.
Without further ado, I now turn the call over to our CEO, Mr. Zhang please.
Hello, everyone, and thank you for joining us today for our earnings call. We remain confident in the long-term sustainable growth of the polysilicon industry despite the impact by the new solar PV policies issued by the Chinese government on May 31, 2018. The new solar policies caused uncertainty in the domestic solar market and negatively impacted downstream demand in June. Leveraging our strong cash position and efficient corporate management, we maintained full production capacity and delayed shipment until demand returned in early July when ASP stabilized.
With our production facilities now running at full capacity and lower inventory levels, we are reiterating our full year polysilicon production guidance of 22,000 to 23,000 metric tons. Utilization levels and demand from our downstream customers involved – improved in July, according to the China Silicon Association, approximately 13%-35% of China’s domestic polysilicon production capacity has been shut down as those producers are unable to survive at the current market prices. With supply declining increasingly restricted and demand gradually recovering, polysilicon ASPs recovered meaningfully in July amidst a robust customer volume demand.
Despite the challenging market environment in China, demand for solar PV products remains healthy and robust for the rest of the world. New emerging markets in Latin America and the Middle East are blooming with growing demand. India, in particular, is expected to grow rapidly, with prosperity approaching in many markets, such as the Europe and the U.S. The project development are more aggressive in their bid, with solar end market outside of China accounting for an increasing percentage of our downstream customer shipments.
According to industrial forecasts, global solar installations are expected to reach 95 to 105 gigawatts for 2018. With lower and more competitive PV prices, the global solar installation could reach 120 to 140 gigawatts in 2019 and 140 to 160 gigawatts in 2020. At Daqo New Energy, we are confident in the long-term sustainable growth of the polysilicon industry and our ability to benefit from this growth by increasing our production capacity and improving our cost structure and polysilicon purity.
I’m pleased with our performance in this quarter and our ability to remain flexible and rapid adapt our business to a challenging market environment. Production of monocrystalline type of polysilicon increased to 70% during the quarter. Monotype polysilicon continued to enjoy a healthy premium and strong demand from our customers. EBITDA during the quarter was $31 million and we generated $67.1 million in cash flow from operation during the first half of this year.
We are one of the very few polysilicon producers able to continuously generate positive EBITDA, net income and operating cash flow in this challenged market environment. In addition, we are expecting to complete our Phase 3B expansion project and start pilot production in the fourth quarter of 2018, which will increase our annual capacity to 30,000 metric tons and further reduce our polysilicon production costs by approximately $1 per kilogram across our entire production facility.
We believe that demand for our high-quality polysilicon products will continue to grow over the long-term as solar PV is becoming increasingly cost competitive and less dependent on policies and subsidies.
Our strong balance sheet, ample operating cash flow and newly added capacity coming online will help us to further solidify our position as the polysilicon manufacturing leader.
Now I will give you the outlook you the outlook on our guidance. We will begin a scheduled maintenance shutdown for our Xinjiang polysilicon facility in September, which is expected to impact polysilicon production by approximately two to three weeks based on current maintenance plans. During this period, in addition to the scheduled annual maintenance work, we will also connect the newly constructed Phase 3B facility to its existing facilities, upgrade technology across all of its facilities and install various manufacturing efficiency projects. As such, we expect to produce approximately 4,100 metric tons to 4,300 metric tons of polysilicon and sell approximately 5,900 metric tons to 6,100 metric tons of polysilicon to external customers during the third quarter of 2018.
The above external sales guidance excludes shipments of polysilicon to be used internally by our Chongqing solar wafer facility, which utilizes polysilicon for its wafer manufacturing operation.
Wafer sales volume is expected to approximately seven million to eight million pieces for the third quarter of 2018. For the full year 2018, the company expects to produce approximately 22,000 to 23,000 metric tons of polysilicon, inclusive of impact of our annual facility maintenance. This outlook reflects our current and preliminary view as of today and may be subject to change. Our ability to achieve this production is subject to risks and uncertainties.
With that, I will turn the call over to our CFO, Ming, who will go over our financial data for this quarter. Ming, please, go ahead.
Thank you, Longgen, and good day, everyone. Thank you for joining our earnings conference call.
Revenues were $67 million, compared to $103.3 million in the first quarter of 2018 and $76 million in the second quarter of 2017. Revenues from polysilicon sales to external customers were $63 million, compared to $95.6 million in the first quarter of 2018 and $61.1 million in the second quarter of 2017. External polysilicon sales volume was 8,881 metric tons, compared to 5,411 metric tons in the first quarter of 2018 and 4,497 metric tons in the second quarter of 2017.
The decrease in revenue from polysilicon was primarily due to lower polysilicon sales volumes and lower ASPs. Revenue from wafer sales were $4 million, compared to $7.6 million in the first quarter of 2018 and $14.9 million in the second quarter of 2017. Wafer sales volume was 9.8 million pieces, compared to 13.3 million pieces in the first quarter of 2018 and 27 million pieces in the second quarter of 2017. The sequential decrease in revenues from wafer sales was primarily due to lower sales volume and lower ASP.
Gross profit was approximately $27.2 million, compared to $46.2 million in the first quarter of 2018 and $24.2 million in the second quarter of 2017.
Non-GAAP gross profit, which excludes costs related to the nonoperational polysilicon assets in Chongqing, was approximately $27.6 million, compared to $46.6 million in the first quarter of 2018 and $24.8 million in the second quarter of 2017.
Gross margin was 40.6%, compared to 44.8% in the first quarter of 2018 and 31.9% in the second quarter of 2017. The sequential decrease was primarily due to a decrease in ASP, which was partially offset by a decrease in average polysilicon production cost. In the second quarter of 2018, total costs related to the nonoperational Chongqing polysilicon assets, including depreciation, were $0.4 million, compared to $0.4 million in the first quarter of 2018 and $0.5 million in the second quarter of 2017.
Excluding such costs, non-GAAP gross margin was approximately 41.2%, compared to 45.2% in the first quarter of 2018 and 32.6% in the second quarter of 2017. Selling, general and administrative expenses were $7.8 million, compared to $4.8 million in the first quarter of 2018 and $4.5 million in the second quarter of 2017.
The increase in SG&A expenses was primarily due to the increase of noncash share-based compensation costs, which related to the company’s 2018 share incentive plan, which, in aggregate, increased our noncash share-based compensation expense by approximately $3.5 million for the second quarter compared to the first quarter. We expect to be at similar levels of share-based compensation expense for Q3 and Q4.
R&D expenses were approximately $0.2 million, compared to $0.1 million in the first quarter of 2017 and $0.3 million in the second quarter of 2017. Research and development expenses can vary from period to period and reflect R&D activities that took place during each period. Other operating income was $1.9 million, compared to $0.4 million in the first quarter of 2018 and $0.8 million in the second quarter of 2017.
Other operating income mainly consists of unrestricted cash incentives that the company received from local government authorities, the amount of which varies from period to period. Operating income was $21 million, compared to $41.7 million in the first quarter of 2018 and $20.2 million in the second quarter of 2018. Operating margin was 31.4%, compared to 40.4% in the first quarter of 2017 and 26.6% in the second quarter of 2017.
Interest expense was $3.4 million, compared to $4.1 million in the first quarter of 2018 and $5.3 million in the second quarter of 2017. EBITDA was $31 million, compared to $51.7 million in the first quarter of 2018 and $29.8 million in the second quarter of 2017. EBITDA margin was 46.3%, compared to 50% in the first quarter of 2018 and 39.2% in the second quarter of 2017.
Net income attributable to Daqo New Energy shareholders was $13.4 million, compared to $31.6 million in the first quarter of 2018 and $12.1 million in the second quarter of 2017. Earnings per basic ADS were $1.06, compared to $2.91 in the first quarter of 2018 and $1.15 in the second quarter of 2017.
Non-GAAP net income attributable to Daqo New Energy shareholders were $18.2 million in Q2 2018, compared to $30.9 million in the first quarter of 2018 and $13.8 million in the Q2 of 2017. Non-GAAP earnings per basic ADS were $1.44 in the second quarter of 2018, compared to $3.03 in the first quarter of 2018 and $1.31 in the second quarter of 2017.
Now for the company’s balance sheet. As of June 30, 2018, the company had $179.3 million in cash, cash equivalents and restricted cash, compared to $83 million as of March 31, 2018. In addition to the proceeds from our follow-on offering in April, the company also received $130 million of customer prepayments during the quarter.
As of June 30, 2018, the accounts receivable balance was $0.3 million, compared to $2 million as of March 31, 2018. We remain very prudent with our AR policy, and our accounts receivable balance remains at very low levels. As of June 30, 2018, banknotes receivable balance was $19.3 million, compared to $49.7 million as March 31, 2018.
As of June 30, 2018, total bank borrowings were $196 million, of which $93 million were long-term bank borrowings, compared to total bank borrowings of $218 million, including $108 million of long-term bank borrowings as of March 31, 2018.
In April 2018, the company issued 2,064,379 ADSs, representing 51.6 million ordinary shares through a follow-on offering at $55 per ADS. The proceeds, net of underwriting commission and issuance costs, were $106.6 million.
For the six months ended June 30, 2018, net cash provided by operating activities were $67.1 million, compared to $73.6 million in the same period of 2017. The decrease was primarily due to an increase in inventory balance as well as payments of tax expense due to local government authorities tax increase. For the six months ended June 30, 2018, net cash used in investing activities was $52.5 million, compared to $32.9 million in the same period of 2017.
Net cash used in investing activities in the first half of 2018 and 2017 was primarily related to the capital expenditures on the Xinjiang polysilicon project. The company currently anticipates capital expenditures for the full year to be approximately $120 million to $130 million, primarily related to our Phase 3B expansion project and technology upgrades.
For the six months ended June 30, 2018, net cash provided by financing activities was $93.2 million, compared to net cash used by financing activities of $23.4 million in the same period of 2017. The increase was primarily due to net proceeds from follow-on offering.
That concludes our prepared remarks. We would like now to turn the call over to the operator to begin the Q&A session. Operator, please begin. Thank you.
We will now being the question-and-answer session. [Operator Instructions] The first question is from the line of Philip Shen with Roth Capital Partners. Please go ahead.
Hi, everyone. Thank you for the questions. I’d like to start with your outlook on pricing. We’ve seen pricing stabilized in the recent weeks with some poly pricing even being higher week over week. With the capacity that shut down for maintenance throughout the industry, I think you talked about 30% to 35%, it seems like it’s stable. So can you give us your outlook for pricing, maybe your average ASP you expect for Q3 and possibly for Q4? Thank you.
Philip, thank you. I think really it should be good morning for you. Okay, to answer your question, first of all, I think because of the new policy, we call 531 policy, we call. I think the pricing fluctuation in June really, I think, cannot represent any meaning because we didn’t have any trading there. So basically, we also have inventory because lowest prices go to – renminbi is going to like multisilicate go to $70; mono, even lower, go to $80 revenue per KG. So actually, we didn’t sell – ship or sell any contract in June, so that’s why we have the inventory. By the end of the quarter, we have 2,115 tons there.
Then I think the price – the market digested and I think of the policy, then come back early July. So basically, we’re starting selling early July, the price go to monosilicon around like $93 and multi- is around $82, $83. So we’re starting to selling inventory. So basically, we sold old inventory today. And the price of a monosilicon is around $95, $96, and multi- is around $85 to $86 per KG.
And to focus, I think – basically, what I want to say is based on today’s price structure, actually, if you look at the mono and the multi, the average price still is around like 90. So basically, that price for the input poly, actually, the cash cost is above that, frankly speaking. So I think, right now, until end of the year, I don’t think that the Chinese market will dramatically come back. Definitely, I think, Chinese is market is bigger potential, I think, than projected figure. The reason because we see a lot of PV projects, without any subsidies and few installation there and because of module price continues to go down.
So what I suggest, forecast, until end of the year, I think silicon price should be between $95 to $105. I don’t think it will be above $110. So that’s, if you ask me, for monosilicon. For the multi, I think it may be, by the end of the year, from $85 to $95.
Great. That’s really helpful. Thank you, Longgen. So let’s shift gears to your position. I know you guys are operating basically at 100% utilization and even when you weren’t selling in June, I think you were still operating very close to 100% utilization. But certainly, the industry was not doing that. So how do you expect the capacity that shutdown for maintenance to evolve? So, for example, do you expect that capacity to come back online at the pricing that you expect? Or do you expect it to be permanently shut down? And then finally, for your maintenance, I think you’re doing two to three weeks in Q3. Sometimes, in the past, you’ve split your maintenance between one quarter and another. Do you expect any maintenance in Q4 as well?
Okay. To answer your question, first of all, what I think, at this moment, because the price is lower, everybody take a chance to, I think, doing the maintenance. But some small player may be take exits, maybe they’re maintenance, maybe never come back. Okay? So – but definitely, I think some of the bigger player, definitely, I think, will come back, like Tongwei, like TBEA. I don’t think – like Tongwei, now they just finished, I think, maintenance in [indiscernible] then come back and started production again.
And TBEA is starting maintenance, I think, this month, but I think it definitely will come back. So that’s because this year, we have to shut down two weeks, maybe three weeks. The reason is because 3B expansion will connect it with existing – the facilities. So definitely, I think, it will take two to three weeks to shut down, then we’ll come back, and we’re starting production of 3B in Q4. So definitely, I think, hopefully, we can – everything is smoothly and to reach the design capacity of 30,000 tons.
Okay, great. And then shifting to the cost structure, I think your cost structure in Q – cash cost in Q2 is $7.43. I think you said in your prepared remarks or your release that once you’re fully ramped up on 30,000 metric tons, then your production cost comes down by $1 per kilogram. So is it fair to say, let’s say, you’re at $7.43 now, you make modest improvements in Q3 and Q4, and then throughout the full year 2019, your cash cost can be close to $6.50. Is that the right way of thinking about your cash cost structure? Thanks.
Yes, I think so. Because as soon as we start in trial production, basically, I think, first of all, 3B, we’re adding additional 13,000 tons annual capacity, then the estimated cost will drop to, I think, CNY 0.24 per KWH. Then, in time, okay, our quality of products also will increase. So basically, I think per KG consumption the excess will go down. So average, if the 3B – we finish 3B, so average consumption is actually 68 KWH per KG, so we’re lower. Right now, we’re around 75 KWH per KG. So definitely, I think the new I think figure for the cash cost is correct.
Great. And then shifting to your – some of your customer activity or just customer activity in general, recently, we saw LONGi announced a new long-term poly supply agreement with TBEA. They announced one with you a few months ago. When do you expect to – we were surprised to see that because of the downturn in the market, they still want to lock in long-term pricing or long-term supply agreements. So it’s interesting when we think it’s a positive, but what do you – when do you expect to possibly secure your next long-term agreement? Do you think it’s actually possible? Or do you think we should not expect any more near term?
Basically – first of all, I think I’ll talk about LONGi, signed a contract with TBEA. I think, basically, if you look at LONGi, by 2020, their capacity is 45 gigawatts. Their total consumption is around, I think, 178,000 tons, purely in the monosilicon. So even though they signed contract with OCI, with us, with Tongwei, even with the TBA, they still want to sign more contract with me because it’s waiting for my 4A expansion can be smoothly. So we may be possible to sign another contract by the end of the year, okay. So first of all, to let you know.
Secondly, for us, we signed one long-term contract with LONGi, then we also talked to, right now, three more clients right now. I think one of the clients we’re working there is almost, I think, it’s on time – it’s going up. Pretty soon, I think it will come out. So those long-term contracts help us, I think, unlock the downstream clients, as one side. Another side is the contract we signed, actually, we – I think that takes the advanced payments and higher percentage of advanced payments, at least 5%. So that will also help us on the expansion side to help us financing the projects.
Great. One final question, I’ll pass it on. As it relates to, I think in the PowerPoint, you had commentary about selling into the semiconductor market. I think in the recent quarters, you guys have been deemphasizing either selling or being exposed to the semiconductor market in China. Has there been a shift in your thinking at all? Is that something that you want to pursue now, perhaps to diversify the end markets for your polysilicon? What’s the latest on semiconductor?
I think looking forward, other opportunities, we’re always working on that. And especially today’s scenario, you know that China, especially the government is encouraged to do any try on the semiconductor side. Basically, we have the ability to produce semiconductor products, you see. But that’s a long-term, I think, strategic policy. The reason because you have to – it’s not only just you produce polysilicon, but also you have to working with the downstream, other company working together. So it’s not that easy. Semiconductor industry is different from the solar industry. So that’s what I only can tell you. It takes time for us, I think, to do that.
Okay. Longgen thank you very much. And I’ll pass it on.
Thank you.
[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. He for any closing remarks. Thank you.
Thank you everyone again for…
Excuse me. I apologize. We have one follow-up question from Mr. Philip Shen. Do we have time to take this follow-up question?
Sure, sure. Please, yes.
Okay. Thank you. Hold on one second. Let me announce Mr. Shen. Mr. Shen from Roth Capital Partners. Please go ahead at once again.
Hi, thanks again, for the questions. As it relates to your wafer business, can you talk about what the future plan – what’s the latest thinking is for wafer? I know you reduced the outputs in your guidance for Q2 pre-announcement as well as the Q3 guide. But at some point, early this year, Longgen, I think you talked about considering alternative options there. Should we continue to expect the 7 million to 8 million pieces in Q4 and beyond or would you think we should start thinking about winding down that business?
Okay. I think that’s a good question, also a challenging question. I think current market situation is very challenging for our wafer business. Basically, I think we are going to have a strategic review of our wafer business. Basically, the shipments, you can see that, we’ll just go ahead and clean our inventory. The ingots we produce, we’re going to cut into the wafer to sell it. So we were – after we, I think, actually, we will announce that separated, about the restructuring planning.
Okay, okay. Good. Thanks for that. And then, let me see, let’s see. I think you mentioned that people – that China’s demand may not be so as low as people think. I’m thinking consensus expectations is about 35 gigawatts for China for full-year 2018. Are you – do you think it might – do you think the risk is high side there, maybe it’s 40? Or what is the number that you think is more realistic for China in 2018? And then what do you expect for 2019?
Okay. If you look at the whole policy, somehow, the reading is, I think, is because last year, in solar industry, especially downstream, because although diamond cutting plus technology, one side is to reduce the cost, another side is increase the efficiency rate. So the current Chinese, I think, the subsidized policy, is too rich to encourage those people to expansion the downstream projects with the IRR, without leveraging, above 15%. So that’s why, last year, I was targeting maybe 20 and 25 gigawatts, finally come up 53 gigawatts. For the government, it’s not too much. They didn’t have that much money to cover almost double the capacity on the downstream project.
So that’s why the policy come out. The policy come out is, I think, a strategy. It’s a little strange because he should continue to be cutting the subsidized dramatically. But it didn’t do that, only cut $0.05 per KWH. In the meantime, he used, I think, a non-market method to control, you see. No more, I think, top run [ph] projects, that’s wrong because you cannot stop the projects without any subsidies, especially, I think, today, in Beijing, in Eastern Coast area, the cost is dramatically like even rooftop rooftop, only like cost probably installation cost is around like CNY 3.5 per watt, per W, per watt.
So basically, you can generate in Beijing, [indiscernible] you can generate per year, you can generate 1.5 KWH, $0.36 per KWH. The coal standard, the underlying fee, you’re still paying high calculation, right? You’re almost like 6% and total investment is only $3.50. So we see potential right now in Beijing, in Jiangsu, in Zhenjiang [ph]. A lot of right now, the rural area install, right now, the rooftop, the solar system. So that’s why I think there’s potential there. It’s not only just the solar industry, but also, you see, for the environmental issue and also for the rural area solve the labor – the employment. So all these add together, I see potential in there. So what I’m thinking is, definitely, I think this year, in China, maybe we’ll reach 40 gigawatts, even 45 gigawatts.
Especially, I think PV is not like people thinking, only, let’s say, the core improvements is only 4.5 gigawatts, then the PV second half is 9.5 gigawatts. I don’t think so, should be higher. That’s my personal view, okay? Philip.
Mr. Shen, are you finished with your questions? I’m sorry, Mr. Shen is not – now his line is still open…
I’m sorry. Thanks for your view on that, for 2018. And what’s your view on 2019?
2019, I think, China, definitely, I think will issue a new policy. I think that policy will update the last policy. I think it will dramatically reduce the subsidies, at least cutting one third, then move away that, I think, open the door. You can install whatever you can without any subsidies. I think that’s why, I think, next year, China definitely move back to 45 to 50 gigawatts.
Okay. And of that 50-ish gigawatts, how much of that you think is unsubsidized? Do you think as much as half?
What I think of subsidized, maybe around 75 gigawatts.
Okay. And the rest would be unsubsidized? That’s great. Thanks for the view there.
But also, to help you think about that, Philip, if we cut half or one third of the subsidies, total amount is still there. He can cut on more projects. [Indiscernible] Chinese government shouldn’t do that because they’re also aware that cutting the subsidies within three years to a fourth year without any subsidies, so on the cutting the subsidies roadmap, you see, I think – I don’t think the total – the projects, I think the subsidized projects will go down, actually, should go up because you subsidize it lower, you see, less. Should I say total amount is fixed?
Right. I wonder if for the new subsidy – in the new subsidy or process, especially for traditional utilities scale, if they will limit the auction. So what do you expect the structure of the tradition utilities scale auctions to be? Will they cap it on an annual basis? Or how do you expect the process to work?
That mechanism, I think, right now, everybody is gambling on that. I think from industry, okay, we are willingly open to bidding, whatever it takes we’re open to bidding. I think whatever you can do to that’s cost- effective, then you just grasp the project. I think that we’ll definitely go there.
Okay. One last question here. Earlier, we’re talking about the industry evolution and you said many small players will never come back. Can you estimate how much in terms of metric tons of capacity will not come back?
Okay. If you look, I think, at China last year, the total manufacturing, whatever, I think the construction produced sales around 300,000 tons. Okay? I think of which the low cost may be around, I think, right now, I think around like – what I’m thinking is 100,000 tons. So 200,000 tons definitely is going to, I think, wipe out. The only thing is timing and maybe if some people still is believing, they’re still running, but they have to consider new capacity come in, like 130,000 tons. Like Tongwei, two plants is going to maybe start production, so the new capacity is adding. So what I’m thinking is, yes, the old capacity, definitely, I think 2/3 will be wiped out, then new capacity come in. By – I think, end of next year, definitely, I think the lower-cost Chinese producers should be around 300,000 tons.
Really helpful.
What I’d say is lower cost, it should be below $9 per KG.
Okay. That’s really helpful. Thank you again. And I’ll pass on again.
Okay. Thanks.
This concludes our question – I apologize, there one more question from the line of Mike Tempero with Cavalry. Please go ahead.
Hi, thank you for taking questions. Sam, I just had one question on a point that you were making earlier about the unsubsidized demand, who will do – who will be willing to take the financial risk for power plants that are selling into the merchant market? How do they get comfortable with the grid power price, the stability of the grid power price as opposed to a fixed subsidy?
Okay. I think Mike, I think your question is good. I think the reason because, okay, if you look at China, after the May 31st policy come out, immediately, I think the issue on the regulation to the local governments encourage them to continue to do whatever they’re already doing, okay. So, [indiscernible] Jiangsu province, like Xinjiang Province, like Beijing province, we see the provincial subsidies didn’t cutting. For example, like Beijing. Beijing City is subsidized for the rooftop is $0.40 per KWH. Even some discreet area and another $0.30 for five years. So those we them cutting, they’re still there.
So I think that will encourage people continue to install. So that’s why in Beijing area, this year, is a lot of right now the rooftop is installation there, as I was told. So basically, if you look at that rooftop, if you convert, I think, exactly all those other stuff are selling, you can see I think they are working on that. So even without any subsidies, you consider that.
Today, the cost is dramatically down. In rooftop, the install cost per KWH only swing CNY0.5. If per KWH can generate 1.5KWH, that’s almost, without any subsidies, $0.60 given to you. The government – state will give to you. So think about that return, right? Return also is higher.
So, basically, in an unsubsidized environment, you actually would generally just sell power to the state grid, which actually is a pretty high-quality credit. And the amount of power you generate every month is settled via a payment on the state grid.
Then Michael, I think, let me answer your question, who is financing. Right now, as soon as they finish, like Beijing area, Jiangsu area, those rooftop, if you can sizeable, let’s say, 10 gigawatts – 10 megawatts, 20 megawatts, a lot of people like to buy, okay. They share a company some funds because returns are high, it’s stable, without any subsidies because state will give to you the money. And then the local government didn’t like central government because central government because central government solar funds is delayed, but those local governments will pay you by half, semi-half year, may be one month delay, they pay you immediately.
Right. So it’s a good credit. Now on your point about you expect the next policy to have a big cut in the subsidy. Do you think it’s just at the national level? Or both at the national level and the provincial level? Or maybe it’s too early to say?
I think first of all, national level should come out first. Then the local level will be follow.
Very good. Thank you. That’s really helpful.
Great, thanks Mike.
Thank you, Mike.
This concludes our question-and- answer session. I would like to turn the conference back over to Mr. He for any closing remarks. Thank you.
Thank you, everyone, again for participating in today’s conference call. Should you have any further questions, please don’t hesitate to contact us. Thank you. Bye-bye.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.