Daqo New Energy Corp (DQ) Q4 2020 Earnings Call Transcript

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Daqo New Energy Corp (DQ 2.03%)
Q4 2020 Earnings Call
Mar 9, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Daqo New Energy Fourth Quarter and Fiscal Year 2020 Results Conference Call. All participants will be in a listen-only mode. 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 Alex Ho[Phonetic], Investor Relations. Please go ahead.

Kevin He -- Investor Relations

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 fourth quarter of fiscal year 2020, 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 the market and operations, and then Mr. Yang will discuss the Company's financial performance for the fourth quarter and fiscal year of 2020. 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 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 for the audience.

Without further ado, I now turn the call over to our CEO, Mr. Zhang.

Longgen Zhang -- Chief Executive Officer

Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are very pleased to report a strong quarter in terms of operational and financial results to bring a successful close of the year 2020. I would like to thank our entire team for their hard work, commitment and dedication in achieving these excellent results.

During the quarter we produced 21,008 metric tons of polysilicon, a record-high in our Company's history. Our production cost was reduced by 2.7% in renminbi terms, primarily due to our efforts in additional energy savings, offset by a higher-than-expected rise in the cost of silicon raw materials in the fourth quarter. The increase in our cost in U.S. dollar terms compared to the third quarter was the result of exchange rate fluctuations due to the renminbi appreciation. In 2021, we will continue our efforts to reduce cost, as we begin to benefit from our newly implemented digital manufacturing system to maximize our output, optimize our production process and further improve our operational stability and product quality.

During the months of November and December 2020, we saw a significant pick-up in polysilicon demand from our customers to meet their increasing production needs to serve the growing solar end market. During the fourth quarter, we sold 23,186 metric tons of polysilicon, which is the highest quarterly sales volume the Company ever achieved. Since the beginning of 2021, we continue to see rising polysilicon market prices, and most recently market poly ASP has reached a range of $15 per kg to $16 per kg. As our mono-wafer customers continue their capacity expansion plans supported by robust downstream market demand, we believe then -- we believe that the supply of polysilicon will continue to be very tight throughout the year given very limited additional polysilicon supply this year.

Regarding the status of proposed initial public offering of our Xinjiang Daqo subsidiary in China's STAR market, the stock listing committee of the Shanghai[Phonetic] Stock Exchange STAR Market reviewed Xinjiang Daqo's application in February 2, 2021 and determined that Xinjiang Daqo had already met the offering, listing and disclosure requirements related to its potential STAR Market IPO.

As a next step, Xinjiang Daqo will need to be -- to go through the registration process with China Securities Regulatory Commission before the STAR Market IPO can take place. The proceeds of this potential IPO will be used to fund our Phase 4B polysilicon project with an annual capacity of 35,000 metric tons. We have already started the preparation works for Phase 4B, including the design and procurement process. We plan to start the construction in middle of March and expect to complete the project by the end of 2021 and ramp it up to full capacity by the end of Q1 2022.

I have been in the solar industry for over a decade, and the prospects for the solar industry have never been bright. Driven by the dual trends of solar grid parity and the urgent need to address climate change, the industry is on the cusp of undergoing tremendous growth over the next few years without the need for government subsidies.

Solar energy is now one of the most competitive form of power generation ever -- even compared to fossil fuel, and we are beginning to see real world applications where solar is the optimal choice to meet growing energy needs and to replace legacy carbon-based generation. Major economies around the world have also begun to implement ambitious policies and initiatives to support and mandate the use of renewable energy for power generation.

The European Union has announced its Green Deal to fight climate change through progressive policies for a climate-neutral and sustainable EU with the goal of no net emissions of greenhouse gases by 2050 and to de-carbonize the energy sector. Over the next few years, the European Climate Law is expected to turn this political commitment into a legal obligation.

In China, President Xi Jinping has announced China will aim to hit peak emissions before 2030 and reach carbon neutrality by 2060, and we expect various government agencies including the NEA and the NDRC to introduce and implement policies to mandate and support the use of renewable energy. For 2021, the NEA has indicated its intention to accelerate the development of wind and solar energy, with a goal of adding a combined 120 gigawatts of wind and solar in 2021.

In the U.S., with the Biden administration's commitment to fight climate change and plan for clean energy revolution with the goal of achieving a 100% clean energy economy and reaching net-zero emissions no later than 2050, we believe favorable policies are forthcoming to support renewable energy's growth in the U.S.

We are standing at the beginning of a new era that will demand more and more clean, renewable, and cost effective energy resources, among which solar PV is one of the most competitive. We will focus on our core business, continue to expand capacity and further improve quality to better serve the fast-growing solar PV market.

Now let me discuss our outlook and the guidance for our future. The Company expects to produce approximately 19,500 metric tons to 20,500 metric tons of polysilicon and sell approximately 20,000 metric tends to 21,000 metric tons of polysilicon to external customers during the first quarter of 2021.

For the full year of 2021, the Company expects to produce approximately 80,000 metric tons to 81,000 metric tons of polysilicon, inclusive of the impact of the Company's annual facility maintenance.

Now I will turn the call over to our CFO, Mr. Yang, who will discuss the Company's financial performance for the fourth quarter and the fiscal year 2020.

Ming Yang -- Chief Financial Officer

Thank you, Longgen, and hello, everyone. Thank you for joining our call today. Now I will discuss our Company's financial performance for the fourth quarter of 2020. Revenues were $247.7 million, compared to $125.5 million in the third quarter of 2020 and $118.9 million in the fourth quarter of 2019. The 97% increase in revenue in the fourth quarter compared to third quarter was primarily due to higher polysilicon sales volume and higher polysilicon average selling prices.

Gross profit for the fourth quarter was $109.5 million, compared to $45.3 million in the third quarter of 2020 and $35.1 million in the fourth quarter of 2019. Gross margin was 44.2%, compared to 36% in the third quarter of 2020 and 29.5% in the fourth quarter of 2019. The increase in gross margin was primarily due to higher ASPs.

Our polysilicon average production cost was $5.92 per kilogram in the fourth quarter compared to $5.82 per kilogram in the third quarter. The slight increase in ASP was primarily the result of RMB appreciation versus the U.S. dollar during the quarter. In RMB terms, our production cost in Q4 was reduced by 2.7% as compared to Q3, primarily as a result of improvements in energy and operational efficiencies, despite a higher-than-expected rise in silicon metal raw material costs in the fourth quarter.

Selling, general and administrative expenses were $11.2 million compared to $9.2 million in the third quarter of 2020 and $9 million in the fourth quarter of 2019. The increase in SG&A cost was primarily due to an increase in shipping costs as a result of higher sales volume for the fourth quarter, as well as an increase in personnel cost. SG&A expenses during the quarter included $4.5 million in non-cash share-based compensation costs related to the Company's share incentive plan.

R&D expenses for the quarter were $1.5 million compared to $1.7 million in the third quarter of 2020 and $1.2 million in the fourth quarter of 2019. R&D expenses for the quarter included projects related to quality and purity improvements for anti-polysilicon, as well as other technology upgrade project and can vary from period to period, reflecting R&D activities that take place during the quarter.

Income from operations was $98 million, compared to $33.3 million in the third quarter of 2020 and $30.1 million in the fourth quarter of 2019. Operating margin was 39.6%, compared to 26.6% in the third quarter of 2020 and 25.3% in the fourth quarter of 2019.

Interest expense was $8.3 million, compared to $5.4 million in the third quarter of 2020 and $3.9 million in the fourth quarter of 2019. The increase was primarily due to an increase in bank interest expense as well as bank fees related to Chinese bank notes.

EBITDA was $115.1 million, compared to $51.6 million in the third quarter of 2020 and $45.4 million in the fourth quarter of 2019. EBITDA margin was 46.5%, compared to 41.1% in the third quarter of 2020 and 38.2% in the fourth quarter of 2019.

Net income attributable to Daqo New Energy shareholders was $72.8 million, compared to $20.8 million in the third quarter of 2020 and $20.1 million in the fourth quarter of 2019. Earnings per basic ADS was $1.01 compared to $0.29 in the third quarter of 2020, and $0.29 in the fourth quarter of 2019.

Now on the Company's financial condition. As of December 31, 2020, the Company had $118.4 million in cash and cash equivalents and restricted cash, compared to $109.8 million as of September 30, 2020. And as of December 31, 2020, the notes receivable balance was $0.2 million, compared to $1.9 million as of September 30, 2020. As of December 31, 2020, total bank borrowings were $193.7 million, of which $123.2 million were long-term borrowings, compared to total bank borrowings of $271 million, including $140 million long-term bank borrowings as of September 30, 2020.

For the 12 months ended December 31, 2020, net cash provided by operating activities was $209.7 million, compared to $181 million in the same period of 2019. And for the full year of 2020, net cash used in investing activities was $118.5 million, compared to $261.8 million in the same period of 2019. The net cash used in investing activities in 2020 and 2019 was primarily related to the capital expenditures on the Company's Phase 4A polysilicon projects. And for the 12 months ended December 31, 2020, net cash used in financing activities was $95.5 million, compared to net cash provided by financing activities of $102.3 million in the same period of 2019.

Now on the Company's full-year 2020 results. Revenues were $675.6 million, compared to $350 million in 2019. The increase in revenue was primarily due to higher polysilicon sales volume, as 2020 polysilicon sales volume increased to 74,812 tons compared to 38,110 tons in 2019.

Gross profit was $234 million, compared to $80.1 million in 2019. Gross margin was 34.6%, compared to 22.9% in 2019. The increase in gross margin was primarily due to lower polysilicon production cost.

Selling, general and administrative expenses for 2020 were $39.5 million, compared to $32.9 million in 2019. The increase in SG&A expense was primarily due to an increase in shipping costs as a result of higher sales volume, as well as an increase in personnel cost.

R&D expenses were $6.9 million, compared to $5.3 million in 2019.

Income from operations was $187.9 million, compared to $47.5 million in 2019. Operating margin was 27.8%, compared to 13.6% in 2019.

Net income attributable to Daqo New Energy shareholders was $129.2 million, compared to $29.5 million in 2019. Earnings per basic ADS was $1.82, compared to $0.43 in 2019.

Adjusted net income attributable to Daqo New Energy shareholders was $147.1 million, compared to $47.4 million in 2019. Adjusted earnings per basic ADS was $2.07 compared to $0.70 in 2019.

And that concludes our prepared remarks. Operator, now we would like to open the call to questions from the audience.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Gary Zhou with Credit Suisse. Please go ahead.

Gary Zhou -- Credit Suisse -- Analyst

Thank you. Thanks for taking my questions, and congratulations on the strong results. I have two questions. So firstly is on the polysilicon price outlook. So we noticed that there has been a significant polysilicon price hike after Chinese New Year, so from around RMB90 to around RMB110 last week. So, can management share with us your latest view on the near-term polysilicon price outlook for the next few weeks, and if you can also share your estimate for the second quarter this year and also the second half of this year?

And the second question is on the inventory. So wondering if management can share with us the Company's latest polysilicon inventory, and if you have also some information on the inventory level as to your competitors and also to the wafer companies? Thank you.

Longgen Zhang -- Chief Executive Officer

Hello, Gary. I think -- first of all, I think the price, basically, I think, January, our average including the value-added tax, I think our selling ASP is around RMB80 per kg, February around RMB81. Right now, I think in March, I think we're selling around RMB100 -- higher than RMB100, OK?

Basically, I think we see the selling price to go up. And especially this week, I think that with selling our products around RMB120 per kg. So equivalent, I think if you -- without a value-adding tax is more than high than $16 per kg. We see the reason because we see this year it didn't have any capacity adding to the polysilicon supply side, but the demand side really we see a lot of, I think, the wafer expansion project is on the road.

As you see that, we just announced the two long-term contracts, one is with Zhonghuan and other one is with Wuxi Shangji. Basically, those two long-term contracts is most -- I think a majority, 90% quantity, is forecasted for 2022, 2023, 2024. This year actually is not too much. So you can see right now, people is more even in a concern even to next year, middle of next year, a possible demand is still high than the supply.

So as we see the polysilicon price continue every week go up and we believe, I think, the second quarter, the ASP should be around that RMB120 -- RMB120 to RMB130 per kg. It's possible. And for second half of the year, I think definitely we believe should be above RMB120 per kg.

And I can't project how far away, but as we see today, polysilicon cost accounted for in module, OK, for in module only around 15% to 16% accounted for total, I think, project cost, may be around 7% to 8% is total lower glasses cost. Glass today cost accounted for almost 18%, 19% of the module. So we do not believe, I think, polysilicon price go up little or affect, I think, at any product module price too much. And today, I think, the major part -- and I think it may be the major price come back is around like RMB1.7. We still think it is saleable. The market is still there, especially in China.

So we believe -- I think the polysilicon price will continue maybe first half of next year, still can above I think between above -- around like RMB100 per kg. And after the middle of next year, I cannot project, it is dependent on any market and also how fast I think the wafer expansion and how fast the polysilicon can be adding -- supply can add in there. As we see that next year, the only capacity can [Indecipherable] I think why is our 35,000 tons, then Tongwei maybe around 80,000 tons. And we also see Asian silicon and the Xinjiang [Phonetic] based upon their IPO, they are also apparently expansion. So their capacity maybe we're adding by the end of next year.

So really we do not think too much capacity supply even next year. Maybe the year 2023rd, I think the capacity come back a little more. So I'm not going to give the year beyond the next year. So, basically what I think is the silicon supply and demand very tight this year, the situation will continue to middle of next year. The inventory, let Ming answer the second question.

Ming Yang -- Chief Financial Officer

Okay. Hi, Gary. So let me discuss quickly about our inventory level. So I think you remember at the end of Q3, because of the delay of water from a particular customer, I think our inventory was a bit higher than normal. So it was running more than three weeks the inventory at that time. I think during Q4 as demand improved and orders normalized, especially in December with very strong orders from our customers, so inventory has reduced to less than two weeks, approximately 10 days or so. So, that's already a normalized level of inventory.

And then by now, our inventory is running at very lean levels. So it's less than a week of inventory right now, which is really the minimum level that we need to prepare products for the different grades and to ship to different customers. So we're running at basically our minimum levels of inventory right now of less than a week. And I think across the industry and also at our customers, we're also seeing very lean inventory levels currently.

Gary Zhou -- Credit Suisse -- Analyst

Okay. Yeah. Thank you very much. This is very helpful. Thank you. This is very helpful and I'll pass on. Thank you.

Ming Yang -- Chief Financial Officer

Great, thank you.

Longgen Zhang -- Chief Executive Officer

Thank you.

Operator

Your next question is from Kyle Liu[Phonetic] of CICC. Please go ahead.

Kyle Liu -- CICC -- Analyst

Hey. Thanks management for taking my questions. I've only got two questions. The first, yeah, I think we have no doubt about the potential price churn for you, but we are seeing some current change on the demand weakening especially in the March. I think we have some challenges showing the module company has already cut their capacity utilization recently.

So, could you please give us some colors on the current market dynamic? And do we think the current price growth trend will be slowed down or do we expect the price to stabilize? Recently, I mean, we have no doubt about the whole price churn this year, but how about recently? So do we expect that changing the modules will have some pressures on us?

And the second question is about the prepayment. And so we know we have some prepayment we signed with a customer. So, could you please share that prepayment percentage we have signed with the customer or maybe just some colors that we can, for example, how much money we can upon payment that we can receive when we sign a contract with our customers? That's all my questions.

Longgen Zhang -- Chief Executive Officer

Kyle, I think your first question, I think, today, basically OK, the module market I think at the Europe and the U.S. market is still is very hot. As I said, I think, obviously, you see selling around $0.25, I think, for last year is a good. The only thing, so I know China, I think right now is equivalent to $1.65, $1.7 and it looks like a little slight. The reason is because everybody waiting for NEA, the two conference meeting, the new policy. But definitely, I think after mid of April, definitely I think China demand would be quickly come back. That's I think is for certain. But to answer your question, yes, I think the module selling maybe will slow down in China within one month, but if you look to inventory, maybe some inventories pipe sale. And the reason is why because I think right now we were today almost mono-wafer -- no inventory as we told.

I think then also some -- I think some company, OK, I think keep a high -- in order to keep a higher gross margin, basically they continue to increase that wafer prices. I'm not sure how long they can continue doing that, OK? Basically what I say, in some segments, because on balanced gross margin and they cannot pass through the middle industry, what I say is the wafer sale and the module, and the cost may be temporary, the module, I think, selling maybe a little slow down, but for further for the future, I think a module, just like a building, as you build up, you always can saleable, only is a price. So finally, you were selling the module maybe at a lower price, right?

The only thing on the whole is going to lose money or not say lose money, maybe adjusted their gross margin in certain areas you see to lower down their gross margin. So what I think is, in the future, wafer gross margin should be go down and should be the module -- should be -- gross margin should be reasonable to reach a reasonable margin to push the module, continue to sell it.

So I'm not worrying about, just I said, that you see, even polysilicon price continue to go up $10, $20 per kg, but that affect the final products only a little. If we increase RMB10 there per kg, maybe only increase the module price 0.5%, 0.3%, is not affected too much. The effective is less than the glasses prices right now affect the module. So what I think is because of demand and supply, the market mechanism for us because we have chemistry in the industry, it's harder. Long-term investments, it's intensive capital investments, so it's a hard to in time -- to one time to increase the capacity. So as you know that, the demand and supply is there. So even this year, all the polysilicon produced only maybe can support, I think, around 150 gigawatts. So, but as you can see, the wafer capacity continue expansion by the end of this year, and China maybe reach to more than 400 gigawatts. So, we don't know basically. But I can tell you is, the market is there, China will continue to go up. Even end of year, today, the head of NEA just said we were detailed, laid down to the policy and to encourage wind/solar industry and encourage each provisional level to continue to develop, adding together, should we move then, planning the nationalwide to maybe 60 gigawatts, 80 gigawatts. So, I think that -- I think I am very confident, I think, in the China market.

Secondly is the prepayments. We signed, I think, two long-term contracts, one is with Zhonghuan. And Zhonghuan is a contract that is signed actually -- Zhonghuan was signed before Chinese New Year. So, we are -- based on that time, I think we collected 5% of the current price of total contract value. For Shangji, basically, based on right now -- I think the week before last week, the average selling price, we collected 6%, I think the downpayment. So, we are going to sign another contract, also continue to keep 6%.

So as you can see there, we -- the only thing that we file under the contract, majority is for the next three years. It is not for this year, OK? This year, we just go into squeeze, maybe begin the inventory, maybe the end of the year, you see, our fore being or even December, maybe we will book some next year generating quantity. There are some contracts that we have adjustments 10% up and down, so we still can, I think, do something, I think, to help some companies, especially like -- I think, some companies, they are sizable in the future. And our strategy is, in the future, one client cannot account for more than 20% of our sales.

Kyle Liu -- CICC -- Analyst

Yeah. Thanks for taking the -- thanks for your answer. I actually have a follow-up question. So, it is interesting we have noticed that the wafer price has always like bending with the policy compliance. When the policy complies go up, the wafer price always soar up and go up. And -- but if we look at the capacity, you should have seen some, like, the capacity or the competition on the wafer side, but actually in the price level, we didn't see that. And so, could you give us some color on that?

Do you think it's just something that will definitely happen, but it's just not happened though? Or do you think it's because currency the sales directly is not big enough? So we still have, I mean, the whole industry, the polysilicon industry will have the sales contract with the needing player. So, actually the second tier players cannot get enough of the polysilicons or even they have been planning to do that module capacity, but actually they cannot produce more wafer. What do you think about it? Yeah.

Longgen Zhang -- Chief Executive Officer

I think, as the module assembling gross margin right now is lower, so it's not discouraging, I think, of the module sales in China temporarily. But if you look at the sale, I think inventory is there. I think that some company, maybe they -- the big -- in the history, they almost manipulate the wafer capacity. But in the future right now, they are vertically integrated.

If they can sell in their wafer all in the module, I think it's OK. But if they continue to increase the price of the wafer, if they kind of sell in the module, what's the next step? They have to reduce the module -- wafer price, all right? So I think that's the time -- only the timing can tell you. So, I'm not going to do any comments. I think it was top price, tell everybody. All right.

Kyle Liu -- CICC -- Analyst

Okay. Yeah, thanks. Thank you very much. That's all my questions.

Longgen Zhang -- Chief Executive Officer

Thank you.

Ming Yang -- Chief Financial Officer

Great, thank you.

Operator

Next question is from Philip Shen with ROTH Capital Partners. Please go ahead.

Philip Shen -- ROTH Capital Partners -- Analyst

Hi, everybody. Thank you for taking my questions. The first one is just a follow-up on the outlook for China's demand. Can you share what you think the overall demand will be this year? Do you think it will be 60 gigawatts or do you think its 80 gigawatts for example? And perhaps talk about what that split might be by quarter?

Longgen Zhang -- Chief Executive Officer

Philip, I think I'm very optimistic about the China, even though the -- I think, throughout didn't say any target for national level, but I think it's encouraging -- I think its provincial to develop, I think their own targets. And today in the two conferences in Beijing, today, the head of the NEA basically sets the target there, I think around -- I think 1,200 gigawatts in the next 10 years. So as you can see that, I'm pretty sure, especially the distributed -- the rooftop and the distributed, I think, solar power plants in China, continue to develop. I think this year definitely should be above 60 gigawatts, even above 80 gigawatts.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Thank you, Longgen. And I think you guys are very -- I mean, fully booked for 2021. For 2022, I believe with the new contracts, you might be fully booked as well. So would love to get some additional color on how you're thinking about capacity expansion? And clearly with the China listing, you're going to raise money for the Phase 4B expansion. Can you talk about the expectations for capex for Phase 4B? I believe it's maybe $13,000 -- sorry $13,000...

Longgen Zhang -- Chief Executive Officer

RMB3.5 billion.

Philip Shen -- ROTH Capital Partners -- Analyst

Per metric ton.

Longgen Zhang -- Chief Executive Officer

Yeah.

Philip Shen -- ROTH Capital Partners -- Analyst

Feel free to give in renminbi, but do you expect this new -- the Phase 4B to be similar or do you -- or do we have the unit capex right for Phase 4B? And then beyond 4B, what are you thinking about now? Where do you think the location could be for the expansion and what kind of capex could that be? Thanks.

Longgen Zhang -- Chief Executive Officer

Okay. I think I said it. I think the only thing I can tell you is that we are continuing to expansion. As you can see right now, the information, even right now, we're still not listing IPO, but we use our own money, already starting 4B. 4B design capacity is 35,000 tons, but that is integrated to our existing, I think, plans. So we think the actual output should be 40,000 tons. Basically, this year, we've already given guidance, 80,000 metric tons to 81,000 metric tons. So next year, I think it's not the final. I think we can see if we can climb -- ramp the 4B capacity quickly, I think next year, our plan, OK, is going to increase capacity 50%, reach to 120,000 tons for next year.

So that's, I think, two years plan. For the -- beyond the two years, we also -- as you see that we are planning right now the IPO in China STAR market, we -- so far, we don't know the valuation, but we very optimism and we can raise -- I think, right now the estimate is RMB5 billion. I think if we can raise more than that, definitely I think use our own current free cash this year, I think now profit plus, I think, the depreciation or EBITDA, whatever, we think we can continue to planning expansion, that we cannot tell you how much and where. We are looking -- I said beyond the Xingjiang, we are looking other places right now and maybe we are looking another 40 or even 80 or even [Indecipherable] new plant.

So I think that we're waiting for basically based on the proceeds after the IPO, the timing and also the market situation.

Philip Shen -- ROTH Capital Partners -- Analyst

Great, thank you. Can you give us a little bit more color on the China listing in terms of timing? When do you expect that to be -- the CSRC to give you the final approval?

And then one last question. As it relates to your cost structure, I think you mentioned that it went up a little bit in Q4 because of currency. What's your expectation for cost per watt in Q1 and then what does that -- how does that trend in 2021?

Longgen Zhang -- Chief Executive Officer

Okay, I'll leave that cost, I think, to our CFO, Ming. Basically, I think the IPO, I think the processing status in the -- maybe, I really, I think you mentioned that. So far, we already I think go through the February 2nd, I think at the STAR Market review committee already approved. We, I think, meet all the requirements for the listing and all the requirements. Right now, we are doing the registration. I think we have the first one, I think, the U.S. company, I think, right now, listing the subsidies in China. So, we believe, I think, we may be can quickly registration by the end of this month, then hopefully we can listing in China STAR market by the end of April or beginning of May. That's right now the status.

Then also, I think I forgot it, your first question about the 4B total investments. The 4B total investments because we are integrated to existing plans, so total investments is around the RMB3.5 billion. Our 4A total investment is around the RMB2.9 billion. So it's almost, I think, RMB500 million and RMB600 million increase. The increase is because the capacity in some area we are -- the capacity is high than 35,000 tons, OK? So basically we are integrating the existing system. So we were syndicated, I think, after 4B down, in insurance, the plant should be more than 120,000 tons of capacity, the actual output. Ming?

Ming Yang -- Chief Financial Officer

Okay. Hi, Phil. In terms of our cost structure, so for Q1, we're expecting our costs in terms of RMB to be roughly similar to our costs in Q4 and maybe just slightly higher because of higher silicon metal costs. But I think in terms of movements in U.S. dollar, I think because of the current continued appreciation of RMB, I think there -- we could see maybe 3% to 4% increase in costs in U.S. dollar terms in Q1 relative to Q4 of last year. So that's what we're seeing right now.

Longgen Zhang -- Chief Executive Officer

[Speech Overlap] government continues to issue like $1.9 trillion, so cost -- renminbi continues appreciation.

Philip Shen -- ROTH Capital Partners -- Analyst

Right. So that's for Q1. And Ming, what do you think about Q2, Q3 and Q4? What is the trend of the cost structure? Thanks.

Ming Yang -- Chief Financial Officer

Okay. We think cost for the remaining of the year should be similar. At least for Q2 and Q3 should be similar to Q1, and then costs should come down by Q4 assuming constant U.S. currency exchange rate.

Philip Shen -- ROTH Capital Partners -- Analyst

Okay. Thank you, guys.

Longgen Zhang -- Chief Executive Officer

But the 4B -- if the 4B totally ramp up, our cost will continue to at least cutting 5%.

Ming Yang -- Chief Financial Officer

Yeah, 5% plus type of reduction from current cost level.

Longgen Zhang -- Chief Executive Officer

Okay.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. I appreciate it. Thank you, and I'll pass it on.

Ming Yang -- Chief Financial Officer

Great. Thank you.

Operator

Next question is from Colin Yang with Daiwa Securities. Please go ahead.

Colin Yang -- Daiwa Securities -- Analyst

Good evening, investors. This is Colin from Daiwa. My first question is a bit similar to Philip's because the street has no concerns for another stellar earnings in 2021, because very limited capacity additions from the industrywide, but people start to worry about the post 2022, especially for the major comparisons including Tongwei and Suntan, they both announced a very aggressive capacity expansion plan. So do they worry about losing market this year if they didn't expanding [Indecipherable]? So if we expect -- if we expect you to announce another expansion plan, do we plan to aid it by another share placement of our equity or so of debt financing? So this is my first question.

My second question is regarding the FBR because as you may notice that there is a quite different reviews on FBR from Tongwei and GCL-Poly. So what is our review on FBR, including securities cost extra? Thank you.

Longgen Zhang -- Chief Executive Officer

Colin, I think for the first question, I'm going to compare to Tongwei. I know Tongwei right now currently have -- I think at least two places where no expansion around 80,000 tons. But you have to consider, Tongwei also, I think, grows equity investments with, I think other company, for example, Longi, I think Trina Solar. So basically even by the year 2023, just like they claimed their capacity is 290,000 tons. How much is saleable? We don't know because I think of which may be more than 100,000 tons, they will use -- they own vertically integrated because they are going to do the wafer sale and even module, right?

So, we -- I think our near focus is always expansion. We think it's reasonable. And based on our capital, I think, status, our cash flow status, and I think that we're going to do the 4B expansion. So by the end of this year, we are going to -- I think put it into production. Hopefully, we can ramp up production by the end of this year. So I think next year, our capacity, almost a 50% increase to 120,000 tons, we think is bigger -- I think increase to meet our clients' needs.

As you can see right now, today, almost all big wafer producers signed long-term contracts with us, for example, Longi, Jinko, Trina, Canadian Solar, I think Jinko, even Shangji, Zhonghuan. I think we would announce another company pretty soon. So we, right now, almost signed those -- these clients the next two to three years. So I think the relation -- strong relationship with the client is not only the quantity, how much you can produce, but also the quality of the product.

So as you can see our quality, our service, I think we're very confident in the future of our expansion -- continued expansion and our clients, our relationship.

Secondly is for the, I think, FBR. We're not -- for us, I'm not going to go into comment another company -- a Hong Kong listing company doing the FBR. But as you know that, we are one of the most transparent companies in terms of disclosing cost structure, products yield rate. However, we didn't right now, FBR, their cost structure, how much is their cost, what's their yield rate.

As we know that they have -- it's already have like 10,000 metric tons production line, how much they produce, 200 tons, 300 tons? We don't know. Certainly, we are not users of FBR polysilicon. However, we very pay attention to this issue. We're communication -- regular communication with our clients to share with our clients. It's very clear that also today the quality of FBR polysilicon still has, I think, much room to improvement and to match the polysilicon made by our modified silicon, Siemens technology.

So I have no more comments on our competitor or even they say, substitute technology or revolutionary technology. So basically, as you can see that one of our clients -- most of our clients, one of our clients, they claim they will invest FBR, they just signed long-term contracts with us, pay 6% of the down payments. So I think that's strong to improve -- two methods, which one is the best.

Colin Yang -- Daiwa Securities -- Analyst

Very clear. Thank you, Longgen.

Ming Yang -- Chief Financial Officer

Great, thank you.

Operator

Your next question is from Alan Hon with JPMorgan. Please go ahead.

Alan Hon -- JPMorgan -- Analyst

Hi. I guess, like I have two minor questions for you as most of the questions are already answered. I noticed that in the fourth quarter last year, I mean the realized prices around $10.8. If we are to like take the average from, say PV pulling or silicon China, it seems to us -- it seems to me that the average price would be slightly higher. Just want to understand why. Is it due to like we have a slightly higher sales volume in December when price was relatively lower?

Longgen Zhang -- Chief Executive Officer

I think -- Alan, I think the most important, if you look our -- the structure of our product sale in Q4, we're selling -- I think, our product is around the 20 -- 23,186 metric tons. Almost a 100%, we have module products. If we compare our Q3, we -- our products -- see, the module product still is 98%. So basically, we selling most is right now, I think, mono-silicon. Then also of which we selling most is the high quality mono-grade, I think, polysilicon. As you can see that, even mono-silicon classified, I think right now, is full, I think our products. So we majority right now is selling the high -- high as the price. So that's why our ASP is higher, I think around like a $10.80. So I think that's my answer.

Basically, I think that we will continue to enjoy that. The reason is as I said, we -- I think the last year -- in the middle of last year, we adopted, I think, a metric, I think, digital management, even let's say in the deposit processing, we use [Indecipherable] to do the AI calculation, AI, I think the technology. So right now, our mono-silicon products, I think, every month produced is about 99%.

Ming Yang -- Chief Financial Officer

And just a follow-up to what Longgen said. I think, Alan, I think you're right. Q4 was a little bit unique and we did sell more volumes in December than during the month of October or November. I think part of the reason was, one, some of our customers were to get advantage of in a very attractive pricing at the time and then also, they were preparing for a building of additional volumes for production during the Chinese New Year. Yeah, so that's where this is kicking in.

Alan Hon -- JPMorgan -- Analyst

Got you. And my second question and also my last one is that I noticed in your other operating income that has declined from $5.5 million in 2019 to $0.2 million. I mean, looking at periods like the years how it trend, it usually doesn't trend to almost zero. So I just wanted to get a sense of why over there.

Ming Yang -- Chief Financial Officer

Okay. So, other operating income historically consists most of, for example, R&D grants and technology grants from various government agencies, OK. And for this year, it just so happened that these were less than previous years, OK? And actually, I think for future periods, we would expect levels that actually would be more similar to our current year, so lower levels than previous years.

Alan Hon -- JPMorgan -- Analyst

Similar to the current year, but not the previous years?

Ming Yang -- Chief Financial Officer

Not the previous years, yeah.

Alan Hon -- JPMorgan -- Analyst

Got you, got you. I guess, I will pass it on. Thanks.

Ming Yang -- Chief Financial Officer

Great, thank you.

Longgen Zhang -- Chief Executive Officer

Thank you.

Operator

The next question is from Chao Ji with Goldman Sachs. Please go ahead.

Chao Ji -- Goldman Sachs -- Analyst

Hi, thank you for taking my question. I remember you said that part of your R&D in 2020 was spent on the research of the N-type product. So can you please share us some color on insurance progress or N-type poly? Thank you.

Ming Yang -- Chief Financial Officer

Okay. So basically, we are doing R&D to improve our purity levels because the N-type requirements are much more stringent than the standard or mono-type levels, and right now because of the strong demand from our customers, so we are optimizing our overall production for the mono-type polysilicon. But we do expect starting -- effectively starting this year and through the next, say, two years the demand for N-type wafer and translating to N-type poly will increase over this time. So we are doing R&D efforts to increase the share of N-type poly from our production. And one of the key goals is to increase the level of production in terms of percentage, and at the same time without a significant impact to our production costs. So that's our current target right now.

Chao Ji -- Goldman Sachs -- Analyst

Sure. Thank you so much.

Ming Yang -- Chief Financial Officer

Great, thank you.

Operator

The next question is from Tony Fei with BOCI. Please go ahead.

Tony Fei -- BOCI -- Analyst

Hi, management. Thanks for your time. My first question is regarding your 1,000 tons MA-grade capacity. I understand it is at a very early stage right now, but can you share what is your expectation regarding the quality and ASP, and maybe addressable market regarding this project? And will it be commissioned at the same time with Phase 4B?

Second question is regarding your maintenance schedule this year. Which quarter would it take place and how much production volume would it have impact on that specific quarter? Thank you.

Longgen Zhang -- Chief Executive Officer

What was the second question?

Ming Yang -- Chief Financial Officer

Maintenance.

Longgen Zhang -- Chief Executive Officer

Okay. I think first question about the 1,000 metric tons of semiconductor grade polysilicon. This is also our IPO proceeds. It's based on the IPO success. I think it's the time we think it's a time we are going to start doing that production line. Basically, we joined venture with the one of the, I think the -- I cannot announce the name OK, very famous, I think, downstream semiconductor wafer producer, I think continued together to do the, I think, the projects. And our, I think, angle is from the highest quality, I think, of the polysilicon is the [Indecipherable].

I think the polysilicon should be the highest -- I think, basically, right now is -- I think, -- above 12 users wafer -- semiconductor wafer quality. So we went from top to down, rather than our competitors, I think Xinhua are not here, I think water -- they are failed because they are starting from bottom -- I think lower quality semiconductor. So basically, I think we have the planning. And it depends on right now, I think, the proceeds from the IPO and the way we're going to successful listing, definitely we will announce that at that time.

Second is the annual maintenance. Annual maintenance mostly will happen, I think, in the third quarter, and just a regular, I think, that will not affect right now, I think in our guidance for this year, 80,000 tons to 81,000 tons, I think, the output is already considering the annual maintenance.

Tony Fei -- BOCI -- Analyst

Okay. Thank you, Longgen.

Ming Yang -- Chief Financial Officer

Okay, thank you.

Operator

The next question is from Dora Liu with JPMorgan. Please go ahead.

Dora Liu -- JPMorgan -- Analyst

Hi. I guess most of my questions have been asked, so I just follow up with two minor questions. And the first one is related to our long-term contracts. So, could you share with us what is the percentage of our 2021 production volume would have been secured by the long-term contracts? And the second one is more related to the financial statements. I noticed that the notes receivables in 2020 has dropped significantly, so could you share with us the reason? Thank you.

Longgen Zhang -- Chief Executive Officer

Okay. Dora, I think I answer your first question. Basically right now, we signed, I think, two contracts with Shangji, I think, then another long-term contract with another five major wafer producer. I think we booked almost 100%, I think, 2021 capacity. The only chance that we can continue maybe, we will sign another contract, I think as soon as just maybe second half of the year, we can squeeze some little quantity for the contract then to I think to book the year 2022, '23, '24. So basically my answer is, 2021, the output, 80,000 tons, almost 100% booked.

The second question I think about -- I think, our CFO, Ming, will answer that.

Ming Yang -- Chief Financial Officer

Okay. I hope so. So, actually, the note receivables number came down. So, during the end of the year, we actually paid down a number of our Chinese bank loans and one source of the funding is from the notes receivables. We converted it to pay down Chinese bank loans. So that's why you saw the balance came down.

Dora Liu -- JPMorgan -- Analyst

Yeah, thank you so much. That's very clear.

Ming Yang -- Chief Financial Officer

Great, thank you.

Operator

The next question is from Robin Xiao with CMBI. Please go ahead.

Robin Xiao -- CMBI -- Analyst

Thank you, management, for taking my questions. I would like to ask about the customers' inventory level for polysilicon. Do you see that your clients are building out inventory and build upcoming supply shortage? This is my first question.

Longgen Zhang -- Chief Executive Officer

Okay. First of all, I'm not sure our clients build inventory or not, but basically you see all the clients of the major player right now in the wafer industry, as you can see, Longi, Tongwei, Jinko, I think, I believe I don't think they build inventory on the wafer segments. I believe they are selling. I think all either sell or they all -- even Shangji sell their all products or they integrate it to, I think, sale module to selling the module. So basically to me, as I just said, right now, this year, total polysilicon capacity only can support 150 or 160 maybe gigawatts, I think, final product. So may be making some efforts to import some polysilicon. I think that's there.

So maybe last year some inventory come out, this year they are adding products. So what I'd say is, today, I'm not -- even today, I think we don't think any inventory in polysilicon producer, like Daqo, Tongwei, I don't think any inventory -- but besides Tongwei, OK, I don't know because Tongwei is vertically integrated. So I don't think Tongwei or other company have inventory silicon right now is sitting there. Then also, I don't think that we wafer producers, even today like Jinko or Zhonghuan, they are -- a pipe -- their wafer in the inventory, I don't think so.

Robin Xiao -- CMBI -- Analyst

Okay. Thank you. Very clear. And my second question is about the payment terms. So given now the supply is quite tight and downstream is running short of polysilicon supply, so do we getting better payment terms for polysilicon sales?

Longgen Zhang -- Chief Executive Officer

We still, I think, like the usual. To us, I think if you can see, most of our deliveries upon is paid. So most right now, yes, we accept their banking notes and we only accept banking notes, plus I think of the cash, OK, the remittance. So basically we are upon that. So we right now because of the supply and demand, so we may be in each ending quarter months, we will be asking for more remittance cash rather than the banking, I think it dropped. So I think that's what we're doing.

But basically, I think our delivery is upon the cash receipt. I think as you know that, banking notes also is very -- just like cash.

Ming Yang -- Chief Financial Officer

So basically, right now, what happens is, so one is customers are willing to sign long-term contracts and pay a higher prepayment per kg or a higher percentage of prepayment for the contract, right? So I think that's really a sign of customers are really willing to pay upfront in order to secure supply. And another situation we're seeing right now is actually we usually contract around the end of the month for the next month's volume, and actually customers now are eager to pay us ahead after the contract is signed so that they could get on the delivery list, so that they could get earlier delivery of polysilicon for their order as well.

Longgen Zhang -- Chief Executive Officer

So basically, as Ming just said, I think, first of all, most important, we right now, I think, take the advantage of that, talking out the supply -- tight supply. So we are going to sign some contracts. Basically, I think the majority of quantity is a focused, I think next three years. So we collect a higher percentage of down payments. I think that's what are we doing right now.

Ming Yang -- Chief Financial Officer

You lock in the future [Speech Overlap].

Robin Xiao -- CMBI -- Analyst

Okay. Thank you.

Ming Yang -- Chief Financial Officer

Great, thank you.

Robin Xiao -- CMBI -- Analyst

Okay. I have one more question regarding the competition landscape. So what do you see in a relatively longer-term development for this polysilicon supplying business? So do you think that there will be a big player and several smaller ones with roughly equal capacity? Or you expect we will have four to five manufacturers with similar scale?

And the second, a following question about this is, what would be Daqo's long-term market share target in this supply?

Longgen Zhang -- Chief Executive Officer

I think basically the silicon, I think, industry is different from the middle, I think, single stream, the solar industry, like a wafer sale and a module. We are a chemical industry. First of all, we need heavy cash -- capital investments capacity as you can see our balance sheets. Secondly is a long-term investment circle. Third is the requirements for environmental, for the safety, all of these.

I think, this industry, if you look at last year Q2, our selling price almost -- this industry -- only I think we make a little money, I think all the industrial other players lose money. So basically, this industry is not just like you see the glasses. Glasses is even less technology than the polysilicon. Then also you have to remember that, in this industry, one of the players, you can know that, they have the money, all right, in Xinjiang, but they take their five years, they still didn't keep up the quality like our first year player.

So basically, I think in the future, maybe in this industry, maybe where we survive only four to five players there, and those four or five players will focus, I think, continue R&D, reinvestments, and the capacity, I think, expansion. I think definitely, I think Tongwei is one of the bigger players as you can see that, but they also continue to vertically integrated and we know -- we don't know the future what's going on, OK, how much percentage of their polysilicon will be going to vertically integrated, how much will go to the market.

But definitely, I think Daqo is one of the purely silicon producer players and we will not touch, I think, the downstream. We do whatever we expect. So I think we definitely will be one-off player. And then maybe, I think, Daqo[Phonetic] is one-off player. Then also I think Asian polysilicon is going to IPO. We don't know the future whether they can successfully IPO or not, raise enough money to keep up and play it with us -- compete with us. Then another is a new horizon. I think that's the -- you see the only, I think, left right now, the major player there.

Robin Xiao -- CMBI -- Analyst

Okay, thank you. I will pass on the question.

Ming Yang -- Chief Financial Officer

Great, thank you.

Longgen Zhang -- Chief Executive Officer

Thank you, Robin.

Operator

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

Kevin He -- Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Kevin He -- Investor Relations

Longgen Zhang -- Chief Executive Officer

Ming Yang -- Chief Financial Officer

Gary Zhou -- Credit Suisse -- Analyst

Kyle Liu -- CICC -- Analyst

Philip Shen -- ROTH Capital Partners -- Analyst

Colin Yang -- Daiwa Securities -- Analyst

Alan Hon -- JPMorgan -- Analyst

Chao Ji -- Goldman Sachs -- Analyst

Tony Fei -- BOCI -- Analyst

Dora Liu -- JPMorgan -- Analyst

Robin Xiao -- CMBI -- Analyst

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