Daqo New Energy Corp (DQ) Q1 2021 Earnings Call Transcript

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Daqo New Energy Corp (DQ -1.20%)
Q1 2021 Earnings Call
May 18, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to the Daqo New Energy First Quarter 2021 Results Conference Call. [Operator Instructions]

I would now like to turn the conference over to Kevin He from Investor Relations. Please go ahead.

Kevin He -- Investor Relations

Hello, ladies and gentlemen. I'm Kevin He, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the first quarter of 2021, 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, 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 quarter. 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 US 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 statements.

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 projects or projections is subject to risks and uncertainties. All information provided in today's conference 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 US dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into US dollars solely for the convenience of the audience.

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

Longgen Zhang -- Chief Executive Officer

Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. During the quarter, we continued to see strong momentum in customer demand for high-purity polysilicon, which led to a significant shortage of polysilicon and higher polysilicon ASPs. Our ASP in the first quarter of 2021 was $11.90 per kg, approximately 10% higher than Q4 2020. Due to the elapsed time from contract signing, product shipment, to revenue recognition upon products' arrival at customers' sites, it takes time for market prices to be fully reflected to our ASPs during periods of rapid price change.

Based on current customer contracts and product deliveries, we expect our ASP in the second quarter of 2021 to be in the range of $19 to $20 per kg, a significant improvement compared to Q1 that better reflects recent market pricing trends. As of today, current market pricing for high-purity mono-grade polysilicon has already reached the level of $23 to $25 per kg. With strong end market demand, driven by global carbon neutrality commitments by all major economies, major mono-wafer manufacturers continue their capacity expansion and new entrants build new wafer capacity. As a result, we believe that supply in the polysilicon market will remain tight until the middle of 2022, when the market will finally see some additional supply of polysilicon.

During the quarter, we produced 20,185 metric tons of polysilicon, which lays a solid foundation for achieving our production target this year and also gives us the confidence to raise our guidance for annual production volume to the range of 81,000 to 83,000 metric tons from 80,000 to 81,000 metric tons. During the quarter, approximately 99% of our polysilicon products were sold to mono-wafer customers and we already began commercial shipments of N-type polysilicon to our four major clients. Our production cost was up by 4% in renminbi terms in the quarter as compared to Q4 2020, primarily due to the rise in the cost of silicon raw material and the impact of lower production volumes. We expect production costs to stabilize in the coming quarters as the cost of silicon raw material has stabilized for the time being. As we continue our efforts to reduce cost and improve quality as we expect to see the benefit from our newly implemented digital manufacturing system to stabilize production, maximize output and optimize efficiency.

On the business development front, we have already sold out our production volume of this year through the long-term supply agreements with customers that span all the major mono-wafer manufactures as well as major integrated solar manufacturers. More importantly, in connection with these long-term supply contracts, we have received RMB800 million of prepayments from customers this year to date, which will help us fund our future expansion plans and ensure our future market share. This shows the tightness of our polysilicon market and the strong momentum in demand growth, as well as the fact that, in our customers' mind, Daqo is the leading supplier of high-purity mono-grade and N-type polysilicon with high reliability, stability and consistency.

In middle March, we began construction for our new Phase 4B project, which will add 35,000 metric ton capacity for high-purity polysilicon. We expect to complete the project by the end of 2021 and ramp up to full capacity by the end of Q1 2022. Our Phase 4B project and the potential IPO on China's STAR Market will bring us into a new phase of development and enable us to quickly expand capacity to address the fast-growing demand from the global solar PV market for ultra-high purity polysilicon.

In the present context of global carbon neutrality goals, major economies in the world, including China, are launching ambitious policies to mandate the use of clean energy and address climate change. With the megatrend of the transformation to a lower carbon economy and de-carbonization of the new -- of the energy sector, we are entering a new era of accelerated growth for the solar industry. We believe Daqo New Energy is very well positioned to benefit from this tremendous opportunity.

Now, let's move to our outlook and guidance for our Company. The Company expects to produce approximately 20,000 to 21,000 metric tons of polysilicon and sell approximately 20,000 to 21,000 metric tons of polysilicon to external clients during the second quarter of 2021. For the full year of 2021, the Company expects to produce approximately 81,000 to 83,000 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 quarter.

Ming Yang -- Chief Financial Officer

Thank you, Longgen, and hello, everyone. Thank you for joining our conference call today. Now, I will discuss our Company's financial performance for the first quarter of 2021. Revenues were $256.1 million compared to $247.7 million in the fourth quarter of 2020 and $168.8 million in the first quarter of 2020. The increase in revenues was primarily due to higher ASPs, partially offset by slightly lower polysilicon sales volume. As Longgen indicated earlier, based on our current customer contracts and product deliveries, we expect our ASP in the second quarter of 2021 to be in the range of $19 to $20 per kilogram, a significant improvement compared to the Q1 average selling price of $11.90.

While we saw a rapid and significant rise in end market ASP during the first quarter, due to GAAP accounting revenue recognition policies, there is a significant time lag from customer order contracting based on market price to polysilicon production and scheduled shipments to products finally arrives at customer site for revenue recognition. Due to this impact, we believe our Q2 ASP will better reflect the recent market pricing trends.

Gross profit in Q1 was $118.9 million compared to $109.5 million in the fourth quarter of 2020 and $56.6 million in the first quarter of 2020. Gross margin was 46.4% compared to 44.2% in the fourth quarter of 2020 and 33.5% in the first quarter of 2020. The increase in gross margin was primarily due to higher ASPs.

Our polysilicon production costs in Q1 2021 was $6.29 per kg, an increase of 6.3% compared to $5.92 per kilogram in the fourth quarter of 2020. The sequential increase in cost was primarily due to an increase in the market price of metallurgical-grade silicon raw material and lower production volume in Q1 as compared to the previous quarter as well as the exchange rate fluctuations, which had a roughly 2% impact to cost in US dollars. For the second quarter, we expect our production cost to be stable as compared to the first quarter.

Selling, general and administrative expenses were $9 million compared to $11.2 million in the fourth quarter of 2020 and $8.9 million in the first quarter of 2020. SG&A expenses during the quarter included $2.5 million in non-cash share-based compensation costs related to the Company's share incentive plan compared to $4.5 million in the fourth quarter and $4 million in the first quarter of 2020.

Research and development expenses were $1.2 million compared to $1.5 million in the fourth quarter of 2020 and $1.7 million in the first quarter of 2020. R&D expenses can vary from period to period and reflect R&D activities that take place during the quarter. As a result of the foregoing, income from operations was $109.2 million compared to $98 million in the fourth quarter of 2020 and $45.8 million in the first quarter of 2020. Operating margin was 42.6% compared to 39.6% in the fourth quarter of 2020 and 27.1% in the first quarter of 2020. Interest expense was $7.8 million compared to $8.3 million in the fourth quarter of 2020 and $6.3 million in the first quarter of 2020.

Net income attributable to Daqo New Energy shareholders was $83.2 million compared to $72.8 million in the fourth quarter of 2020 and $33.2 million in the first quarter of 2020. Earnings per basic ADS was $1.13 compared to $1.01 in the fourth quarter of 2020, and $0.47 in the first quarter of 2020. EBITDA was $128.1 million compared to $115.1 million in the fourth quarter of 2020 and $63.1 million in the first quarter of 2020. EBITDA margin was 50% compared to 46.5% in the fourth quarter of 2020 and 37.4% in the first quarter of 2020.

As of March 31, 2021, the Company had $227.8 million in cash and cash equivalents and restricted cash compared to $118.4 million as of December 31, 2020, and $120.8 million as of March 31, 2020. The increase in cash balance of $109 million sequentially was primarily a result of positive operating cash flow, offset by capital expenditures related to our Phase 4B project.

As of March 31, 2021, the notes receivable balance was $38.5 million compared to $0.2 million as of December 31, 2020, and $4.4 million as of March 31, 2020. As of March 31, 2021, total bank borrowings were $222 million, of which $100.4 million were long-term borrowings, compared to total borrowings of $193.7 million, including $123 million long-term borrowings as of December 31, 2020, and total borrowings of $265.6 million, including $149 million of long-term borrowings as of March 31, 2020.

For the three months ended March 31, 2021, net cash provided by operating activities was $159.2 million compared to $31.1 million in the same period of 2020. The strong increase in operating cash flow compared to last year was primarily due to higher net income, as well as customer prepayments related to our long-term supply agreements. For the three months ended March 31, 2021, net cash used in investing activities was $79.9 million compared to $12.9 million in the same period of 2020. The net cash used in investing activities in 2021 and 2020 was primarily related to the capital expenditures on the Company's Phase 4B polysilicon expansion projects. For the three months ended March 31, 2021, net cash provided by financing activities was $31.7 million compared to net cash used in financing activities of $10 million in the same period of 2020.

And that concludes our prepared remarks. Operator, we will now open the floor to questions from the audience.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Gary Zhou from Credit Suisse. Go ahead.

Gary Zhou -- Credit Suisse -- Analyst

Hello, management. Thank you for taking my questions. Firstly, congratulations on the record high quarterly earnings. So I have three questions from my side. So first is, can the management share with us your latest polysilicon ASP outlook for the second half of this year and also possibly for next year? And, secondly, I want to ask for the latest progress of our Xinjiang Daqo IPO? And, if possible, what kind of valuation or market cap we expect to get from the Asian market? And, thirdly, so given the very likely kind of record high profits and cash flow we are going to get this year, so how do we think of the -- further capacity expansions into the next few years? Thank you.

Longgen Zhang -- Chief Executive Officer

Okay. Gary, to answer your first question, the ASP, I think, currently, you see the polysilicon ASP, I think go up very fast. And as you can see that, this week, our -- I think a small order reached to even more than $20 per kg. We believe the month of June, I think, the selling price also will be higher. So that's why we've given, I think, second quarter the average ASP is around $19 to $20 and that should be compared our Q1 is $11.90, a bigger jump, and that will reflect our gross margin, bottom line in the second quarter, will get a bigger improvement.

And the reason is because, for the second half of this year, the ASP, what's the trend? Basically the poly -- it's very difficult to forecast, I think, the peak price. However, you see our wafer customers will continue to buy as their operating cash flow remains positive. That's what I say. The peak will go to until the wafer industry -- average -- the gross margin will go to breakeven. Right now, as you see that, last week, the wafer price continue to go up. So that's why it's difficult for me to give you a forecast of polysilicon price, but I think the polysilicon price would continue to go up in the second half of the year, because it didn't have any additional polysilicon capacity, new capacity, added in.

And for the next year, the first half of next year, maybe around 1,000 tons capacity -- new capacity come in. But if you look the -- I think, the wafer capacity continue to expansion. I think by the end of this year, we will reach around, I think, 450 -- maybe, 450 gigawatts on the wafer capacity. So we think, you know, I can't give you the ASP for the next year, but I think the first half of next year should be around, I think, more than RMB150 per kg. Then second half of the year, because the new, I think, capacity come in, what I think -- I talked to the industrial and other people, we think they should keep about -- ASP about like RMB120 per kg.

Second question about our stock market listing, we cannot guarantee the timetable. The reason is, a lot of uncertainty in China capital market, but we have update our Xinjiang Daqo Q1 financial data and also the first half of this year estimated to Shanghai Stock Exchange last week. We think, maybe this week, it will be released to public very soon and we are waiting to start the registration process with CSRC. The registration process is expected to be completed within 20-week or working days after CSRC officially accepts our documents. So after completion, I think, as the registration -- completion of the registration with the CSRC, we can starting to listing processing, that take maybe around one months. So basically if everything goes smooth, I think we can be listing maybe early July.

And for the valuation, it's difficult for me to tell you the valuation, because the Chinese kept the market and they have a special, I think, the price determining mechanism and we think -- from our side, we hope the IPO, the shareholders can make money. But definitely, I think, this year, the financial results plus net financial results can support our, I think, the future -- after IPO, in the future, the price maybe continue to go up.

The third question about the cash flow, because I think if you look at this quarter, I think the earning cash right now and the cash equivalent, even restricted cash, almost $227 million in hand and also we continue to have some, like, a RMB400 million in deposits, long-term contract deposits where we've received by the rest of the year. And if you look our Q2 financial results plus second half of the year financial results, the cash flow -- operating cash flow, I think, all in [Phonetic] is very higher.

So we are very confident even without the STAR market listing, we can -- to support our 4B -- continue to expansion. So by today, say our 4B total investments is estimated around like a RMB3.6 billion. I think we already paid the RMB1 billion. So I think the capex for this year, we repaid, I think, 4B more than I think RMB3 billion, we repaid this year, maybe only RMB600 million to RMB700 million we will leave to next year 2022 to 2023. So, basically, I think everything so far is very -- I think, is a very good business. Gary?

Gary Zhou -- Credit Suisse -- Analyst

Thank you, Mr. Zhang. This is a very helpful and I'll pass on. Thank you.

Longgen Zhang -- Chief Executive Officer

Great. Thank you, Gary.

Operator

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Kevin He for closing remarks. Wait, we have two more. I'm sorry. The next question comes from Kim Pao from ROCIM. Go ahead.

Kim Pao -- ROCIM -- Analyst

Hi. I missed the -- your price guidance for the second half of 2022, would you mind repeat it again? Can I repeat the question?

Longgen Zhang -- Chief Executive Officer

Okay. The price guidance for 2022, OK, basically I cannot give you the guidance, OK, but based on my present knowledge and we talked to the industrial people, we believe even in the second half of next year, the reason is because of wafer expansion, capacity continued expansion and also the industry -- the final ending product, the module, I think the market is very prospectus. So we believe the ASP is still about RMB120 per kg.

Kim Pao -- ROCIM -- Analyst

Okay. In the second half of 2022?

Longgen Zhang -- Chief Executive Officer

Yeah.

Kim Pao -- ROCIM -- Analyst

Okay. My second question is, the -- your realized price and the lag time between the realized price and the market price given the fact that right now we're seeing market prices at maybe RMB150, RMB160 per kg and our realized price for second quarter, you guided at maybe $19 to $20, which is probably like still below the current market price. Generally how your realized price for the quarter represents a lag time normally of how many months from the market price? [Indecipherable]

Longgen Zhang -- Chief Executive Officer

Okay. Yeah, Kim, I think, first of all, if you look at the market price, OK, basically we have to -- I think, to clear to -- you have two prices, one is your core market price and the other is ASP. When we are talking about market price, OK, right now, let's say, RMB190, RMB200 per kg, that's a top small, I think, mono-silicon grade. That's not the good at the price. Okay. So when you're selling that, so bigger chunk, maybe will be only like, let's say, RMB190 is a small, I think, re -- import good mono -- I think, perfect, I think, silicon materials.

So the second is a bigger chunk. The bigger chunk is you take RMB2 away, so it's like RMB188. Then you talked about the [Indecipherable] floor, TOPCon. The TOPCon maybe RMB4 per kg lower, so ASP maybe around a RMB6 per kg down, OK, first of all to answer your question. So, basically, what are we talking today if we're going to market -- contract, I think, June, next week we're going to contract. So basically their price is not ASP, OK. Their price is within tax, is a top price.

So, for example, if June the price is RMB190, so ASP only maybe is -- you take $6 -- RMB6 away, so it is RMB184 is ASP, OK. The first one. Second, the price is one-month lag behind. So usually if -- you see, the Q2, we're giving you guidance. First of all, the ASP is $19 to $20, that mean without tax it's ASP, OK, period, to recognize revenue. But as a market contrary, you see, the price, when you talk in second quarter, because in the -- they are one month delayed, so that's why in April, the shipments, the price is determined by March, OK. So the March price actually is -- the April shipment products, the revenue recognized also in April. So it's a one month delay, so that's why it's little delayed, OK.

Kim Pao -- ROCIM -- Analyst

Okay.

Longgen Zhang -- Chief Executive Officer

So did I answer your question?

Kim Pao -- ROCIM -- Analyst

Yeah.

Longgen Zhang -- Chief Executive Officer

So, always, next month we determine it right now. So next month maybe jumping another $20 -- RMB20 per kg, because the price change so quickly, it's difficult for us to tell, you see, what the ASP, what's the price, we have to based on whatever the extra contracts we signed and we delivered. But, so far, I think the price is going to stable. Right now, it's around, you see, RMN190 to RMB195, I think, per kg.

Kim Pao -- ROCIM -- Analyst

This RMN190 to RMB195 includes VAT, right?

Ming Yang -- Chief Financial Officer

Yeah.

Longgen Zhang -- Chief Executive Officer

Including the VAT. Yeah. Kim, please always be aware that in the industry when we talk about the price in RMB terms, it's always VAT included. When we say US dollar terms, it's always VAT excluded. Yeah, so it's a little bit confusing. Yeah.

Kim Pao -- ROCIM -- Analyst

I just wondering when I look at -- see the, the price that they quote there in RMB, they are normally ex-VAT or with VAT?

Longgen Zhang -- Chief Executive Officer

With the VAT. RMB always with VAT. Yeah.

Kim Pao -- ROCIM -- Analyst

Okay.

Longgen Zhang -- Chief Executive Officer

With the VAT.

Kim Pao -- ROCIM -- Analyst

How much do you think our cost would go up in the next quarter or two?

Longgen Zhang -- Chief Executive Officer

Basically if you look our Q2, our cost will go up 4%. The major reason is because the -- Q1 compared to, I think, Q4 last year go up 4%. The major, I think, is raw material, our silicon powder. Secondly is the steam price, which we increased, I think, from our -- the price increased in Q1 and we signed with the supplier. So we think in the future the price will be stable, because we didn't see further -- the silicon powder is continue to go up. Basically -- seasonally they should be stable, even go down. So, basically, I think the cost of where we stay, I think, is the same, only you have to consider the foreign exchange rate effect.

Kim Pao -- ROCIM -- Analyst

Okay. Okay. Thank you very much.

Longgen Zhang -- Chief Executive Officer

Great. Thank you.

Operator

Our next question is from Philip Shen from ROTH Capital. Go ahead.

Philip Shen -- ROTH Capital -- Analyst

Hey, guys. Thanks for taking my questions. The first one is on pricing, but from a different angle. With the substantial rise in pricing for polysilicon, are you starting to see demand slow down anywhere in the value chain, whether it's wafers or further down or even for polysilicon, is there any talk at all that there is a slowdown in demand? And what's your latest outlook for China demand in 2021 in terms of gigawatt? What's the range and perhaps how does that compare versus what you're thinking back on the Q4 call? Has that changed either lower or higher? Thanks.

Longgen Zhang -- Chief Executive Officer

Okay. First of all, I think, Philip, it's difficult for me to give you the forecast on the price today, but that mechanism you have to know that. For now on to mid of next year I think, for the any market for this year, for example, maybe globally, I think the forecast is around like 165, 170 gigawatts, so the total demand for silicon is around, I think, 55,000 tons, then you need to plus some inventory. So, right now, all supply right now is 50 -- I'm sorry 550,000 tons, but right now all the supply is 500,000 tons there, so the shortage is there.

Secondly is, the polysilicon price is driven by the capacity of the wafer. The wafer prices continue to go up. So that's why silicon prices continue to go up. I think, the peak should be wafer, I think the gross margin go to breakeven, then, I think, the silicon price maybe starting to turn around. So I can't tell you when it would happen. The reasons because the wafer producer, the major wafer producer will know the industry, they continue to increase the price almost every month or several weeks. So you ask me, then you should ask, with the wafer continued increase the price can sell it or not, but I think the market is still -- still is there, because high efficiency, high output in a watt, the panel, I think you can sell in high price, so that's why today China market is accepting now the module, I think, the price RMB1.8, RMB1.9 per watt.

So the polysilicon only account for maybe 13% to 15% after the module price, only accounted for 7% to 8% right now, maybe 9% of total investments and the power -- the solar power station installation. So, basically, I think the market is continue -- can drive these prices go up. So I cannot tell you when and how, but what I can tell you is, by the middle of next year, the poly, I think, supply is still -- totally are still tight, so price still keep in the high, I think at range, that's what I can answer to you.

Second question, you said about this year. China market definitely, I think, right now is starting to hot. So this year, I think, China maybe around 65 gigawatt even to 70 gigawatts and the global market, I'm not sure, maybe I think 120 and 130, so I'm very optimism. I think, globally, I think this year, maybe around 180 and 190 gigawatts. Philip?

Philip Shen -- ROTH Capital -- Analyst

Okay. Thank you, Longgen. My next question is on your outlook for 2021. I think you said you are sold out, so actually it's more about '22, can you talk about how much of your expected production has been tied up with long-term customer agreements for '22, '23 and maybe even in '24? And then when do you think you'll be able to lock-up all of 2022 capacity? Do you think that might happen soon or do you think that you'll keep some production or capacity available for the spot market?

Longgen Zhang -- Chief Executive Officer

I think after we signed a long-term contract with Zhonghuan last week, I think we locked all our production output this year and next year. Basically the next year are based on -- we can starting 4B production -- trial production in November of this year and can reach the full capacity running in Q1. So basically are based on next year is 120,000 tons. So basically the long-term contracts right now this year is already over 80,000 tons, next year I think around like 120,000 to 130,000 tons. So, basically, right now, we stop assigning any long-term contracts for this year and next year.

And for the year 2023, we've, right now, locked, I think, 70,000 tons. So I think the year '24, '25 and together is also around 80,000 tons. So that's we right now locked our long-term contracts. So -- especially I think for the contracts that were signed recently we're collecting around 6% based on market, I think, as deposits to guarantee in the future you see we can lock those amounts.

Philip Shen -- ROTH Capital -- Analyst

Okay. Thanks for that. And then back to the China listing. It seems like maybe the requirements for the listing have been tightened or there has been a slight delay in the process. Can you -- I know you answered the question earlier, but can you talk about the timing you think now for the actual listing? Do you think it becomes complete by the end of Q2, or is there a chance that it goes into Q3 and we've seen that there might be some challenges maybe due to something about increased pricing or increased R&D spending, so just curious if you might be able to comment on that as well? Thanks.

Longgen Zhang -- Chief Executive Officer

I think, it's not -- I think the issue is not the -- what are you mentioned, R&D or other stuff. I think we have to -- I think, first off, we have to update right now the -- I think Q1 financial data. I think actually we updated last week. So we need to waiting for Shanghai Exchange to review those figure, then public maybe within one week or soon. So, basically, right now, so far, I think, we believe, based on our knowledge, I think that we can starting registration definitely by end of this month, we can starting to do that. So, we believe, I think that we can listing -- finished the listing in our registration and listing by the end of July. So, yes, some uncertainty, because we are the first US listing Company and to listing the subsidiaries in China, so we also faced questions and go slow. So, so far, we go slow on everything. So I think we believe we can finish, I think, early third quarter.

Philip Shen -- ROTH Capital -- Analyst

Okay. That's really helpful. Thank you, and best of luck obviously with that process. As it relates to capex, with the rising input costs not only in solar but just globally, do you expect that impact to your capex for Phase 2B? And what is your current expectation for capex for '21 and 2022?

Longgen Zhang -- Chief Executive Officer

Okay. I think our regular capex, I think, in maintenance, I think maybe Ming can tell you, but for 4B, total right now, you see we almost finished. I think total investment is around RMB3.6 billion. So we almost finished everything in the contract, I think, excluding I think around RMB300 million didn't sign the contract. So basically I think that we are pretty sure is -- on the RMB3.6 billion, of which I think we will pay this year maybe around RMB2.8 billion to RMB2.9 billion will be paid by end of this year. So leave around RMB600 million to RMB700 million, we will pay next year or even the year after next year, that's a 10% is a guarantee is one year after our smooth run of production.

So basically, I think, I just said, without the stock market IPO, our inside cash generation can support 4B. So basically if we can raise more money from IPO, basically in those IPO money we can continue to future expansion of the capacity. So that any maintenance maybe Ming can tell you how much capex every year, the regular.

Ming Yang -- Chief Financial Officer

The regular maintenance capex is only about $30 million or so per year.

Philip Shen -- ROTH Capital -- Analyst

Okay. Great, thanks. And I may have missed it, but what's your expected quarter for maintenance this year, is it Q3 or Q4 or what's your latest view? Thanks.

Longgen Zhang -- Chief Executive Officer

I think we already finished, I think, one production line. So rest of -- I think the full production line we're starting in June, July, August and September, so mainly what happened -- has occurred in, I think, in Q3. So you will be [Indecipherable].

Philip Shen -- ROTH Capital -- Analyst

Okay, great. Thanks for the question.

Longgen Zhang -- Chief Executive Officer

Great. Okay. Thanks, Phil.

Operator

Our next question is from Dora Liu from JPMorgan. Go ahead.

Dora Liu -- JPMorgan -- Analyst

Hi. This is Dora. I have two questions. The first is regarding the inventory level. So could you share with us the current inventory level of Daqo? And how about the industry average level? And the second question is regarding the untapped polysilicon. I think Mr. Zhang just mentioned that Daqo started the commercial shipments of N-type polysilicon to major customers. So I'm just wondering what is the current mix of percentage of N-type product of our polysilicon output? Thank you.

Longgen Zhang -- Chief Executive Officer

Okay. First of all, I think, maybe -- and I just answered, Ming, maybe you can add any more, OK. By the end of Q1, our inventory is around 1,295 tons and compare the Q4 is 2,491, actually we dropped down 1,196. So that's why we recognized revenue, the quantity is higher than our production. So basically the industrial -- we don't know other people, basically we always keep our inventory as lower as possible, OK. So if you look our history, our inventory usually is below, I think 3,000 metric tons, never higher than that, because we are chemical industry and it's continue production, we don't want to keep any inventory. So basically we're also not going to go ahead to, you know, to speculate the ASP, the selling price, so that's why whatever we produce, I think, we are going to sell, OK. That's first question.

Second question about N-type, today, we have four major clients, right now, use our N-type products and the major customers may be taken around like 200 tons per month. So, right now, I think, every month we are selling N-type maybe less than 1,000 tons. So the Q1, the total quarter is, I think, around 2,000 tons is N-type, but the ASP of N-type actually is not too high, only RMB2 higher than the regular P-type products. The reasons because, right now the use are still lower. We don't want to differentiate the price difference. So we just want to stimulate the clients to use our N-type products, but for the future, as you can see that, our downstream clients. For example like Longi, like Jinko, they already -- I think the P -- N-type sale production line is already starting to commercial aligning. So we think the N-type silicon, the demand will be more and more. Basically beside Wacker, OCI, then I think domestic producer -- I think, we are one of the -- I think the biggest one, right now, provide N-type silicon today. Dora, back to you.

Dora Liu -- JPMorgan -- Analyst

Thank you so much. Yeah. That's quite helpful. Thank you. I'll pass on.

Longgen Zhang -- Chief Executive Officer

Great. Thank you.

Operator

Our next question is from Tony Fei from Bank of China International.

Tony Fei -- Bank of China International -- Analyst

Hi, management. Thanks for your time. It's Tony from BOCI. I just have a -- one follow-up question on the competition landscape. So last week we all noticed that East Hope announced they will build a 250,000 ton project in Xinjiang province, that's quite huge. So, of course, we don't know when or even whether they will finish it, but let's assume for the time being that the project gets materialized, then how would affect Daqo's future expansion plans, I mean beyond Phase 4B? Thanks a lot.

Longgen Zhang -- Chief Executive Officer

Tony, first of all, we not go ahead and comment our competitors, because competitors also friends, OK. And, yes, we also see the news and basically we very respect our competitors. New hopes, I think the -- in Xinjiang, they are already starting, I think, the silicon produce. They take five years and ramping up. So I don't know how much they produced and what's the quality. Basically our competitors, definitely -- I think, the total -- the market supply will affect ours in the future. You see our continued expansion, we need it based on the market supply and demand.

In the future, I think, the market -- ending market, the future especially, I think the module in the future, the selling situation. So we see the market is so big, so some of our competitors even -- some newcomer maybe will invest money in this industry. But because silicon industry is the chemical industries, it's a long-term investments, security and also the quality technology and part of priority, processing technology, all these I think are experience and together, you see, the quality is most important, safety also is most important. So we are focused, you see, on our quality and try to reduce our cost and we try to make ourselves, to differentiate ourselves from other people and to -- I think to make, I think, high gross margin than the industrial average, I think to survive. I think that's our, I think, competitive edge.

So I cannot comment on others, but, yes, I think kind of, right now, the expansion, capacity maybe polysilicon is around 400,000 tons on the way, but we don't know when they go into -- put into production and the whether they can successful or not. So that's why we are forecasting on 4B. I think we want 4B, I think, to start trial production by November of this year, to full capacity running by Q1 next year to, I think, make sure next year we can produce more than 20,000 tons. Tony?

Tony Fei -- Bank of China International -- Analyst

Okay. Thank you, Longgen. That's very helpful.

Operator

Our next question is from John Segrich from [Indecipherable]. Go ahead.

John Segrich -- Analyst

Hey, guys. I wanted to see if we could talk a little bit about some of the issues that people are looking at in the Xinjiang province in terms of forced labor. I know that you guys recently did a tour and the feedback has been positive. Unfortunately, there have been examples in the past of tours like Sino-Forest that frankly have gone wrong. So in terms of what you're going to do to independently certify that there is no forced labor at 2Q or even in the entire supply chain? There has been a couple of reports in broad daylight citing that your raw material suppliers have direct ties to XPCC, that you buy your power from companies that are tied to XPCC. So how do we get through this? And then how do you guys not get subjected to a potential ban of your products in the US or the EU, what steps are you going to take?

Longgen Zhang -- Chief Executive Officer

Okay. I think, John, first of all, we were not less criticals in the way and that we are continuing to focus our own business to continue to expansion and to produce high quality polysilicon to support the global, I think, as a green energy solar industry. We did our -- I think, the best efforts, so we hosted a site tour with many analysts and the investors, also media from home and abroad from May 11th till 13th. We also posted -- I think, put the video on the Internet to let other investors to see that. I think just like you, gentlemen. So we have reiterated many times of our zero-tolerance gains from the forced labor. So basically we want to take this opportunity to show our investors what is advanced tech in a polysilicon plant looks like and how we operate and manage it. So in the future we don't know, because we cannot involve any political issues, so even in the future maybe we need to hire the third-party do the audit, so we can answer that question. Okay. That's it.

John Segrich -- Analyst

Can you -- are your two main suppliers of silicon, Hoshine and Sokesi.

Longgen Zhang -- Chief Executive Officer

Excuse me?

John Segrich -- Analyst

Who are your two main suppliers of raw silicon, Sokesi and Hoshine.

Longgen Zhang -- Chief Executive Officer

You mean the silicon powder, right?

John Segrich -- Analyst

Yes.

Longgen Zhang -- Chief Executive Officer

Silicon powder is from -- buy from I think, yeah, Sokesi. And other is from Hoshine.

John Segrich -- Analyst

Hoshine.

Longgen Zhang -- Chief Executive Officer

Yes.

John Segrich -- Analyst

Hoshine. Okay. And so, if both of those were tied to XPCC, would you stop buying?

Longgen Zhang -- Chief Executive Officer

Listen, John, those providers only provide us the silicon powder, but they also buy a silicon magnets you see from all around the world, OK, they mix together, they are going to produce powder, silicon powder. For Hoshine, they do not only supply the silicon powder to us, they also supply silicon powder to Wacker, OCI, so that's the pressing answer to you.

John Segrich -- Analyst

So that doesn't change whether or not if they use forced labor you would buy from them, I mean just because everyone buys doesn't mean that's OK?

Longgen Zhang -- Chief Executive Officer

First of all, I already said we are zero tolerance for the forced labor, OK.

John Segrich -- Analyst

Okay.

Longgen Zhang -- Chief Executive Officer

I'm not commenting that, but also I can tell you they also selling polysilicon powder to overseas. For example, OCI, Wacker also bought the silicon powder from them.

John Segrich -- Analyst

I understand that. That doesn't mean that they don't use forced labor. I'm just curious, you've seen Apple cut of suppliers, will you cut off suppliers that are proven?

Longgen Zhang -- Chief Executive Officer

We don't see any clear evidence of our suppliers being involved into the forced labor issue. Okay. So if we see any clear evidence, we definitely take the stance of zero tolerance. Is it clear?

John Segrich -- Analyst

Okay. So you would drop them as a supplier, perfect. Okay. That's -- it's an important issue that needs to be addressed.

Longgen Zhang -- Chief Executive Officer

Yeah.

Operator

Our next question is from Colin Yang from Daiwa Securities. Go ahead.

Colin Yang -- Daiwa Securities -- Analyst

Hey, management. This is Colin. Just a one quick question about our future capacity expansion of the 4B, the location has been decided, will that be in Xinjiang, in Mongolia [Phonetic] or another places. And I'm curious about our future financing plans for our future expansion? As Longgen mentioned, right, if there is any like money from the STAR Market IPO, if we continue for the future expansion, but what if it's not enough, do we consider another round of equity financing? Thank you.

Longgen Zhang -- Chief Executive Officer

Okay. Mr. Yang, I think basically, right now, if you look our Q1 financial statements and we have enough, I think, use the cash flow to continue to support our 4B to finish out 4B. Even by the end of this year without stock market IPO proceeds, we can run very well by the end of this year, the cash flow. So basically if we can successfully run the IPO and the IPO planning, I think, right now, the prospect, I think, will raise RMB5 billion and maybe more, OK, we don't know and maybe less. I think basically after we finish the IPO, yes, we will throw the board and to basically we have to evaluate in the market situation, demand for the product feature, I think other competitive expansion. And the way we were looking at some place, yes, definitely, I think, besides Xinjiang, in China other place, we have looked at four places, for example, like in Mongolia, Yunnan, Guizhou, even Shanxi province, so even abroad. So, yes, definitely at that time, we will make the same, we will let you know.

Colin Yang -- Daiwa Securities -- Analyst

Thank you. Very clear. Thank you very much.

Longgen Zhang -- Chief Executive Officer

Great. Thank you.

Operator

Our next question is from Ji Chao from Goldman Sachs. Go ahead.

Chao Ji -- Goldman Sachs -- Analyst

Hi. Thank you for taking my question. I hope to ask about regarding the N-type polysilicon that you mentioned, that you already started the commercial shipment, can you maybe share your production cost level for the N-type? And also how much is our -- what is our kind of effective supply capacity for the N-type kind of poly? If the demand -- downstream demand pick up quickly, how much -- how can we kind of reshuffle our kind of supply mix? Do we need to do a little bit upgrade to our existing kind of facility in order to increase the mix of the N-type poly? And thank you.

Longgen Zhang -- Chief Executive Officer

Okay. I think that's a good question. You see so far right now, I think, in China, the -- bigger major, I think, wafer producer, they are only starting, I think, maybe one production line in N-type production line. As you see, the announcements like Longi, Jinko and also Zhonghuan and other player. So basically right now the quantity I think is lower. Their producer also is lower. So that's why they can use, I think, the imported silicon poly, for example, from Wacker, OCI and then also like the high-quality produced domestic like us.

So as mentioned that, in Q1, we saw that, I think, around less than 2,000 tons N-type polysilicon. But we can actually, I think, produce right now around 20% to 30% of our poly is N-type. So it's no problem to us. Based on right now the equipments and the technology, we even can increase N-type in our quickly I think to even 40% to 50%. So based on the market right now, we think in the future, the N-type will become more and more, but it's in the transition period, it take time. We still think and it will take three to five years, maybe N-type we reached to 60%, but definitely I think P-type is still there. The reason is because of cost effective and also I think other coordination I think.

So, basically, I think the market we see, the N-type in the future, they can increase the -- excuse me -- the efficiency and sale efficiency. They can reach about 25% compared to the peak, right now, is 20% to 23%. Definitely, I think is a bigger, I think, jump also on the module side and to increase the output watts per panel, to reduce the total live cost per watt. So that's the most important. I think that's the future. I think one of the future I think in the next generation -- revolution, technology revolution. We are already, I think, prepared for it. For the cost, I think, today is not -- we just selected the N-type actually -- basically the classical N-type from the P-type, so it's caused us even the same. So there is not a bigger difference.

Chao Ji -- Goldman Sachs -- Analyst

Understood. Super clear. Thank you.

Longgen Zhang -- Chief Executive Officer

Great. Thank you.

Operator

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

Kevin He -- Investor Relations

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, and bye-bye.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Kevin He -- Investor Relations

Longgen Zhang -- Chief Executive Officer

Ming Yang -- Chief Financial Officer

Gary Zhou -- Credit Suisse -- Analyst

Kim Pao -- ROCIM -- Analyst

Philip Shen -- ROTH Capital -- Analyst

Dora Liu -- JPMorgan -- Analyst

Tony Fei -- Bank of China International -- Analyst

John Segrich -- Analyst

Colin Yang -- Daiwa Securities -- Analyst

Chao Ji -- Goldman Sachs -- Analyst

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