Daqo New Energy Corp. Q4 FY2024 Earnings Call

Hello, everyone. I'm Xiaoyu Xu, 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 2024, which can be found on our website. Today attending the conference call, we have our Chairman and CEO, Mr. Xiang Xu; our Deputy CEO, Ms. Anita Zhu; our CFO, Mr. Ming Yang and myself. Mr. Xu is on a business trip now, so he will make a brief introduction followed by Ms. Anita Zhu on our management's remarks. Today's call will begin with an update from Ms. Zhu, our management, our market conditions and the Company's operations. And then Mr. Yang will discuss the Company's financial performance for the quarter and the year. 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 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 preliminary view, as of today, and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today and we undertake no duty to update such information, except as required under applicable law. Also, during the call, we'll occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience. Now, I will turn the call to our Chairman and CEO, Mr. Xiang Xu.

Hello, everyone. This is Xiang Xu, the CEO of Daqo New Energy. We appreciate you joining us for the conference call today. Anita, go ahead.

Okay. Thank you, Mr. Xu. Hello, everyone. This is Anita Zhu. Thank you for joining our conference call today. And I'll now deliver the management remarks on behalf of Mr. Xu. So in 2024, we faced a challenging market environment with excess capacity in the solar PV industry, leading to sharp price declines across the entire value chain. We proactively managed these difficulties by curtailing polysilicon production to reduce cash burn, particularly in the third and fourth quarters. Nevertheless, we've reached an annual polysilicon productive volume of 205,068 metric tons in 2024, meeting our guidance of 200,000 metric tons to 210,000 metric tons, which represented an increase of 3.7% year-over-year compared to 197,831 metric tons in 2023. Our N-type product mix increased significantly from approximately 40% of total production in 2023 to 70% in 2024. And we sold 181,362 metric tons in 2024, ending the year at a reasonable inventory level. Despite slower growing demand for solar PV products globally, the mismatch between demand and supply drove prices lower in 2024, even below cash cost. Overall, our polysilicon ASP decreased significantly from $11.48 per kilogram in 2023 to $5.66 per kilogram in 2024. Revenue came in at $1 billion compared to $2.3 billion in 2023 as a result of lower ASPs as well as lower sales volumes. As polysilicon ASPs fell below production costs starting in the second quarter of 2024, we recorded a noncash provision for inventory impairment expense with a negative gross margin of 20.7% for 2024. Due to the continuous negative gross margin, we recorded a non-cash long-lived asset impairment charge of $175.6 million for the quarter related to our older polysilicon production line. Despite the losses, Daqo New Energy continued to maintain a strong balance sheet and ample cash reserves. At the end of 2024, the company had a cash balance of $1 billion, short-term investments of $10 million, bank notes receivable $55 million and a fixed-term bank deposit balance of $1.1 billion. Overall, the company maintains strong liquidity with a balance of quick assets of $2.2 billion, which can be readily converted to cash if needed. This solid financial position ensures we are well-equipped to navigate the market downturn and remain strategically resilient. On the operational front, during the fourth quarter, the company continued to operate at a lower utilization rate of 40% to 50% of our nameplate capacity in light of weak market prices. The total production volume at our two polysilicon facilities for the quarter was 34,236 metric tons, further decreasing from the third quarter by 9,356 metric tons. Meanwhile, we intensified our efforts to reduce inventory, and our sales volume reached 42,191 metric tons in the fourth quarter compared to 42,101 metric tons in the previous quarter. As a result of lower utilization, idle facility related costs for the quarter was approximately $1.02 per kilogram, which was primarily related to non-cash depreciation expense. Overall, polysilicon unit production costs edged up 3% sequentially to an average of $6.81 per kilo. However, thanks to our relentless efforts to improve operational efficiency, our cash costs declined further to $5.04 per kilogram, a 6% quarter-over-quarter decline compared to $5.34 per kilogram in the third quarter. Due to the current market pricing environment, we currently expect total polysilicon production volume in the first quarter of 2025 to be approximately 25,000 metric tons to 28,000 metric tons. We plan to maintain a relatively low utilization rate in 2025 until a turning point emerges in the sector. As a result, we currently anticipate full-year production volume in 2025 to be approximately 110,000 metric tons to 140,000 metric tons. Discussion on industry self-regulation measures have been ongoing since the fourth quarter. Meanwhile, the polysilicon market remains sluggish heading into the quarter as downstream customers continue drawing down accumulated inventory and coping with lower wafer capacity utilization rates of approximately 50%. Polysilicon pricing remained stable within the cyclical bottom range of RMB36 to RMB42 per kilogram throughout the quarter. In November and December, leading poly producers reduced production to offset the higher hydroelectricity costs during the winter season and to mitigate inventory risks. As such, industry production of polysilicon continued to decline month-over-month. According to industry statistics, the total production volume in China descended to approximately 100,000 metric tons per month in December, the lowest level in the year. On December 26th, polysilicon futures trading officially launched with the initial benchmark price set at RMB38.6 per kilogram. Although some prices were quoted higher at RMB42 to RMB43 per kilogram, future trading volumes remained small and had limited impact on spot pricing. On a positive note, new solar PV capacity in China reached a record high of 68 gigawatts in December, which was beyond expectations and reinforced market confidence in the resilience of solar PV in the short run and market potential in the medium to long-term. Despite the significant challenges resulting from overcapacity in the solar PV industry, we have seen proactive initiatives to restore the industry's healthy development. On December 06, 2024, led by the China Photovoltaic Industry Association, our company, along with other major solar PV manufacturers, reached consensus that implementing self-discipline would be fundamental to mitigating the irrational competition amidst falling prices and heightened global trade pressures. Moreover, the solar PV industry continues to show strong demand prospects. For the year 2024, China's newly installed solar PV capacity grew 28% year-over-year to 277 gigawatts, which not only hit a record high, but also exceeded market expectations. We remain optimistic that as supply adjusts to more rational levels, we'll see a better balance between supply and demand this year. In the long run, as a renewable energy source and one of the lowest cost sources of electricity worldwide, solar power continues to be a key driver in global energy transition and sustainable development. Looking ahead, Daqo New Energy will capitalize on the long-term growth in the global solar PV market and strengthen its competitive edge by enhancing its higher efficiency N-type technology and optimizing its cost structure through digital transformation and AI adoption. As one of the world's lowest cost producers with the highest quality N-type product, a strong balance sheet, and no financial debt, we believe we're well-positioned to weather the current market downturn and emerge as one of the leaders in the industry to capture future growth. So now I will turn the call to our CFO, Mr. Ming Yang, who will discuss the Company's financial performance for the quarter. Ming, please go ahead.

Thank you, Anita, and hello, everyone. This is Ming Yang, CFO of Daqo New Energy. We appreciate you joining our earnings conference call today. I will first go over the company's fourth quarter 2024 financial performance, then follow with our full year 2024 financial results. Revenues were $195.4 million compared to $198.5 million in the third quarter of 2024 and $476.3 million in the fourth quarter of 2023. The decrease in revenue compared to the third quarter of 2024 was primarily due to a decrease in ASP, mitigated by an increase in sales volume. Gross loss was $65.3 million, compared to $60.6 million in the third quarter of 2024 and gross profit of $87.2 million in the fourth quarter of 2023. Gross margin was negative 33% compared to negative 30.5% in the third quarter of 2024 and 18.3% in the fourth quarter of 2023. The decrease in gross margin compared to the third quarter of 2024 was mainly due to the decrease in average selling prices. Selling, general and administrative expenses were $29.4 million, compared to $37.7 million in the third quarter of 2024 and $39 million in the fourth quarter of 2023. SG&A expenses during the fourth quarter of 2024 included $14.9 million in non-cash share-based compensation expense compared to the company's share related to the company's share incentive plan compared to $18.9 million in the third quarter of 2024. The company recognized $18.1 million in non-cash expense related to allowance for expected credit loss of receivables in the fourth quarter, mainly due to uncertainty on the recoverability of long age receivables. The company recognized $175.6 million in fixed asset impairment loss, mainly related to its older polysilicon production lines in the fourth quarter of 2023 due to the continuous downtrend in the polysilicon selling prices that impaired the recoverability of carrying amounts of these assets. R&D expenses were $0.4 million compared to $0.8 million in the third quarter of 2024 and $3.3 million in the fourth quarter of 2023. R&D expenses reflect R&D activities that take place during the quarter and can vary from period to period. As a result of the above-mentioned factors, loss from operations was $300.9 million compared to $98 million in the third quarter of 2024 and income from operations of $83.3 million in the fourth quarter of 2023. Operating margin was negative 154% compared to negative 49% in the third quarter of 2024 and 17.5% in the fourth quarter of 2023. Net loss attributable to Daqo New Energy shareholders was $180 million, compared to $60 million in the third quarter of 2024 and net income of $53.3 million in the fourth quarter of 2023. Loss per basic ADS was $2.71 compared to $0.92 in the third quarter of 2024 and income per ADS of $0.76 in the fourth quarter of 2023. Adjusted net loss attributable to Daqo New Energy shareholders, excluding non-cash share-based compensation costs, was $170.6 million, compared to $39.4 million in the third quarter of 2024 and adjusted net income of $74 million in the fourth quarter of 2023. Adjusted loss per basic ADS was $2.56 compared to $0.59 in the third quarter of 2024 and adjusted earnings per basic ADS of $1.06 in the fourth quarter of 2023. EBITDA was negative $236 million compared to negative $34 million in the third quarter of 2024 and $128.2 million in the fourth quarter of 2023. EBITDA margin was negative 121% compared to negative 17% in the third quarter of 2024 and 26.9% in the fourth quarter of 2023. Now, I will go over the company's full year 2024 financial results. Revenues were $1.03 billion compared to $2.3 billion in 2023. The decrease was primarily due to lower polysilicon average selling prices and further compounded by lower cell volume. Gross loss was $212.9 million compared to gross profit of $920.7 million in 2023. Gross margin was negative 20.7%, compared to 39.9% in 2023. The decrease in gross profit was primarily due to lower ASP and inventory impairment. For the year 2024, the company reported $81.4 million in inventory impairment expenses, compared to $0.5 million in 2023. SG&A expenses were $143.1 million, compared to $213.2 million in 2023. The decrease was primarily due to the reduction in non-cash share-based compensation costs related to the company's share incentive plan, which was $72.4 million and $121 million in 2024 and 2023, respectively. The company recognized $175.6 million in fixed asset impairment loss mainly related to its older products and facilities in 2024. R&D expenses were $4.6 million compared to $10.1 million in 2023. And as a result of the foregoing, loss from operations was $564 million compared to income from operations of $783.4 million in 2023. Operating margin was negative 54.8%, compared to 33.9% in 2023. Net interest income was $29.4 million, compared to $52.3 million in 2023. The decrease in interest income was primarily due to lower cash and bank balances as well as lower bank interest rates. Net loss attributable to Daqo New Energy shareholders was $345 million compared to net income of $429.5 million in 2023. Loss per basic ADS was $5.22 compared to earnings per basic ADS of $5.75 in 2023. Adjusted net loss attributable to Daqo New Energy shareholders was $272.8 million, compared to $563 million in 2023. Adjusted loss per basic ADS was $4.12 compared to adjusted earnings per basic ADS of $7.14. EBITDA was negative $338 million, compared to $918.6 million in 2023. EBITDA margin was negative 32.9% compared to 39.8% in 2023. Now, on the company's financial condition. As of December 31, 2024, the company had $1.038 billion in cash, cash equivalents and interest in cash compared to $853.4 million as of September 30, 2024 and $3.05 billion as of December 31, 2023. And as of December 31, 2024, the note receivable balance was $55.2 million compared to $84.5 million as of September 30, 2024, and $116.4 million as of December 31, 2023. Notes receivable balance represents bank notes with maturity within six months. And as of December 31, 2024, the balance of fixed term deposits within one year was $1.087 billion compared to $1.215 billion as of September 30, 2024, and none as of December 31, 2023. Now on the company's cash flows. For the 12 months ended December 31, 2024, net cash used by operating activities was $437.7 million compared to $1.6 billion provided by operating activities in the same period of 2023. The decrease was primarily due to lower revenues and gross margin. For the 12 months ended December 31, 2024, net cash used in investing activities was $1.478 billion, compared to $1.196 billion in the same period of 2023. The net cash used in investing activities in 2024 was primarily related to capital expenditures on the company's 5A and 5B polysilicon construction projects in Baotou City, Inner Mongolia and purchases of short-term investments and fixed-term deposits. For the 12 months ended December 31, 2024, net cash used in financing activities was $47.4 million, compared to $795 million in the same period of 2023. Net cash used in finance activities in 2024 was primarily related to $35.8 million in dividend payments made by the company's subsidiary to its minority shareholders. And that concludes our prepared remarks. We will now open the call to Q&A from the audience.

The first question today comes from Alan Hon with JPMorgan.

Hi. Thanks for letting me ask the questions. I have three questions here. The first question is, I would like to know the reason for the cash spend in the fourth quarter last year? On my tally, it seems like we have spent around $0.2 billion cash in the fourth quarter, and we'd like to have a feeling of the breakdown. My second question is, I would like to hear your thoughts on the pricing outlook in the next two quarters. The third question is, there have been various news talking about potential policy intervention to suppress the industry capacity, kind of like a supply-side result. I would like to hear management's thoughts on this.

Alan Hon, we're going to look at the numbers really quick. Thank you.

Okay. Alan, thank you for your questions. Maybe I’ll talk about the pricing outlook first before Ming answers your first question. In the short run, we are likely to see poly prices increase in the next couple of months, at least before the end of the second quarter of 2025. Like I talked about in the commentary section, during the fourth quarter of 2024, the industry has initiated several discussions on self-regulation that would potentially cap the overall production volume. Right now, the overall industry utilization rate is roughly around 50% across all. As a result, based on industry statistics, we have seen domestic poly supply drop starting from December. In December, the overall production volume was around 104,000 metric tons. In January, it has even lowered to 97,000 tons. While wafer supply in January is only about 45 gigawatts, which is roughly equivalent or slightly lower than demand, we expect supply to be in the range of 90,000 to 100,000 at least until May, primarily driven by the seasonality effect of hydroelectricity power, which will be relatively high during the low wind season up until May. As of last week, the domestic industry inventory in the poly sector was around 250,000 tons and also about 200,000 at the ingot or wafer manufacturers level. We believe the poly inventory may remain high throughout 2025 but would reduce gradually in the next few months, leading to a potential poly price upside in the second quarter. Another catalyst for a price uptick is the new regulation that has been talked about, the market reform, which would lead to potential front loading. In the first quarter, the NDRC and the National Energy Administration released new policies on distribution of solar installations and on the renewable power tariff reform. We would see a distributed solar regulation take effect on May 1st and also the market base on gas pricing implemented for all new renewable projects starting from June 1st. We expect to see some potential front loading, especially because of the uncertainty regarding the yield of new projects starting from June 1st. Therefore, we expect to see higher visibility in the inventory depletion and potential uptick in price across the balance sheet at least in the first half of 2025. However, demand in the second half of 2025 and onwards appears to be somewhat more challenging if there are not enough new application scenarios or alternative business models. We may ask them to determine the user project returns. In the mid-term to longer term, we think that the overall industry utilization would remain around 40% to 50%, especially as corporates comply with the self-regulation measures to maintain or promote a more healthy business industry. So price would likely linger in the range of RMB40 to RMB45 for N-type and RMB37 to RMB40 for N-type until we see a more clear turning point. I hope that answers your question.

So you say RMB45 to RMB50 for N-type is your expectation?

For the mid-term, yes. Up until, I would say, the end of this year.

Got it. So the next question is on the supply side reform and also the cash consumption in the fourth quarter.

I think if you look at cash consumption, roughly $80 million is related to operations or spend on the operations, and then roughly $40 million is related to the CapEx. The remaining is mainly related to changes in the balance sheet items between operating assets and operating liability.

Got it. Thank you. My last question is, we'd like to hear your thoughts on how the government may conduct a pipeline reform in our industry.

From our understanding, the National Energy Administration and in partnership with the Ministry of Industry & Technology and the National Development & Reform Commission are looking at how to stem the losses within the industry. Previously, they were looking at how the self-discipline framework would work, and I believe thus far, they're not too pleased with it in terms of the results. It looks likely that they might come forth with a certain type of policy. We don't know what that policy looks like yet. It might involve capping production or some kind of production quota, and potentially retiring inefficient capacity or older technology. We are yet to see what the policy looks like. I believe that's still being discussed and formed, but it might resemble some of their former policies related to this, for example, what had happened in the aluminum industry.

The next question comes from Phil Shen with ROTH Capital.

Can you hear me okay?

There seems to be some issues with Phil's line. The next question comes from an unidentified analyst with Goldman Sachs.

Yes. Hi. Thanks management for taking my question. So my first question is about the turning points you mentioned. Anita said that you expect poly price hikes to likely stand until the end of the second quarter. What exact turning point are we looking for in order to raise our production? It would be great if you can elaborate more on the basis of how we come to our production target. Is it simply based on the production quota assigned to us, or is it because we are more bearish on the net outlook?

For your first question, it's very difficult for us to estimate the exact timing of the turning point. If we look at the broader picture, the total polysilicon production volume actually reached just 1.2 million metric tons. The nameplate capacity of the heavy sector on the main value chain has averaged over 1,200 gigawatts. The nameplate production capacity of all completed projects, regardless of whether it has been temporarily shut down or never started initial production, actually exceeds 1,400 gigawatts, which is roughly 2.2 million metric tons. That's more than double the demand. If we look at the outlook for 2025 based on industry forecast, global demand would actually be in the range of 550 to 600 gigawatts. From that, we expect China solar installations to be in the range of 250 to 300 gigawatts, which would be roughly equivalent to 1.4 million to 1.6 million metric tons of poly demand. So considering these numbers, it's evident that it will take a more prolonged cycle to rebalance the current overcapacity or oversupply in the entire industry. We either need to see a stronger demand or a more rapid rebalancing rate in terms of supply. In terms of our production target, we have decided to maintain a relatively low utilization rate against the backdrop of complying with the self-regulation measures led by the CPIA as well as considering our own strategy to cap our operations in 2025.

Sure, thanks for that. To follow up, what's the current utilization rate in our Xinjiang and Inner Mongolia capacity? Since we plan to maintain a low utilization rate for the whole year, are we considering shutting down our Xinjiang base, or will the Inner Mongolia base alone be sufficient to meet the production target?

We have decided to keep both our Xinjiang and Inner Mongolia bases operational based on our own strategies. We also take into account our responsibility to our employees in both facilities, as well as our obligation to fulfill social responsibility to the community. But while further lowering our utilization rate is possible, that will depend on market development. If demand is worse than we expected, then we might consider lowering our utilization rate. However, we also need to assess the balance between fixed costs and various factors before we proceed with such decisions.

The next question comes from Phil Shen with ROTH Capital.

Hi, guys. Hopefully, this is better now. Can you hear me okay?

Now it's great. Yes.

Okay, great. The audio was a little bit unclear for me earlier, so apologies if some of these questions have been asked. As a follow-up to the first questionnaire on the supply side reform, I heard your answer that there could be some kind of policy put in place, but you don't know what it looks like yet. Do you have a sense of the timing of when the policy could be released? Is it soon or perhaps much later in the year?

Obviously, it's uncertain regarding the timing of the policy. China will have its high-level central government committee meeting coming up in early March. We believe from what we heard, it could be around that time since that's when the government announces a lot of their policies, for example, economic policy and government policy. So that's one possible timeline in early March or it could be later. We don't know yet. But all we know is that they are in discussion and they are considering it.

Great. And so they would release the supply side framework not just for poly, right? But also for every step in the supply chain?

Yes, for the entire solar industry.

Okay, great. Thanks. From a pricing standpoint, I may have missed this, but can you share what kind of pricing you expect for Q1? Should it be similar to Q4? And do you expect poly pricing to adjust slightly higher as we get into the back half of 2025? What's the cadence of price for polysilicon Q1 through Q4?

Thank you, Phil. As I mentioned in the beginning of the Q&A session, we believe that in the near-term, poly prices will somewhat tick up slightly, with the expectation that prices will be more in the higher range of RMB40 to RMB45. However, in the second half of the year, we might see prices decrease slightly due to various factors. We expect the N-type pricing will be around RMB37 to RMB40. This will also depend on whether there will be additional supply coming in after May.

Got it. Okay, thank you. It's much clearer now. We now have a sense for pricing. We've talked about supply side reform. What about on the demand side? We've seen some changes recently to the feed-in tariff outlook, and there seems to be an upside surprise to demand based on some of my industry sources. Are you seeing that yet? What do you expect from that to play out through the year?

As discussed previously, we believe that, based on industry forecasts, global demand will be in the range of 550 to 600 gigawatts, with expectations for solar installations in China to be around 250 to 300 gigawatts. This would reflect stable year-over-year growth compared to the 277 gigawatts in 2024. However, we think the inflation of utility-scale installations has peaked in the short run, and we would need more structural reforms, such as developments in energy storage, to boost demand further. Regarding distributed installations, the market-oriented reform introduces uncertainties regarding the returns on new projects, which could slow down the pace of installations after June. Additionally, while we are optimistic about emerging markets, such as those in Latin America and the Middle East, international demand is expected to face challenges, particularly in the U.S. where renewable energy policies have shifted focus towards fossil fuels.

The next question comes from Alan Lau with Jefferies.

Thanks a lot. I would like to come to some of the details in the financials. The cash cost of production in 4Q has lowered to almost RMB35 per kilogram. I would like to know if there's any further room to come down and the reason for that. Is it because there was some impairment in cost, which brings down the COGS, or does this RMB35 per kilogram actually reflect the cash cost of the company?

Hello, Alan. This is Ming. I would say that the current RMB35 per kilogram is reflective of the company's current cash cost. The cash cost reduction comes from a number of factors, including better manufacturing efficiency and cost savings on material procurement. In particular, as production has been reduced, we are now primarily focusing on our most efficient manufacturing facilities in Xinjiang and Inner Mongolia, which have lower electricity usage per unit production. This has contributed to reductions in costs. Our outlook for Q1 indicates that cash costs should remain at the current level or slightly lower, but not significantly lower than what it is now.

I see. That's clear. Another question, sorry. Yes, I think similar to Q4, and maybe just slightly lower than Q4. I think similar to Q4, maybe just slightly lower than Q4. Another question is regarding FBR, as one of the major peers has also got around 10,000 tons of pilot lines approved environmentally. I would like to hear your views on the technology and whether you would also explore certain lines for FBR. Additionally, what's your view on the cash cost of RMB28?

First of all, it's hard for us to comment on our competitors' cash costs, but I can provide more information on our strategy. We definitely respect innovation in the industry, but the modified Siemens process has been refined over decades and has delivered proven cost efficiency, scalability, and high-quality polysilicon, which is critical to meeting our customer specifications. We continuously work towards further lowering our costs through technology improvements, such as reducing our energy consumption and silicon powder usage, so we can position ourselves competitively in the cyclical market. While we acknowledge the clear advantage of FBR technology, particularly its lower energy consumption and potential for lower costs, along with its suitability for relevant carbon footprint certifications in the future, we believe FBR has inherent risks, such as purity challenges and process instability. We are not complacent, however, and our R&D team established a research center in Inner Mongolia last quarter to evaluate all innovations, including FBR, and assess their long-term viability. For now, our strategy remains centered on leveraging our existing strengths, including operational excellence, customer trust, and financial strength, to navigate the market dynamics amid the current market downturn.

Understood. Thanks a lot for the details about this. So basically, there's no concrete plans in pursuing FBR for now, right?

Correct. There's no concrete plans, but we are also doing our research, of course. We are keeping an eye on all sorts of technologies that could potentially be transformative in the future.

Understood. So my last question is about the $100 million buyback announced last year. When does the company think it would be appropriate to start the buyback? Is there any consideration in selling down your Asia platform as well, in order to fund the buyback in the U.S. platform?

For the $100 million share buyback, we are still monitoring market dynamics closely. We are currently more conservative and are waiting to see when a turning point will emerge. Based on the recent news and our assessment of the market environment, we are still closely assessing when would be a good time to start repurchasing. Selling down our A shares to potentially buy back on the U.S. ADRs is something we have considered. However, the new regulation introduced last year made selling down A shares more difficult if the share price is below the issue price, which is $21.49 for us, which is why we announced to extend our selling down back into our lock-up in January.

I see. But I think from an industry perspective, you would still like to see a turning point before you commit to the buyback, right?

Yes. We think the cycle will be prolonged as our competitors also have strengths in terms of having stronger shareholder backgrounds. Considering we haven't heard about capital recalls, it could still be too early to start a buyback. However, we are monitoring market dynamics and will decide when it would be a good timing to start.

And my last question is about the 2025 production guidance. It appears to be less than 50% of the utilization rate if you think about the capacity of the company close to 300,000. It seems slightly lower than the numbers out there after the December CPIA meeting. Would you clarify if this is coherent with the supply-side self-discipline initiative? The lower estimated demand in Q1 results in lower guidance in Q1, but is this basically the number you have in the self-discipline agreement?

From the self-discipline measures, they generally assign quotas for companies based on past shipping volumes as well as current nameplate capacity. That serves as the maximum cap of production for the year. We haven't heard anything regarding penalties for producing below quota. Our target for 2025 is based on our strategy while complying with the self-regulation measures. Our primary goal is to meet customer demand while capping or reducing our cash burn throughout the year.

I see. Basically, could I say that if demand improves, there's a possibility of raising production capacity a bit if demand exceeds expectations?

Yes, that's correct. Should market demand surpass our expectations, there is potential to increase our utilization rates.

The next question comes from Zihui Hu with CICC.

Thanks, management. This is Zihui from CICC. My first question is whether we are participating in poly futures trading now and what's the planning on it? My second question is, what's the current inventory level of the company?

In terms of the futures market, in the fourth quarter last year, we've already registered for the futures market and obtained relevant approvals. We are among the first batch of manufacturers to participate. After futures trading launched in December last year, the registered brands generally quoted above RMB45, but the listing price was relatively low at RMB38.6 when it just opened. So I would say it's currently more of a capital gain and the main contract, which is the June 25 contract, has an average daily trading volume of about 10,000 lots, which is relatively small at this time. Overall, the market pool is still limited right now. However, we are monitoring the market progress while waiting for detailed guidelines on how to participate effectively. We want to see whether it would align with our company strategy for future hedging.

The current sellable inventory of the company is less than 20,000 metric tons per month and there is a decline of close to 10,000 metric tons compared to the end of last quarter. This is an improvement, and it continues to come down.

This concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Thank you, everyone, again for participating in this conference call. Should you have any further questions, please don’t hesitate to contact us. Thank you and have an awesome day. Goodbye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.