Daqo New Energy Corp. (DQ) Q4 FY2025 Earnings Call Transcript & Summary

Good day, and welcome to the Daqo Energy New (sic) [ Daqo New Energy ]Fourth Quarter 2025 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhao, Investor Relations Director. Please go ahead.

Hello, everyone. I'm Jessie Zhao, the Investor Relations Director 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 2025, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Deputy CEO, Ms. Anita Zhu; our CFO, Mr. Ming Yang; and myself. Our Chairman and CEO, Mr. Xiang Xu, is on a business trip now, so Ms. Anita Zhu will deliver our management remarks on behalf of Mr. Xu. Today's call will begin with an update from Ms. Zhu on market conditions and company 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 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 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 preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today, and we undertake no duty to update such information, except as required under applicable law. Also during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer this translation into U.S. dollars solely for the convenience of the audience. Now I will turn the call to our Deputy CEO, Ms. Anita Zhu. Ms. Zhu, please go ahead.

Hello, everyone. This is Anita. Happy Year of the Horse. And I'll now deliver the remarks on behalf of our Chairman, Mr. Xu. In 2025, China's anti-involution initiatives supported the solar PV industry's gradual emergence from a cyclical downturn. As a result, solar product market prices rebounded from the third quarter onward with the polysilicon sector posting the most notable gains. Following with this trend, our utilization rate increased from 33% in Q1 to 55% in Q4, bringing our annual production volumes to 123,652 metric ton, in line with our guidance of 121,000 metric tons to 124,000 metric tons, representing a 39.7% year-over-year decrease from 205,068 metric tons in 2024. Furthermore, our 2025 sales volume reached 126,707 metric tons, exceeding production volume and reducing year-end inventory to a reasonable level. In the second half of 2025, we strategically ramped up sales efforts to capitalize on favorable pricing dynamics. The strong market response highlighted growing customer confidence in our product quality and their continued preference for our brand in this new pricing environment. However, polysilicon ASPs decreased 7.2% from USD 5.66 per kilogram in 2024 to USD 5.25 per kilogram in 2025. This lower pricing, combined with reduced sales volume, resulted in revenue of USD 665 million in 2025 compared to USD 1 billion in 2024. Despite the decline in our top line, we significantly have narrowed our losses during the year as compared to 2024. In particular, EBITDA swung to a positive USD 1.7 million in 2025 compared to a negative USD 337.4 million in 2024, while net loss attributable to Daqo New Energy Corp. shareholders narrowed to USD 170.5 million from USD 345.2 million in 2024. Moreover, we generated USD 56.1 million in positive operating cash flow in 2025, marking a notable debt turnaround from the USD 435 million outflow recorded in 2024. We continue to maintain a strong balance sheet and ample cash reserves. At the end of 2025, we had a cash balance of USD 980 million, short-term investments of USD 114 million, bank notes receivable of USD 136 million and a fixed-term bank deposit balance of USD 1 billion. In total, these highly liquid assets stood at USD 2.27 billion, representing an increase of USD 57 million compared to the end of the previous quarter. This solid financial foundation provides us with confidence and strategic flexibility to navigate the ongoing market recovery and capitalize on long-term opportunities. Operationally, we continue to implement proactive measures in the fourth quarter to mitigate market oversupply, including operating at a nameplate capacity utilization rate of 55%. Total polysilicon production for the fourth quarter was 42,181 metric tons, in line with our guidance range of 39,500 to 42,500 metric tons. And our sales volume for the quarter reached 38,167 metric tons. In addition, we comprehensively reduced our production costs through process improvements, manufacturing efficiency gains and raw material cost optimization. Extending our ongoing cost reduction initiatives, total production costs declined by 9% to USD 5.83 per kilogram in Q4 2025 from USD 6.38 per kilogram in Q3 2025. Total idle facility-related costs, which consists primarily of noncash depreciation expenses alongside approximately USD 0.1 per kilogram in cash cost for maintenance, also fell to USD 0.74 per kilogram in Q4 from USD 1.18 per kilogram in Q3, driven by higher production levels. Notably, cash costs decreased by 2% from USD 4.54 per kilogram in Q3 to a new record low of USD 4.46 per kilogram in Q4. In light of current market conditions, we expect our total polysilicon production volume in the first quarter of 2026 to be approximately 35,000 metric tons to 40,000 metric tons, and our full year 2026 production volume to be in the range of 140,000 metric tons to 170,000 metric tons. Chinese authorities demonstrated strong resolve in tackling irrational competition and industry overcapacity, formally designating anti-involution as a national priority within China's 15th Five-Year Plan, and the solar PV industry was a key focus of these efforts. These initiatives have driven a structural shift from price-based competition to value-driven differentiation. To advance industry governance, authorities deployed targeted measures, including standards guidance, quality supervision, price enforcement and promotion of technological progress. Specifically, this involved updating legislative frameworks such as the revised Anti-Unfair Competition Law and the draft amendment to the Price Law, which mandates that sales shall not be below cost. Furthermore, a new mandatory national standard was drafted to set strict energy consumption limits for polysilicon production on a per unit basis. Led by the China Photovoltaic Industry Association, major polysilicon manufacturers have proactively responded to these initiatives, enforcing self-discipline and exploring innovative market-oriented approaches to combat excess capacity and pricing violations. These coordinated efforts have yielded measurable results in curbing overcapacity. The overall production volumes fell by 28.4% to 1.32 million metric tons in 2025, and market prices surged more than 50% from the mid-2025 lows to RMB 50 to RMB 56 per kilogram by year-end. Looking ahead, we expect anti-involution initiatives will remain a central theme for the solar PV industry, supporting a more balanced supply and demand dynamic and driving higher quality growth through 2026. More broadly, the solar PV industry continues to exhibit compelling long-term growth prospects. In 2025, China's newly installed solar PV capacity grew 14% year-over-year to 317 gigawatts, setting yet another record high and proving that market potential continues to exceed expectations. As the global AI industry scales rapidly, space-based solar power is increasingly viewed as a vital solution to the immense and expanding energy demands of AI data centers, creating a significant new growth engine for the sector. Looking ahead, as one of the world's lowest cost producers of the highest quality N-type polysilicon with a strong balance sheet and no debt, we remain optimistic about the sector and believe we're ideally positioned to capitalize on the market recovery and these long-term growth opportunities. We will continue to strengthen our competitive edge through advancements in high-efficiency N-type technology and cost optimization via digital transformation and AI adoption. As the world accelerates its transition to clean energy, we're confident in our ability to play a leading role in powering the future. Now I'll turn the call to our CFO, Mr. Ming Yan, 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 now go over the company's fourth quarter 2025 financial performance. Revenues were $221.7 million compared to $244.6 million in the third quarter of 2025 and $195.4 million in the fourth quarter of 2024. The decrease in revenue compared to the third quarter of 2025 was primarily due to a decrease in sales volume. Gross profit was $15.4 million compared to $9.7 million in the third quarter of 2025 and gross loss of $65.3 million in the fourth quarter of 2024. Gross margin was 7% compared to 3.9% in the third quarter of 2025 and negative 33% in the fourth quarter of 2024. The increase in gross margin compared to the third quarter of 2025 was primarily due to the decrease in production costs. Selling, general and administrative expenses were $18.7 million compared to $32.3 million in the third quarter of 2025 and $29.4 million in the fourth quarter of 2024. The decrease was primarily due to the reduction in noncash share-based compensation costs related to the company's share incentive plan, which was $0 for the fourth quarter and $18.6 million in the third quarter of 2025. The company recognized $19.3 million in noncash expense related to allowance for credit loss in the fourth quarter, mainly due to the uncertainty regarding the recoverability of long outstanding other receivables. And let me give a little more color on this. During the early development stage of the company's Inner Mongolia polysilicon project, funds were lent to a local government affiliated industrial park development entity for supporting the infrastructure building and development of our Inner Mongolia polysilicon site. The local government affiliated entity will repay these funds later. However, due to industry downturn that resulted in insufficient local tax revenue, the repayment has been delayed. As a result, we recorded an allowance for credit loss due to the delayed repayment of these funds. All amounts due has been reserved, and we do not expect any future related allowance for credit loss. R&D expenses were $0.7 million compared to $0.6 million in the third quarter of 2025 and $0.4 million in the fourth quarter of 2024. 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, loss from operations was $20.9 million compared to $20.3 million in the third quarter of 2025 and $300 million in the fourth quarter of 2024. Operating margin was negative 9.4% compared to negative 8.3% in the third quarter of 2025 and negative 154% in the fourth quarter of 2024. Net loss attributable to Daqo New Energy shareholders was $7.3 million compared to $14.9 million in the third quarter of 2025 and $180 million in the fourth quarter of 2024. Loss per basic ADS was $0.11 compared to $0.22 in the third quarter of 2025 and $2.71 in the fourth quarter of 2024. Adjusted net loss attributable to Daqo New Energy shareholders, excluding noncash share-based compensation costs, was $7.3 million compared to adjusted net income attributable to Daqo New Energy Corp. shareholders of $3.7 million in the third quarter of 2025 and adjusted net loss attributable to Daqo New Energy shareholders of $170.6 million in the fourth quarter of 2024. Adjusted loss per basic ADS was $0.11 compared to adjusted earnings per basic ADS of $0.05 in the third quarter of 2025, adjusted loss per basic ADS of $2.56 in the fourth quarter of 2024. EBITDA was $52 million compared to $45.8 million in the third quarter of 2025, a negative $235 million in the fourth quarter of 2024. EBITDA margin was 23.7% compared to 18.7% in the third quarter of 2025 and negative 120% in the fourth quarter of 2024. Now I will go over the company's full year 2025 financial results. Revenues were $665 million compared to $1.03 billion in 2024. The decrease was primarily due to lower sales volume as well as lower polysilicon average selling prices. Gross loss was $137.9 million compared to $212.9 million in 2024. Gross margin was negative 20.7% compared to negative 20.7% in 2024. The decrease in gross loss was primarily due to lower revenue. SG&A expenses were $118.2 million compared to $143 million in 2024. The decrease was primarily due to a reduction in noncash share-based compensation costs related to the company's share incentive plan, which was $55.8 million and $72.4 million in 2025 and 2024, respectively. R&D expenses were $2.6 million compared to $4.6 million in 2024. R&D expenses reflect R&D activities that take place during the period. As a result of the foregoing, loss from operations was $270 million compared to $564 million in 2024. Operating margin was negative 40.6% compared to negative 54.8% in 2024. Net interest income was $9 million compared to $30.2 million in 2024. The decrease in interest income was due to lower cash bank balance as well as lower bank interest rate. In addition to the interest income, the company did record $24.1 million in gain on short-term investments for 2025 related to the purchase of bank short-term investment products. Net loss attributable to Daqo New Energy Corp. shareholders was $170.5 million compared to $245 million in 2024. Loss per basic ADS was $2.53 compared to $5.22 in 2024. Adjusted net loss to Daqo New Energy shareholders was $114.7 million compared to $272 million in 2024. Adjusted loss per basic ADS was $1.70 compared to $4.12 in 2024. EBITDA was $1.7 million compared to negative $337 million in 2024. EBITDA margin was 0.3% compared to negative 32.8% in 2024. Now on the company's financial condition. As of December 31, 2025, the company had $980 million in cash, cash equivalents and restricted cash compared to $551.6 million as of September 30, 2025, and $1.04 billion as of December 31, 2024. And as of December 31, 2025, short-term investment was $114 million compared to $431 million as of September 30, 2025, and $9.6 million as of December 31, 2024. And as of December 31, 2025, notes receivable balance was $135.5 million compared to $157 million as of September 30, 2025, and $55.2 million as of December 31, 2024. Notes receivables represent bank notes with maturity within 6 months. As of December 31, 2025, the balance of fixed term deposit within 1 year was $972.4 million compared to $1.03 billion as of September 30, 2025, and $1.08 billion as of December 31, 2024. Now on the company's cash flows. For the 12 months ended December 31, 2025, net cash provided [ by ] operating activities was $56.1 million compared to net cash used in operating activities of $435 million in the same period of 2024. And for the 12 months ended December 31, 2025, net cash used in investing activities was $140.7 million compared to $1.48 billion in the same period of 2024. The net cash used in investment activities in 2025 includes $179.5 million for the purchase of property, plant and equipment, primarily related to the remaining capital expenditures of the company's Inner Mongolia polysilicon project. For the year 2026, the company currently expects approximately $100 million to $150 million of capital expenditures for the year primarily related to the remaining payments for the Inner Mongolia project as well as maintenance CapEx. For the 12 months ended December 31, 2025, net cash used in finance activities was $0.9 million compared to $47.4 million in the same period of 2024. The net cash used in finance activities in 2025 was related to $0.9 million in stock repurchases made by the company's subsidiary, Xinjiang Daqo, to its minority shareholders. And that concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin.

[Operator Instructions] The first question today comes from Alan Hon with JPMorgan.

It's great to see like a recovery for the company. I mean I have like -- the first question I have is regarding like a potential buyback because like it's great to see we are finally generating operating -- positive operating cash flow for the full year last year. And in this sort of environment, like how should we think about like a buyback strategy?

Thank you, Alan, for raising the question. So first, I would say that share repurchase is absolutely a topic that we've been monitoring closely as part of our capital allocation strategy, and we're taking a more prudent and informed approach, especially given the evolving landscape around China's anti-involution policies in the solar sector. While we definitely see tremendous value in terms of valuing our shares, especially amid the current market dynamics, we believe it's essential to wait for more clarity on the policy implementation and also the outcomes before proceeding. We believe that this wait-and-see stance would allow us to optimize the timing and also the impact of the repurchase program better.

And my next question is on the policy outlook. I guess we are aware that like a consolidation platform was formed in December, soon after followed by like a antitrust -- I mean, questions by some of the regulator. I mean, can you give us like a color? I mean -- or what do you think? How the industry consolidation would happen? I mean, should we just like discount the consolidation from the moment? Or how should we think about that? And also, I just noticed like one of your peers has just conducted like a M&A, I mean, on buying out some of the small players. I mean, is that part of your strategy as well?

Maybe I'll answer it -- I'll answer the question of the recent acquisition by our peers first and then move on to the anti-involution dynamics. So I would say that we see this as the individual player's strategic decision, especially -- reflecting their confidence in the sector's future and also their determination to further strengthen their competitive positioning. For us, I would say we are completely open-minded toward opportunities that could create value for the industry and also for our shareholders. And we do view such transactions as constructive that would drive the market consolidation the national anti-involution policy is designed to achieve. And direct acquisition or consolidation via the SPV that you mentioned are both formed toward achieving the same goal essentially, shifting toward a more rational and a more efficient industry structure, something that we strongly support. That being said, I just want to reiterate that the anti-involution is designated as a national priority within China's next Five-Year Plan. And as one of the major players in industry, we are determined to address the overcapacity challenge, which we believe will ultimately become a value-driven gain by innovations and also technological progresses instead of the current price-based competition and lead to a more healthier and more sustainable industry. And indeed, the SPV for consolidation that many of you might be aware was successfully established by the end of 2025 in December, which marks the first step and also signaling our resolve to collaboratively tackle the overcapacity issue. But of course, it's not an easy task with lots of back and forth within the participants and also with the government entities. But I want to say that discussions are actively ongoing with a strong emphasis on maintaining a more market-oriented approach to ensure that we meet the competition and we are abiding by the guidelines, the regulatory guidelines. And to provide more color, we will approach this in a more well-defined phases, potentially with initial investment injections anticipated in the near term, which would lay the foundation of the financial stability. And also we -- from there, we will gradually move towards the consolidation, allowing for more efficient resource allocation and enhance operational synergies across the value chain. And we believe that this structured progression would not only align with the current regulatory guidelines, but also position our company and the industry at large for longer-term resilience and profitability. So we are quite optimistic about these developments.

The next question comes from Phil Shen with ROTH Capital Partners.

As a follow-up to that last question from Alan, I was wondering if you might be able to share what are some of the key milestones that we should be looking for in the coming quarters that show progress on the mandatory national standard. There's a draft, but when does that become implemented, for example? And then with the Anti-Unfair Competition Law and the draft amendment to the Price law, like what are the milestones that we should be following so that we can see the progress in the industry structure as well as the competition or the industry consolidating?

I would say because there's not much information and there's a lack of clarity and transparency in the current dynamics, it's difficult for us to say exactly what you might be monitoring because not a lot of details are released until the policies land. But prices -- we definitely see a pricing recovery. And as part of the Price Law, sales should not be below the industry level cost. So that's a positive side. But yes, I would say we would have to be a bit more patient with the policies as the conversations are still ongoing.

So this is Ming. Let me just quickly follow up. So I think there's a very high level like government meeting coming up that will discuss the next Five-Year Plan. As part of that, I think there's a presentation by a key government agency on the progress of anti-involution. So I think after the top-level central government meeting, then I think more policies will come forward. So that's something to monitor.

Okay. Great. Okay. And then shifting over to the price outlook. I know there's not as much clarity on the milestones for policy. But what's your assumption for poly prices in Q1 and Q2? And if you have a view for the rest of the year, that would be great.

Okay. So like I just said, so as part of the pricing law, like sales are not -- should not be below the industry level cost. So I would say the lower band would be at least RMB 53, RMB 54 per kilogram, and we would remain around that level for the coming quarters. And it's hard for us to say what -- where prices would go in the coming quarters because that will essentially depend on how the SPV would evolve and what would be the pace of the consolidation.

Okay. Got it. And then for the things that you guys can control, costs were down and hit a record low in Q4. How much do you think you can lower your cash costs by the end of '26?

Phil, this is Ming. So I think we continue to make progress on both production costs and cash costs. I think this quarter, we benefited from lower energy price or cost as well as additional manufacturing efficiencies. I think we should continue to benefit. I do think that for probably Q1 and Q2, we're likely to see similar cash cost to the Q4 level and then with further reduction in the second half.

The next question comes from Emmett Lau with Jefferies.

I think it's a follow-up on the previous question. Basically, it's intertwined like -- if the price you have mentioned should be above RMB 50. So the question here is, but if the price is not allowed to push up to above RMB 60, then what is the incentive here for acquiring other capacities, like the plan before? I don't know like what was the thinking behind or the -- or acquisition will happen like what your peers are doing. Basically, each company are having a stand-alone basis. Or like I don't know like how is the whole coordination versus the prices coordinated.

Sorry, Alan. Can you repeat the question again? I don't think I caught all of the...

Yes. So I mean, previously, the incentive, to my understanding, is that you -- the remaining players can push prices above RMB 60. And then I think there was some -- the window guidance from the regulatory kind of saying that you cannot control prices. So if the industry or the major players are still going to acquire the smaller players, but then you can push up prices, then what is the point of acquiring smaller players? And how do you expect the price outlook going forward? Because like if you couldn't make money, then why would you acquire anyone?

Like I said, I think it would have to be done in phases, right? So first step is that you're not allowed to be selling below the cost. And then gradually, you would move on to the consolidation and phasing out the excess and outdated capacity. And it's hard for us to say how high prices can go because we want to focus on a more market-oriented approach to achieving this.

So do you -- like the acquisition will happen in phases, which probably last for a longer time?

Yes. I would say it would have to be done over a couple of years. Like it won't be done like all at once.

I see. So -- and I've noticed that prices actually have gone down a little bit recently from around RMB 60 to RMB 50-ish. I think futures price is below RMB 50 already. So like how -- what do you expect the price in first Q and second quarter?

I think Phil also touched upon the pricing outlook for the first half of 2026. And I would say it would be at least around RMB 53, RMB 54, given that's roughly the industry level cost currently. Yes. And moving forward, it will really depend on the pace of the consolidation. And that will determine how high this price would go.

Understood. And then in 4Q results, if I simply divide the revenue by the sales volume -- apparently, the ASP seems to be lower than the spot prices. I wonder if there's some delay recognition that might be delayed to first quarter and support prices in third quarter's result? Or like why was that -- the revenue in 4Q appears to be slightly lower than the spot prices?

You mean that the ASP in 4Q was below spot price?

Yes. Yes, sir.

Okay. I think in Q4, the mix is such that -- because we were ramping up additional volume, right, or production, and the initial batch of production from that initial ramp-up, I think -- it's consistent with our past experience that the qualities were not that great, okay? So those actually had a market discount, right? I think it's maybe December then we kind of normalized in terms of product quality. So it's that factor that led to a slightly lower ASP -- overall ASP.

I see. So investors understand this as a factor that would be normalized in first quarter, meaning that even if the spot market prices are marginally lower, but the ASP of the company will probably be more flattish than the decline in spot prices.

Yes, I think we would expect that. Yes.

I think my last question is on the more broader perspective from the industry. So like would you consider any acquisition? I've noticed that Anita has mentioned you're open-minded, but are you liaising with any other specific player already? Or it's still not on the schedule yet?

So like I mentioned at the beginning, so I think that we are open-minded toward these different opportunities either via acquisition or consolidation. But as part of the SPVs, we're quite confident that we'll see something in formation in the coming -- in the near term or in the coming quarters. So that would be our primary focus for now. However, in the worst case, of course, acquisition -- acquiring directly would also be something that we could consider.

The next question comes from Mengwen with Goldman Sachs.

I have 2 follow-up questions. The first is regarding to our M&A target. I heard Anita, you said you are open-minded for the acquisition opportunities. So could you elaborate from here, like, is there any market share target for us like from 10 plus to further higher in the future? And what kind of capacity do we prefer more in terms of acquisition on our own? That's my first question.

So first, I think we -- first, I would say that we are comfortable with where we are right now given the current market dynamics because essentially none of the players is operating at full utilization rate. Of course, in the future, like our peers, if we want to further strengthen our positioning by grasping more market share -- we don't have a specific number in mind as to how much we want to -- where we want to be. But I would say if it's aligned with the national anti-involution initiative, it's something that we would consider to do in the future.

Yes, sure. So that follows my second question. Can you help us to understand a bit more like based on our conversation with government and with the leading industry players, how we should define the success of the anti-involution in the poly sector from here? Because in the past, we saw when poly price increased to above our OP cost and then that concludes the success of the anti-involution. And it seems poly price continue increasing, and so a bit bumpy. And also there's some ongoing acquisitions. So what shall we look forward to in terms of the future anti-involution progress? And when we can call it a successful complete anti-involution in our poly sector?

So I -- first, I think that for the anti-involution initiative, it would extend over a number of years given that this round the excess problem is very deep rooted. So the main capacity of -- including everything, is more than 3 million metric tons, which is more than double the demand now. So I would say until the more outdated and smaller players exit and prices restore to a more healthier level so that the industry as a whole becomes profitable to support the overall renewable energy, the goal, yes, that's when we would say the anti-involution is completed.

So can we understand in this way, like the key target for the anti-involution is to sustain the poly price at over current level at least and then to help facilitate outdated capacity exit, and that would take longer time than expected. But ultimately, the key target going forward is to take the smaller players offline. Is that correct?

Yes, I would say that's the aim.

Sure. So the total outdated capacity to go offline is still around 1 million to 1.5 million tons. Is that right?

Yes, that's about the number.

The next question comes from Gordon Johnson with GIJ (sic) [ GLJ ] Research.

So I guess piggybacking off of a question that was touched on earlier, it seems like in the spot market polysilicon prices had surged and now they've come off. And specifically when I talk about the spot market, I'm talking about the futures market. And it also seems like due to the policy changes in China, demand has been I think somewhat subdued. So can you give us an outlook on what your expectations are with the puts and takes around anti-involution? What your outlook is on polysilicon prices in the first quarter and maybe the second quarter? And then I have a follow-up.

So you're asking about, first, the futures market and also the pricing outlook for the first and second quarter?

Yes, please.

Okay. For the pricing outlook, I already answered Phil and also Alan's question, but I can repeat it again. So for the first and second quarter for pricing, as mandated by the pricing law, sales should not be below the industry level cost. So I would say it should be at least RMB 53, RMB 54 per kilogram in the coming quarters. And for the futures market, I would say it's an area with the potential for risk management and also pricing stability in our industry. And we do see participation in the futures market as an extension of the current sales strategy, offering the chance to hedge against volatility and also to secure some profitable margins. But similar to our approach on share repurchases, I would say we are prioritizing policy clarity around the anti-involution dynamics in China before diving in the futures market. We would definitely employ a more disciplined strategy in the futures strategy, gathering more insights as the policies unfold to ensure that our involvement is strategic and also value accretive.

So that's helpful. But I guess -- and I appreciate that. I didn't mean to re-ask the question, but looking at the futures price, [ RMB 46.315 ] right now, and looking at the recent comments from the government on anti-involution, is there any potential that prices could come in, in the first half below the RMB 53 to RMB 54 range you're targeting? Or is that something that you're pretty certain of?

I think that's the industry level cost at the moment. So given that we're not supposed to be selling below that cost due to the pricing law, I would say it should be somewhat sustained at that level.

Helpful. And then the last question is, you made significant improvement on your free cash flow -- congratulations -- in 2025. Do you have any thoughts on how you expect free cash flow to trend this year?

Gordon, let me answer that. This is Ming. Okay. So yes, I think free cash flow turned positive, especially in the second half of 2025. I think given our expectation for both volume and average selling price to be held more steady as well as cost to remain stable to lower, we do believe that -- and I think based on the Q4 level, free cash flow should -- without -- I mean, without giving a specific number, free cash flow should improve further I think from the Q4 level going forward for 2026.

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

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 have an awesome day. Goodbye.

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