大全新能源 (DQ) 2021 Q2 法說會逐字稿

Good day, and welcome to the Daqo New Energy Second Quarter 2021 Results Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Kevin He. Please go ahead.

Hello, everyone. This is Kevin He, Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued financial results for the second 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 call, we have Mr. Longgen Zhang, our Chief Executive Officer; and Mr. Ming Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations, and then Mr. Yang will discuss the company's financial performance for the 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 views 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 these translations into U.S. dollars solely for the convenience of the audience.

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

Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are very excited to report an excellent quarter with strong revenue growth and better-than-expected profitability, as the company achieved record high production volume, gross profit and net income with a global focus on achieving the climate challenge with plans to reach carbon-neutrality. Market conditions remain strong for the polysilicon sector. The strong increase in downstream demand has led to a shortage of polysilicon and caused our polysilicon ASP to rise significantly from $11.90 per kg in Q1 to $20.81 per kg in Q2.

In July and August, the market price for mono-grade polysilicon has remained at approximately $26 to $28 per kg, and we expect the strong price momentum to continue into the second half of this year.

Despite the rise in solar module prices in the first half of this year, we continue to see stronger-than-expected market demand even at the new market prices. Recently, the solar value chain has been stable at the new market prices and downstream manufacturers are currently able to pass through price increases to their customers.

During the week of August 9, major solar wafer and solar cell manufacturers in China announced price increases for solar wafers and cells, further demonstrating the strong end market demand.

We saw the uptick in polysilicon pricing in the last 2 weeks with a surge in orders from our diverse customer base. We expect the constrained polysilicon supply to be the main limiting factor to the size of the global solar market this year.

Polysilicon production is a complex chemical process and has the highest barrier to entry in the solar value chain. Based on our research, we expect to see approximately 180,000 metric tons to 220,000 metric tons of additional polysilicon supply in 2022, considering a potential 6-month ramp-up period for other polysilicon producers.

This total global polysilicon supply can be used to produce approximately 240 gigawatts to 250 gigawatts of solar modules, which can support approximately 200 gigawatts to 210 gigawatts of solar installations in 2022.

So the polysilicon sector will still be the one with most constrained supply across the main solar PV manufacturing value chain in 2022. On the demand side, more and more countries have set up timetables for peak carbon and carbon neutrality targets that will significantly increase demand for renewable energies, including solar PV.

In addition, there is still meaningful room for potential cost reduction across the value chain, which will effectively stimulate large demand, especially given that solar PV has already reached grid parity in many countries and regions in the world. As a result, we believe polysilicon pricing will remain healthy in 2022 making our sector one of the most attractive sectors in the solar PV industries in the long run, given its high entry barrier and operational complexity.

On the policy front, during the Politburo Central Committee meeting on July 30, regarding economic activities in the second half of 2021 with China's President, Mr. Xi Jinping presiding over the meeting. The central government reiterated the urgency for national coordination on carbon peak and carbon neutrality goals and the development of the peak carbon 2030 action plans and related policies as early as possible.

In addition, China recently announced an ambitious program to massively deploy distributed generation solar projects at the local government level, that is the county level. We believe solar will continue to be a strong beneficiary of the government policies and support.

With regard to our ESG initiatives, we are in the process of incorporating environmental, social and governance factors in all of our major business decisions, and we published our inaugural ESG sustainability report in July. We are already making sustainable -- substantial progress on the sustainability front, including installing new wastewater treatment facilities in 2018 that reduced our wastewater discharge density by 60% in 2020 compared to 2018.

Furthermore, by increasing energy efficiency and energy recycling as well as optimizing our production process, we reduced our comprehensive energy consumption density by 40% in 2020 compared to 2017. We will continue to work on our ESG efforts, including planning for greater renewable energy used as part of our energy sources in the future.

We continue to focus on initiatives to strengthen the company's long-term competitiveness. Our major operational subsidiary, Xinjiang Daqo New Energy successfully completed its IPO listing on China's A-share market and started trading on Shanghai Stock Exchange Sci-Tech Innovation Board, the ticket code is 688303, on July 22, 2021.

The total gross proceeds of the IPO are approximately CNY 6.45 billion, which will fund Xinjiang Daqo's polysilicon expansion project and provide additional capital for our future growth plans.

Following the Xinjiang Daqo's IPO, Daqo New Energy directly holds approximately 79.6% of Xinjiang Daqo's share and indirectly holds 1.1% of Xinjiang Daqo shares through Daqo New Energy's wholly-owned subsidiary Chongqing Daqo for a total ownership of 80.7% of the A-share listed subsidiaries. There is no variable interest entity, VIE, structure between Daqo New Energy and Xinjiang Daqo.

The successful IPO will offer as an additional value to access the attractive capital market in China for future growth and expansion.

With our advantages of competitive cost structure, quality and technology advancement, outstanding operational exercise and experience management team, we have set up a road map to increase our capacity to 720,000 metric tons (sic) [270,000 metric tons] by the end of 2024, representing an approximately 50% annual average growth rate of our production capacity over the next 3 years to better serve the fast-growing global solar PV market.

Now I will discuss outlook guidance for the company for this year. The company produced 41,287 metric ton of polysilicon and sold approximately 42,531 metric tons of polysilicon in first half of this year, representing full utilization level of the company's production facilities.

For the second half of this year, the company expects to remain the full utilization with sales volume similar to production volume. For the full year of 2021, the company raises its production guidance from the previous level of 81,000 metric tons to 83,000 metric tons to the level of approximately 83,000 metric tons to 85,000 metric tons of polysilicon for the full year 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. Thank you.

Thank you, Longgen, and good day, everyone. Thank you for joining our conference call today. Now I will discuss our financial performance for the second quarter of 2021. We are pleased to report very strong financial performance for the second quarter with strong revenue growth and record profitability.

Revenues were $441.4 million compared to $256 million in the first quarter of 2021 and $133.5 million in the second quarter of 2020. With strong market demand for our products, ASP was $20.81 per kilogram in Q2 2021 compared to $11.90 per kilogram in the first quarter.

As Longgen mentioned, for the months of July and August, the market price for mono-grade polysilicon has further increased to approximately $26 to $28 per kilogram. And we expect the strong price momentum to continue into the second half of this year.

Gross profit was $303.2 million compared to $118.9 million in the first quarter of 2021 and $22.7 million in the second quarter of 2020. Gross margin was 68.7% compared to 46.4% in the first quarter of 2021 and 17% in the second quarter of 2020. The increase in gross margin was primarily due to higher average selling prices.

Selling, general and administrative expenses were $9.3 million compared to $9 million in the first quarter of 2021 and $10.1 million in the second quarter of 2020. SG&A expenses during the quarter include $2.4 million in noncash share-based compensation costs related to the company's share incentive plan and compared to $3 million in the first quarter of 2021 and $4.5 million in the second quarter of 2020.

Research and development expenses were $2.1 million compared to $1.2 million in the first quarter of 2021 and $2 million in the second quarter of 2020. Research and development expenses 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 $292.4 million compared to $109.2 million in the first quarter of 2021 and $10.8 million in the second quarter of 2020.

Operating margin was 66.3% compared to 42.6% in the first quarter of 2021 and 8.1% in the same quarter of 2020. Interest expense was $7.2 million compared to $7.8 million in the first quarter of 2021 and $6.7 million in the same quarter of 2020.

Net income attributable to Daqo New Energy Corp. shareholders was $232.1 million compared to $83.2 million in the first quarter of 2020, and $2.4 million in the same quarter of 2020. Earnings per basic ADS was $3.15 compared to $1.13 in the first quarter of 2020 and $0.03 in the second quarter of 2020.

EBITDA was $311.7 million compared to $128.1 million in the first quarter of 2021 and $26.8 million in the second quarter of 2020. EBITDA margin was 70.6% compared to 50% in the first quarter of 2021 and 20% in the second quarter of 2020.

As of June 30, 2021, the company had $269.7 million in cash and cash equivalents and restricted cash compared to $227.8 million as of March 31, 2021, and $115.8 million as of June 30, 2020. As of June 30, 2021, notes receivable balance was $97 million compared to $38.5 million as of March 31, 2021 and $8.2 million as of June 30, 2020.

With the company's strong earnings and operating cash flow, we took the opportunity to further reduce our interest-bearing debt balance during the quarter. As of June 30, 2021, total bank borrowings were $156.6 million, of which $70.9 million were long-term bank borrowings compared to total bank borrowings of $222.2 million, including $100.4 million of long-term bank borrowings as of March 31, 2021, and total bank borrowings of $264.8 million, including $116.9 million long-term bank borrowings as of June 30, 2020.

With our strong cash balance and cash generation for this year, we expect that we would pay off all of our interest-bearing bank borrowings before the end of the year. For the first half of 2021, net cash provided by operating activities was $442.3 million compared to $47 million in the same period of 2020. And for the 6 months ended June 30, 2021, net cash used in investing activities was $255 million compared to $60 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 polysilicon expansion projects. For the first half of 2021, despite the strong increase in capital expenditures related to our polysilicon expansion, the company generated $186 million of free cash flow.

For the 6 months ended June 30, 2021, net cash used in financing activities was $37 million compared to net cash provided by financing activities of $16 million in the same period of 2020. The net cash used in financing activities in 2021 was primarily related to the repayment of bank loans.

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

(Operator Instructions) And the first question comes from Phil Shen with ROTH Capital Partners.

You mentioned, Longgen, that the outlook for poly pricing remains healthy in 2022. I was wondering if you could talk through how you expect your pricing trend in Q3 and 4 and then also in 2022.

Okay. Basically, by the end of this year, we see -- we didn't have new -- any capacity or new -- adding any new polysilicon supply into the pipeline. So we see right now, I think the current price, okay, around the average price around like $26 to $28 per kg is well transferred to -- right now to ending the module price right now, selling around CNY 1.75 to even high 109 -- 1.90 -- no, I'm sorry, CNY 1.9 per watt right now, from CNY 1.75 to CNY 1.9 per watt.

So we see right now I think the poly supply is very tight basically right now. So as we mentioned that, for next year, we see from now on to the end of this year, I think the price will continue. I think it will stay high in the second half of the year. The reason is because I think the module price is higher than expected with the demonstrating strong and expected demand. Also within the price increase in cells and the wafer sector also shows that the demand is very strong.

I think in 2022, based on the -- our industry research, we expect to see, I think, approximately 180,000 metric tons to 280,000 metric tons of additional polysilicon supply in -- which can be used to produce approximately 240 gigawatts to 250 gigawatts of solar module.

We think the overall cost reduction we're contributing around CNY 0.05 to CNY 0.10 per watt and bring down the module price to maybe $1 -- CNY 1.65 per watt. So if the power price continues to go down, let's say, $22 to $23 per kg, the module price can be further lower to CNY 1.55 per watt. So basically, you can continue calculation on the module. So we believe, I think next year -- first half next year, the average ASP of the, I think, polysilicon, we think is around CNY 150 per kg.

For the second half of the year, we think it should be around like CNY 130, I'm just -- around, okay, you can range for the 10%, so CNY 130 per kg. So I think for next year, as you see that, our 4B capacity, we will put into production by the end of this year. So next year, we think our production will get a 50% increase. So the bottom line [continuing that] growth. Philip?

Great. Longgen, that's really helpful. And then from the cost side, we've seen your costs increase a little bit, not much, but just a little bit. What's the outlook for your cost structure -- cash cost structure this year and Q3 and 4 and then also for 2022?

Okay. If you look at Q2, the cash cost is around $5.41 compared to Q1 of $5.37. The cost of goods sold is $6.31 compared to Q1 at $6.29. The all cost plus everything together I think is $7.30 compared to Q1 of $7.15. So yes, I think we slightly increased. The reason is because I think when the sales price go -- ASP go up, the value-adding tax also go up. So that's adding to the operation expenses. So basically, I think from now on, especially in Q3, we see the polysilicon powder -- the silicon powder prices go up.

So I think for Q3 and Q4, our costs maybe continue to slightly keep, I think, maybe same, maybe slightly, I think, a little up, 1%, because of the polysilicon metal powder price jump a lot. Especially this week, I think right now, the prices almost go to, I think, CNY 20,000 per ton. But for next year, definitely because with additional 4B finished, the scalability of the production line, then plus the total, I think, the output, the scale, we think we still have like 2% to 5% the cost cut in the future, in the next year.

Great. Okay. Congratulations on your successful IPO in China. I wanted to get your view on your thoughts on the U.S. ADR. Some investors are asking under what conditions would you consider taking the U.S. shares private, given the cash that you're generating through the cycle and also future capital raises, you'll probably use the A-share entity. So your stock has performed well in China, while the New York Stock Exchange shares have trended lower. So under what conditions would you also consider a buyback or a dividend? So just curious on how you're thinking about the U.S. ADR?

It's a good question. Actually, also, it's a fact. Our share price right now in the U.S. market is seriously undervalued compared to A-share. Basically, based on your calculation right now, Daqo New Energy listing in U.S. holds a total ownership of 80.7% of the A-share listed subsidiaries. Right now, we're almost discounted more than 80%. They're underpriced, right?

So there is also Daqo New Energy is not the VIE structure between Daqo New Energy and Xinjiang Daqo. So Xinjiang Daqo right now is Daqo New Energy's shareholding. Xinjiang Daqo can be traded 3 years in A-share market after Xinjiang Daqo IPO, which is, I think, July 22, 2024. That means we can sell in shares I think to pay back the U.S. shareholders, that means 3 years from now, from the IPO.

Xinjiang Daqo also has made a commitment letter to its shareholders that it will pay cash dividends in the next 3 years no less than 30% of its distributable profit during the 3 years period. In China, A-share is averaging 10% of annual profit as a baseline, okay? So we think Xinjiang Daqo's plan needs to be also be approved by its shareholders' meeting and announced together with its 2021 annual report usually in the middle of April 2022.

So as the 80% shareholder of Xinjiang Daqo, we expect to receive cash dividends as a financial sources for potential buyback or even dividends distributed in the U.S. market. Of course, for the further developing expansion, we can continue to raise money in A-share at a high valuation.

So we needed to -- all these, I think, information. I just also want to remind you that we cannot guarantee the dividend plan of Xinjiang Daqo because it needs to be approved by Xinjiang Daqo's shareholders. So basically, yes, we have some channel to arbitrate in the future. But definitely, I think we are not the arbitrator player. We are the manufacturer. We are, I think, the manager company and make all efforts to reward our shareholders of both A-share and the U.S. shareholders. Thank you, Philip.

One last question. If you were to -- if the Xinjiang Board, Daqo Board approves the dividend plan, how difficult is it to get the cash out of China to pay the U.S. shareholders? Is it no problem? Or is it -- or do you think there might be challenges to get the cash out?

It's no problem because you see when we list the A-share, you see the China -- what I call, China SEC CSRC, it's already approved, the Daqo New Energy is the foreign holders as shareholders. So when we declare dividends, basically, we have to -- basically, it's easy to exchange to the U.S. dollar.

But we just pay the dividend tax. So if we set a middle company, Hong Kong, we just pay 10%. If we directly pay the Cayman company, we have to pay 10% dividend tax. So with that money, we can do either buyback or just continue to distribute our dividend to the U.S. shareholders.

The next question comes from Gary Zhou with Credit Suisse.

This is Gary from Credit Suisse. And firstly, congratulations on the very strong second quarter results. And I have 3 quick questions. So first one is actually to follow up with the earlier question on the plans for the U.S. listing platform. So just wondering as you last time also mentioned that continue -- there's a huge kind of valuation gap between A-share and U.S. ADR. So it seems like kind of a big kind of arbitrage opportunity here.

So just wondering what the company or the other kind of country controlling shareholders been thinking of kind of use kind of like bridge loans or other kind of financing vehicles so that it is actually -- if you kind of privatize the U.S. ADR, you actually get to the much higher valuation A-shares stake. So just wondering if it's a possible option the company would think of?

Okay. Gary, I think, first of all, from (inaudible) [capacity], to my knowledge to the Board to the -- also the controller -- shareholder controllers from, I think, at least I think the short-term, we're not interested in privatization. We know there is a lot of opportunities to do the arbitrator. It's easy to privatization U.S. shares than transfer to, I think, the A share. It's not our purpose because we think right now the company is under, I think, the uptick side. We want the U.S. shareholders to enjoy the returns.

So that's why our strategy is continue to raise capital in the A-share market, continue to expansion our future capacity. In the next 3 years, by average, 50% every year continue to increase to guarantee or to make sure our bottom line can continue at 20%, 25% increase to maintain the market value, to reward, I think, the shareholders.

In the meantime, I think what we do is continue to distribute, I think, the dividend to maximize use the Chinese law, I think as you can see, at least 30% of the distributable profit can be distributed. So I think we will do that. I think declare the dividends and exchange the U.S. currency to the Cayman company and either to buy back or continue to declare the dividend to the U.S. shareholders.

Ming, do you have any comments on these questions? Gary, thank you.

This is very helpful. And then my second question is on the expansion plan. So earlier, you mentioned that by 2024, you're targeting to achieve 270,000 metric tons polysilicon capacity. Just wondering if you have a more kind of a specific time line for this expansion?

And secondly, given that your current kind of very strong cash position and also the further proceed -- and already got the proceeds from the A-share IPO. So is that possible the expansion target can be even kind of raised higher if the solar demand continued?

I think, first of all, if you look at our balance sheet, by the end of the July 30, I think the balance sheet is very strong. And I think with the -- we want to maintain. I think the market share -- continue to maintain the market share. Definitely, yes, we want to expansion. First of all, with successful, I think, IPO, we can be, I think, the 4B name place is 35,000 tons -- metric tons. We were starting, I think, trial production by the end of this year; next year, with full capacity running. So we think that will add maybe 40,000 metric tons to 50,000 metric tons for the next year. But the detailed figures we will do, I think, in a certain point in time of later of this year.

Then for the year after, just I mentioned that in order to keep the market share, we see the whole market, the solar market continue to -- end market continue at least on average, I think, compound growth at 20%. So with the A-share market, I think capital access possible with the company inside the generation the cash. With our strong management team, I think we have the ability to maintain the market share, continue to -- from right now to, I think, around 20%.

So we're planning to looking for, besides Xinjiang, another place, production base, I think it's possible Henan Province, Qinghai Province in the Mongolia or even Jiangxi. It's another place we can continue expansion around 200,000 tons.

So we were divided into the 2 phases. The first phase is 100,000 tons, which I think the semiconductor, I think the production line is -- I think is 1,500 metric tons. So that's I think we are planning. We are right now looking -- as soon as we finalize the -- I think, finalize the place, we will announce that. Thank you, Gary.

Okay. Okay. Yes, so my last question is, so I know it might be too early to tell, but just wondering if management can share with us your view for the kind of longer-term polysilicon price outlook. So for example, by 2023, so when there may be more polysilicon capacity to be commissioned. So when do you -- or where do you think probably kind of a more sustainable polysilicon price can achieve?

I think I just answered Philip the question about the ASP of this year and next year. So yes, for 2023, 2024, really, we have to considering the demand and supply. From a supply side, we continue to see, I think, China, a lot of, I think, existing player continue to expansion, plus some new, I think, comer. But you have to consider that as the technology continues to improve, maybe I think in the next generation, is from P to change -- the P silicon cell, P cell to change to N cell, that's asking for high quality. So who can produce N type polysilicon, that's most important. The market share, you can continue to have the market share.

Second, we just mentioned that this is a CMC. It's a chemical manufacturing control. It's not easy for a newcomer, even, let's say, existing players, new hopes. Today, the monosilicon I think the structure percentage only, I think, around 50%. We can reach almost 99.5%. So I think the quality, also I think it's a chemical assay, the ramp-up to reach I think the real supply we call, it takes time.

So I think that's on supply side. From the demand side, really, I can't tell you because look at the global, I think the carbon, I think, neutrality targets, we think at least, I think the compound growth rate should be around 20%.

China right now, if you look at the county level distributed generation, it's a very, very, I think, potential market. It's very, very big. Besides, of course, the U.S. and China, I think the trade war, I think -- but I still think new energy -- the renewable energy is the future, is the major tool to reach the global, I think, the carbon neutrality targets.

So from, I think, the demand side, really, Gary, you may be the expert because we really don't know. Some people -- the figures [apply]. Some people said the 500 gigawatts maybe by 2025. And Mr. Li I think from LONGi, he estimated that maybe even by 2030 it's 1,000 gigawatts.

So it needs a lot of silicon, high-quality silicon. It's around like 300,000 -- no, it's 3 million tons, metric tons. So we're not worried about that. The reason is because we think we own the large-scale capacity in Xinjiang, which is -- as soon as we finish, I think, 4B, our capacity may be around 120,000 tons to 130,000 tons.

Then, we have another new place. We are looking for maybe by the middle of 2022 come to -- into trial production, it's around 100,000 tons and continue to add another 100,000 tons. We think we are -- we have the competitive edge. So that's our, I think, long-term strategic plan.

The next question comes from Tony Fei with BOCI.

This is Tony from BOCI. Three questions from my side. And the first one is still regarding the industry capacity expansion. So just yesterday, the NDRC (sic) [NRDC] had a conference to update on the energy consumption status in China, according to which there were 9 provinces in China has been increased in the energy intensity in the first half of this year, including Xinjiang, Qinghai and Ningxia. So we know these 3 provinces host most of the new capacity announced by your peers. So do you think this will slow down the pace in terms of new capacity expansion?

Yes. Everybody reads that the NRDC, I think, report. It gives 3 levels of warning. I think -- unfortunately, I think Qinghai, Ningxia and Xinjiang, those I think, have a healthy energy supply province is the first -- I think the first, I think, cause, I think, warning.

But you have to think about that. China, they have -- we put a priority. We think the polysilicon production line -- polysilicon capacity support continues the solar industry. It's in the first priority, I think. So the government, I think, definitely will put any new additional -- adding new energy, I think, with priority put a solar polysilicon projects first.

So then even existing the energy consumption, some provinces have to change their structure to reduce the carbon -- the energy supply to increase the green energy supply. So I'm not worried about that because the government is very clear to reach these targets. The need of solar continues to grow. Definitely, the solar growth needs polysilicon. Tony?

Okay. Great. So my second question is a follow-up on the silicon powder supply. So you just mentioned the price has gone up a lot recently. So it seems that the smaller producers are troubled by the increasing power tariffs as well as the energy control measures. So of course, the current prices won't be a big problem for your margins given the poly prices right now. But longer term, do you think the silicon powder supply will be a bottleneck to the future poly production if China does not allow new buildup in the silicon powder capacities?

We think this situation right now, momentum the poly powder price go up is the short term situation. The reason is because in China, the silicon metal majority produced in Yunnan province and also Sichuan, Xingyang, Yunnan because -- province because of the shut of water. So a lot of water power plants shut down. So that's why a lot of the polysilicon metal plant is shut down.

Secondly is also the new hope for some excellence, they have closed. They are temporary closed their -- silicon metal plants. So that's why -- caused short term silicon metal price go up; in the future, will go down.

Secondly is we also pay very attention to this situation. To us, we are also looking for upstream vertically integrated to upstream. That mean the silicon metal projects, we are looking for that. Also possible, maybe we go to investments, one of the -- one is the 300,000 tons projects in the future or maybe acquire some existing plants to maintain the sustainability, the poly powder supply is not just from existing supply, like successful poly powder manufacturers.

So basically, we are looking for that. Yes, in the future, definitely, we will also invest in this area, because 300,000 -- total investments only like around CNY 3.5 billion. It's the best investment, it's not too much, plus the technology also is not the biggest deal. I think the silicon metal, the key issue is the stone resources. Secondly is the [capacity] supply.

Yes. But do you think the energy quota will be an issue for the powder supply?

I don't think so. The reason is because they're also in the value chain for the solar industry. Also, the poly metal basically is not only just to provide the powders for our solar industry, but also provide silicone, then also provide it to some the other iron -- the aluminum, iron, yes. So it's a lot of usage area, yes.

Okay. Great. That's good to know. And my last question is on your incentive plan. So we all know that you had a very great incentive plan in place in the past for the U.S. ADRs. Now that you have listed in A-share and moved most of your staff to the A-share entity. So is it fair to guess that in the future, you will also have a new incentive plan at the A-share level and reduce your incentive share-based compensation at the U.S. ADR levels?

We think a strong execution team needed to match, have an incentive policy. I think this is very important. U.S., the incentive plan helped us to maintain our strong team together and continued expansion, have the people to continue expansion to today, you see our team -- managing team, no one leaves because in China, you know that it's a lot of attractive outside.

So I think for [Asia] today, we didn't have new incentive plan. Yes, in the future, we will do that. But look, the valuation is so big, right? It's almost $120 billion. So we have called second list share plan. We can issue employee at half price of the -- half share price of the market price to issue to the employee, the period from 3 years to 5 years. So yes, we were thinking -- consider that in the second half of this year.

(Operator Instructions) Your next question comes from Lu Wang with Bernstein.

This is Lu from Bernstein. I have 2 questions. Firstly, do you have a targeted market share in terms of solar grade polysilicon by 2024? Secondly, can you please share the progress and future plans of your semiconductor grade polysilicon production?

Thank you, Lu. Basically, if you look at our first half of this year, our market share is around 18% to 20%. I didn't have actual figure, frankly speaking, on the solar polysilicon side. And in the future, yes, we are continuing to keep 50% capacity annually average, okay, growth. But we think all players maybe expansion quicker than us. So we think by the year 2024, our capacity can reach 270,000 metric tons, our market share can maintain around 18%. So that's our target.

Secondly is, yes, we are starting to do the, I think, semiconductor polysilicon. First project is 1,500 metric tons with that new projects 100,000 tons polysilicon production line together. We have to take at least 2 to 3 years to make these production line successful.

I mean successful in not only produce the polysilicon -- semiconductor polysilicon but also to qualify by the downstream the user, it takes time. As you know that the semiconductor chips and also the wafers take at least 2 to 3 years.

But in China right now, the good things in China right now is the downstream on semiconductor is very -- expansion very quickly. So it gives us opportunity, maybe you can shift the qualification period down to maybe 1 to 2 years.

Yes, in the future, I cannot tell you how much market share of -- in the future as a semiconductor side, we can take in the market share. But I can tell you right now that already around 50,000 tons semiconductor polysilicon supply, we think China right now is around 20,000 tons right now, the usage. We want first to replace the import. That's our first target. Thank you, Lu.

And to follow up on the targeted market share, I think one potential problem is that the faster mover and the first mover is probably going to secure the areas or the provinces where they have the cheap electricity and also the energy quota in terms of total energy consumption and energy intensity. So potentially, which makes Daqo left with provinces with higher electricity prices and also some bottleneck in terms of securing this energy quota. Do you think that can be a potential problem?

And even if we are -- Daqo is able to expand capacity, will that be the case that the new capacity cost will have to be higher than existing capacity in Xinjiang?

Lu, it's a good question. But if you look at our history, Daqo always did more than said. And frankly speaking, we are very conservative. The reason is because we started looking for another place, it's not today. Two years ago, like semiconductor, where 3 years ago, we are -- 5 years ago, we are starting to collect the technology.

For the new place, we're already starting feasibility study, contact local is more than 1.5 years. Don't worry about that. I think today, most right now because the governments -- local governments put the solar industry is the first priority, just as I said, from electricity -- the power price right now, as we contact 4 to 5 places outside of Xinjiang mostly is around $0.25 to $0.30 per KWH.

We don't in the future the power price is the major competitive key factor, rather than I think the polysilicon quality and the cost control and the scalability is most important. Also the labor management. So as you can see, our cost structure, our cost cutting map in the future -- in the history also in the future.

We are the #1 in China. So we're not worried about that, frankly speaking. So even though some people has already signed some agreements, it's not -- for example, like [Qinghai] right now, the price is around $0.26. Right now, we talk to local governments, they welcome us to there. The price is also the same.

The only thing is some stimulation policy may be different. But we -- just like we said, we also want to -- it's an ESP. We also want to contribute to society, the governance and local people. So we never want just to taking, taking. So basically, we're not worried about that. The reason because even today, we -- all capacity in Xinjiang, we're shipping to the wafer manufacturing center, for example, like Inner Mongolia or Henan Province or Gansu Province. The shipping costs are almost CNY 2 per kg.

Thinking about that, today, polysilicon consume and every consume in Q2, Q1 is around 60 KWH per kg, so it's almost $0.03 extra because we do the shipments from Xinjiang to our wafer producer. So if we can move to, let's say, Inner Mongolia, Henan province, so we can save that $0.03 per KWH from the power price, right, to pay to the local government -- local power grid. So I'm not worried about that.

The next question comes from Colin Yang with Daiwa Securities.

This is Colin from Daiwa. I've got 2 questions. The first one, can you share the cost difference between current P type and N type polysilicon? And do you have any expectations of the potential price difference between the P type and N type polysilicon price because it's relevant to the ASP for 2023 and beyond?

Colin, I think it's a good question. Basically, right now, I just mentioned that today, we're already starting to provide N type silicon to our major -- 4 major clients. The only thing is right now, the N type cell production line in China is not massive.

I think it's still in the research, it's not commercial, very high commercial level. So for example, we provide our major 4 clients is around like every month is around like 200 tons per -- total is around like 600 tons to 800 tons per month. So the price is not adding too much. It's around like only added CNY 2 per kg.

But today, I think basically, we can -- from our output, we can -- I think N type is around like 30% to 40%. So if, let's say, in the future, the shift from P to N type I think HJT, IBC, TOPCon, the downstream, the N type cell production line popular, we think we can continue to increase N type to 70%, 80% based on today our technology. So it's not a big issue.

The cost, we don't think the cost will add too much, maybe around like CNY 1 or CNY 2 per kg. The only thing is the volume, okay, the output, maybe we will go down. The reason is because it takes more time to depository to put the furnaces. But that will affect the output maybe around 5% to 8%. So it's not a big deal to shift from -- for us, okay, today, for our knowledge. I'm not talking about other players, to us because we very digitalize, also AI calculation on the furnaces. So it's a very modern technology. So it's easy for us to shift. Thank you, Colin.

Very clear. So my second question, we have been adding to the U.S. [entities] for like almost 2 months. I'm just wondering what is the actual impaction from the U.S. customers? So do we have any products which contain the portions -- the powder was actually contained by the U.S. customers. So I was wondering if there are any updates from that.

We didn't have the exact information. Basically, we only can read some information from U.S. from some allowed researcher. I think basically, we see some -- the module producer right now, some shipments in the U.S. customers. I think basically U.S. customers are holding, want to see the traceability.

To us, I think we are manufacturing polysilicon. Our customer in China -- all in China, is wafer producer. So we're not any products finally shipping outside to -- especially to U.S. So yes, currently, no effect to us. Of course, we see the Hoshine product maybe export to U.S. maybe holding and also maybe in the future, on the module side, the module manufacturer have to show the traceability.

So I don't think it's a good idea to doing that. The reason because the impact to us will be temporary and very limited. But if this issue will be longer, I think the negative impact to the U.S. market will be much bigger than is, I think, to China solar players because they see approximately 85% of poly and 90% -- 80% of wafer are made in China. And currently, there is no alternative source for U.S. to replace.

So we believe it is common interest to both U.S. market and Chinese solar producers to address the issue ASAP, especially to reach the common interest area, that means the carbon neutrality targets. So I'm not worried about that.

So lastly, can I confirm one thing because I think I heard you mention a bottom line growth of 20% to 25% year-on-year in the long run. So is this the company's official guidance for like at least 20% to 25% year-on-year growth for net profit for 2022, 2023 and beyond?

Okay. I want to add to that. We cannot give the future forecast. The only thing I'd say that because we just assume, let's say, next year, the capacity we can continue 50% expansion, okay? As soon as we finish 4B, around 40,000 metric tons to 50,000 metric tons we're adding to the existing plants.

So I think for next year, I just mentioned that assume the selling price for the first half of this year -- next year is around like CNY 150, second half of next year is around like CNY 130, we believe the bottom line, definitely that we can achieve 20% to 25% increase.

In the future, we can only do it -- we will make efforts to continue expansion at the annual average rate of 50% to expansion capacity. But we cannot guarantee the bottom line, really it's because I cannot crystal ball the demand and supply of polysilicon in the future.

Just I mentioned there, you see, we, on the supply side, have 2 factors, right? How much real polysilicon we can supply? How much -- if the technology shift from just like you said, from P to N, how much we can provide N type silicon? From demand side, we really don't know the potential market in the future, the growth. So basically, I cannot answer your question in the future. But yes, we make efforts.

This concludes our question-and-answer session. I'll now turn the conference back over to Kevin He for any closing remarks.

Thank you, everyone, for participating in today's conference call. Should you have any further questions, just feel free to send us an e-mail or give us a call. Thank you. Bye-bye. Have a nice day.

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