This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk10: Good day and welcome to the DocuNew Energy second quarter 2021 results call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kevin Ho. Please go ahead.
spk02: Hello, everyone. This is Kevin Ho, the investor relations of DarkQ New Energy. Thank you for joining our conference call today. DarkQ 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 TPT presentation for your reference. Today, attending the conference call, we have Mr. Longbin Zhang, our Chief Executive Officer, and Mr. Ming Yan, 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 uncertainty. 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 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 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 come in.
spk05: 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 a 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 the cost of polysilicon SP to rise significantly from $11.9 per kg in Q1 to $20.81 per kg in Q2. In July and August, the market price for monograde 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 strong 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 waiver and solar sale manufacturers in China announced the price increases for solar waivers and sales. demonstrating the strong end market demand. We saw the uptick in polysilicon pricing in the last two 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 to 220,000 metric tons of additional polysilicon supply in 2022. Considering a potential six-month ramp-up period for other polysilicon producers, This total global polysilicon supply can be used to produce approximately 240 to 250 gigawatts of solar modules, which can support approximately 200 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 a great 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 industry 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 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 substantial progress on the sustainability front, including installing new wastewater treatment facilities in 2018 that reduced our wastewater discharge density by 60 percent 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 percent in 2020 compared to 2017. We will continue to work on our ESG efforts, including planning for greater renewable energy use 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 Daku New Allege, successfully completed its IPO listing on China's A-share market and started trading on Shanghai Stock Exchange's SciTech Innovation Board. The ticket code is 688303 on July 22nd, 2021. The total growth proceeds of the IPO approximately 6.45 billion RMB, which were funded Xinjiang Darko's polysilicon expansion project and provide additional capital for our future growth plans. Following the Xinjiang Daku's IPO, Daku New Allergy directly holds approximately 79.6% of Xinjiang Daku's share and indirectly holds 1.1% of Xinjiang Daku's shares, so Daku New Allergy wholly owns the subsidiary Chongqing Daku. For a total ownership of 80.7% of the A-share listed subsidiaries, There is no variable interest entity, VIE, structure between DaKu New Allege and Xinjiang DaKu. The successful IPO will offer 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 expertise and experienced management team, we have set up a roadmap to increase our capacity to 720,000 metric tons by the end of 2024, representing an approximately 50% annual average growth rate of our production capacity over the next three 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 tons 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 to 83,000 metric tons to the level of approximately 83,000 to 85,000 metric tons of polysilicon for the full year. Inclusive of the impact of the company's anti-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.
spk08: Thank you, Longyan, 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 Lange mentioned, for the months of July and August, the market price for model-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. Growth 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 growth margin was primarily due to higher average selling prices. Selling general 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 includes $2.4 million in non-cash share-based compensation costs related to the company 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 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 second 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 second quarter of 2020. Net income attributable to DACA 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 second 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 30th, 2021, the company had $269.7 million in cash and cash equivalents and restricted cash compared to $227.8 million as of March 31st, 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 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. 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 six 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 six 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.
spk10: Thank you. We will now begin the question and answer session. To ask a question, press star, then 1 on a touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. And the first question comes from Phil Shen with Roth Capital Partners. Please go ahead.
spk03: Hi, everyone. Thank you for taking my questions. You mentioned, Longin, that the outlook for poly pricing remains healthy in 2022. I was wondering if you could talk through how you expect your pricing to trend in Q3 and Q4 and then also in 2022. Thanks.
spk05: Okay. Basically, you know, By the end of this year, we see it didn't have any new capacity or adding any new poly, I think, 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 175 to even high, 1.9, no, I'm sorry, 1.9 lemming bee per watt right now, from 1.75 to 1.9 lemming bee 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 end of this year, I think the price will continue. I think we stay at a high in the second half of the year. The reason is because I think the module price is higher than the expected, you know, with the demonstrating a strong and expected demand. Also, we have the price increase in sale and waiver sector also shows that the demand is very strong. I think in 2022, based on our industrial research, we expect to see, I think, approximately 180,000 to 280,000 metric tons of additional polysilicon supply, in which can be used to produce approximately 240 to 250 gigawatts of solar module. We think the overall cost reduction will contribute around $0.05 to $0.10 per watt and bring down the module price to maybe $1.65 per watt. So if the power price continue to go down, let's say, to 22 to 23 per kg, the module price can be further lower to 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 polysilicon we think it is around 150 lemon-bees per kg. For the second half of the year, we think it should be around like, you know, 130. I'm just around, okay? You can range for the 10 percent. So, 130 lemon-bees per kg. So, I think for next year, as you see that our 4B capacity 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 continues to get growth.
spk03: Philip. Great. Thank you, Logan. 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 also for 2022? Okay, if you look at Q2, the cash cost is around $5.41 compared to Q1, $5.37.
spk05: The cost of goods sold is $6.31 compared to Q1, $6.29. The all costs plus everything together I think it's $7.30 compared to Q1, $7.15. So yes, I think we slightly increased. The reason is because I think when the sales price, ASP, go up, the value-adding tax also goes up. So that's adding to the operation expenses. So basically, I think from NOAA, especially in Q3, we see the polysilicon you know, the powder, the silicon powder price is go up. So, you know, I think for Q3 and Q4, our cost maybe continue to slightly, you know, keep, you know, I think the maybe same, maybe slightly, I think, you know, little up, you know, 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, $20,000 per ton. But for next year, definitely because with additional 4B finished, the scalability of the production line, plus the total, I think, the output, the scale, we think we still have like 2% to 5%. the cost, you know, the cutting in the future, in the next year.
spk03: Great. Okay. Thanks. Congratulations on your successful IPO in China. I wanted to get your view on your thoughts on the U.S. ADR. You know, some investors are asking, you know, under what conditions would you consider taking the U.S. shares private given the cash that you're generating through this cycle and also future capital raises, you know, you'll probably use the A-share entity. So, you know, your stock has performed well in China while the, you know, New York Stock Exchange shares have trended lower. So, you know, 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. Thanks.
spk05: It's a good question. You know, actually, also, it's a factor. You know, our share price right now in the U.S. market is here with an honor value compared to Asia. Basically, based on your calculation right now, DACA new allege listing in U.S. holds a total ownership of 80.7% of the Asia listed subsidiaries. Right now, almost discounted more than 80% on the price, right? So there is also Dark New Allergy is not the VIE structure between Dark New Allergy and Xinjiang Dark. So Xinjiang Dark right now, Dark New Allergy's shareholding on Xinjiang Dark can be traded three years in Asia's market after Xinjiang Dark IPO, which is, I think, July 22nd, 2024. That means we can sell shares, I think, I think, to pay back the U.S. shareholders. That means from, you know, three years from now, okay, from the IPO. Shijian Daku also has, you know, made a commitment letter to its shareholders that it will pay cash dividends in the next three years, no less than 30% of its distributable profit during the three-year period. In China, Asia, it averages 10% of annual profit as the baseline, okay? So we think, you know, Xinjiang Daqi's plan needs to be also be approved by its shareholders meeting and announced, you know, together with its 2021 annual report, usually in the middle of April, you know, 2022. So as the 80% shareholder of Xinjiang Daqi, we expect to receive cash dividends as a financial sources, you know, for potential buyback. or even dividends, you know, distributed in the U.S. market. Of course, for the further, you see, developing expansion, we can continue to raise money in Asia at a high value, you know, valuation. So we needed to, you know, all these, I think, information. I just also want to, you know, remind you that, you know, we cannot guarantee the dividend plan of Xinjiang Daku because it needs to be approved by Xinjiang Daku'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 Asia and the US shareholders.
spk03: Thank you. Thank you very much for the detail. One last question. If the Xinjiang DACA 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 do you think there might be challenges to get the cash out?
spk05: It's no problem because, you see, when we listed in the A shares, you see, the China, I think, what do you call it? China SEC called CSRC. It's already approved, you know. The dark new energy is the foreign holders, the shareholders. So when we declare dividends, basically, we have to, you know, to basically, you know, 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.
spk03: Great. Really appreciate the caller. Thank you again, Longen, and I'll pass it on.
spk07: Thank you.
spk03: Thanks, Phil.
spk10: The next question comes from Gary Zhao with Credit Suisse. Please go ahead.
spk06: Hey, hello. This is Gary from Credit Suisse. And firstly, congratulations on the very strong second quarter results. And I have three quick questions. The first one is actually to follow up with the earlier question on the kind of plans for the U.S. listing platform. So just wondering, as you mentioned, that the country has a huge kind of valuation gap between Asia and the 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 controlling shareholder been thinking of, you know, kind of like use some kind of like bridge loans or other kind of financing vehicles so that it is actually, you know, if you kind of privatize the US ADI, you actually get a much higher kind of valuation interest rate. So just wondering if it's kind of a possible option the company would think of. Thank you.
spk05: Okay, Gary, I think, first of all, from NOAA, because it's a, to my knowledge, to the board, you know, to the, you know, also the controller, shareholder controllers, from, I think, at least, I think, you know, the short term, we're not interested in, you know, privatization. We know there is a lot of opportunities to do the arbitration. You know, it's easier to privatization U.S. shares than, you know, transfer to, I think, the A shares. It's not our purpose because we think right now the company is on the, I think, the, you know, up tick, you know, side. We want the U.S. shareholders to enjoy the returns. So that's why our strategy is continue to raise capital in Asia market, continue to extension our future capacity. You know, in the next three years, by average, 50% every year continue increase to guarantee or to to make sure our bottom line can continue, you know, 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 dividends to maximize use of Chinese law. I think, as you can see, at least 30% of the, you know, distributable profit can be distributed. So I think we will do that. I think, you know, declare the dividend and exchange the foreign, you know, 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 or questions? Gary.
spk06: Thank you. Thank you. This is very helpful. And my second question is on the expansion plan. So earlier you mentioned that By 2024, your target to achieve 270,000 polysilicon capacity. Just wondering if you have a more kind of a specific timeline for this expansion. And secondly, given that your current account is very strong, and that's kind of a cash position and also the further kind of proceedings. I already got the proceeds from the Asia IPO, so is that possible, the expansion target can be even kind of raised higher if the solar demand continues to beat?
spk05: I think, first of all, if you look at our buying sheet, by the end of July 30th, I think the buying sheet is very strong, and I think with the, you know, 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, you know, I think the full B, name place is 35,000 tens, metric tens. We were starting, I think, tri-production by the end of this year. Next year, we're full capacity running. So we think that we'll add maybe, you know, 40,000 to 50,000 metric tens for the next year. But the detail figures, we will do, I think, in a later, you know, certain point in time of, you know, later of this year. Then for the, you know, year after that, just I mentioned that, in order to keep the market share, you know, we see the whole market, the solar market, you know, continue to, and the market continue to, at least in average, I think, compound growth at 20%. So with the A-share market, I think, you know, capital access possible, We, you know, the company inside generation, the cash, with our strong management team, I think, you know, we have the ability to maintain the market share, continue to, you know, from right now to, I think, around 20%, you know. So we're planning to looking for, besides Xinjiang, another place, you know, production-based, you know. I think it's possible Yunnan Province, Qinghai Province, Inner Mongolia, or even, you know, Shaanxi. It's another place we can continue expanding around 200,000 tons. So we will divide it into the two phases. The first phase is 100,000 tons, which I think the semiconductor, I think the production line is 1,500 measured tons. So that's, I think, we are planning. We are right now looking. As soon as we finalize the place, we will announce that. Thank you.
spk06: Okay, thank you. My last question is, I know it might be too early to tell, but just wondering if Madeline can share with us your view for the longer term. polysilicon price outlook. For example, by 2023, when there may be more polysilicon capacity to be commissioned, where do you think the more sustainable polysilicon price can achieve? Thank you.
spk05: I think I just answered Philip's question about the SP of this year and next year. So, yes, for 2023, 2024, really we have to consider the demand and the supply. From the supply side, we continue to see, I think, you know, 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 continue to improve, maybe, I think, you know, in the next generation, is from P to change the silicon cell, P cell to change to N cell. That's asking for high quality. Who can produce N-type polysilicon? That's most important, the market share. You can continue to have the market share. Secondly, we just mentioned that this is a CMC. It's a chemical manufacturing control. It's not easy for newcomer, even, let's say, existing player, new hopes. Today, the monosilicon, I think, you know, the structured percentage only, I think, around 50%. We can reach almost 99.5%. So I think the quality, also, I think, you know, it's a chemical, I say, the ramp-up, you know, to reach, you know, the... I think the real supply we call is take time. So I think that's on supply side. From the demand side, really, I can't tell you because, you know, look at the, you know, the global, I think, the carbon, I think, you know, neutrality targets. I think 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, you know, potential market is very, very big. You know, besides, of course, you know, the U.S. and China, I think, the trade war. I think, but I still think, you know, new energy, you see, the renewable energy is the future. It 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, you know, because we really don't know. Some people, the figures, the slides, some people said, you know, the 500 megawatts maybe by the, you know, 2025. And Mr. Lee, I think, from Long Key, he estimated it is maybe even by 2030 is, you know, 1,000 gigawatts. So it needs a lot of, you know, silicon, high-quality silicon. It's around like 300,000, no, it's 3 million, you know, 3 million tenths, metric tenths. So we're not worried about that. The reason is because we think, you know, we own the largest scale, the world, you know, largest scale capacity in Xinjiang, which is, As soon as we finish, I think, 4B, our capacity may be around 120,000 to 130,000 tons. Then we have another new place. We are looking for maybe by the middle of 2022, come to try production. It's around 1,000 tons. Then continue to add another 1,000 tons. We think we have the competitive edge. So that's our, I think, long-term strategic plan.
spk07: Okay, okay. Yes, this is very helpful, and this is all the questions from me. Thank you. Great. Thank you, Gary.
spk10: The next question comes from Tony Phi with SOTI. Please go ahead.
spk04: Good evening, management. 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 NTIC had a conference to update on the energy consumption status in China, according to which there was nine provinces in China has been increased in the energy intensity in the first half this year, including Xinjiang, Qinghai, and Ningxia. So we know these three provinces host most of the new capacity announced by your peers. So do you think this will slow down their pace in terms of new capacity expansion?
spk05: Yes. You know, everybody read that, you know, the NRDC, I think, report. It gives three level of warning. I think, unfortunately, I think Qinghai, Linan, and, you know, Xinjiang, those, I think, you know, have... a hefty energy supply province, you know, is the first, I think, you know, cause, I think, a warning. But you have to think about that. China, they have, you know, we put a priority. We think, you know, the polysilicon production line, polysilicon capacity is support, you know, continues, you know, 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, will priority put, I think, a solar polysilicon project as first. So then even existing, I think, the energy consumption, some provinces have to change the structure to reduce, I think, the carbon, the energy, I think, supply to increase the green energy, I think, supply. So I'm not worried about that because, you know, I think the government is very clear to reach these targets. They need, I think, the solar continue to grow. Definitely, you know, the solar growth need, I think, polysilicon. Tony?
spk04: Okay, great. 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 policy prices right now. But do you think the silicon powder supply will be a bottleneck to the future poly production if China does not allow new build-up in the silicon powder's capacities?
spk05: We think this situation right now, I think momentarily, I think the poly powder price go up is the short-term, I think, situation. The reason is because in China, the silicon metal majority produced, I think, in Yunnan province, and also Sichuan, Xinjiang, Yunnan province because of the shut-off water. So a lot of water power plants shut down. So that's why a lot of, I think, the silicon metal plants, I think, shut down. Second is also the New Hope. I think for some accidents, they are closed. I think they are temporary closed, their silicon metal plants. So that's why cost, I think, you know, short-term mantle, silica mantle price go up. I think, you know, in the future it will go down. Secondly is we also pay very attention to this situation. To us, we are also looking for, you know, upstream, I think, vertically integrated to, you know, upstream. That means the silica mantle, I think, projects. We are looking for that. Also possible, maybe we go to, you know, investments, one of the 30,000, 300,000 terms projects in the future, or maybe acquire some existing, I think, you know, plans to maintain, I think, you know, the, I think, sustainability, the poly powder supply. It's not just from, I think, existing supply, like successful polypowder manufacturers. So basically, we are looking for that, yes. In the future, definitely, we will work, I think, also, invest in this area. Because 300,000 total investments only like around 3.5 billion. The best investment is not too much. Plus, the technology also is not the big deal. I think the silicon mantle, the key issue is the storm resources. Second is the electricity supply.
spk04: But do you think the energy quota will be an issue for the power supply?
spk05: I don't think so. The reason is because I think they're also in the value chain for the solar industry. Also, I think, you know, I think the parliament basically not only just provide, I think, the powders for our solar industry, but also provide, I think, silicone. Then also provide it to some, you know, the... other, you know, iron, you see, the... Aluminum? Yeah, aluminum, aluminum, iron, yeah. So it's a lot of, you know, usage area, yeah.
spk04: 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 Asia and moved most of your staff to the Asia entity, so is it fair to guess that in the future you will also have a new incentive plan at the Asia level and reduce your incentives and share-based compensation at the U.S. ADR levels?
spk05: We think, you know, I think a strong execution team need to, you know, match I think you have, you know, I think incentive, you know, policy. I think this is very important. Our U.S., I think, you know, the incentive plan, I think, you know, help us to maintain our strong team, you know, together and continue to expansion, you know, help the people to continue expansion. To today, you see, our team, any team, no one leave. Because in China, you know that, it's a lot of, you see, attractive outside, you know, So I think, you know, for Asia today, we didn't have new, I think, incentive plan. Yes, in the future we will do that. But look, the valuation is so big, right? It's almost 120 billion. So I think they have called second share plan. You know, we can issue employee at half price of the, you know, half share price of the market price. to issue to the employee, you know, the vaccine period from three years to five years. So think, yes, we were thinking, consider, you know, that in the second half of this year.
spk04: Okay, great. Thank you very much, Longan. I'll pass it on.
spk07: Great. Thank you, Tony.
spk10: Again, if you would like to ask a question, press star then one to join the queue. The next question comes from Lu Wang with Bernstein. Please go ahead.
spk00: Thank you for taking our questions. This is Lu from . I have two 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.
spk05: Thank you, Lu. Basically, you know, if you look over, I think first off this year, Our market share, I think, is around 18% to 20%. I didn't have an actual figure, frankly speaking, on the, I think, solar polysilicon side. And in the future, yes, we are continuing to keep 50% capacity annually, average growth. But we think our player may be expanding quicker than us. So, we think by the year 2024, our capacity can reach 270,000. Our market share can maintain around 18%, you know. So, that's our target. Second is, yes, we are starting to do the, I think, you know, semiconductor polysilicon. First project, I think, is 1,500 metric tons. We're with, I think, that new project, I think, 100,000 tons. polysilicon production line together. We have to take at least two to three years to make, you know, this production line successful. I mean successful in not only produce the polysilicon in a semiconductor polysilicon, but also to, I think, to qualify by the downstream, I think, the user. It takes time. As you know that the semiconductor chips, you know, chips and also the weavers I think take at least, I think, two to three years. But in China right now, the good thing is in China right now, the downstream on the semiconductor is very, expansion very quickly. So it gives us the opportunity, maybe can, I think, the qualification period down to maybe one to two years. Yes, in the future, I cannot, you know, tell you how much market share of, you know, in the future, the, you know, semiconductor side we can, taking the market share. But I can tell you right now that we're already, I think, around the 50,000 tenths semiconductor, I think, Pacifican supply. We think China right now is around, I think, 20,000 tenths right now, the usage. We want first to replace the import. That's our first target. Thank you, Lu.
spk00: Thank you. 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 DACO 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, you know, DACO is able to expand capacity, will that be the case that the new capacity's cost will have to be higher than existing capacity in Xinjiang?
spk05: Lu, I think, you know, it's a good question. But if you look at our history, DACO always, you know, I think it did more than set. And, frankly speaking, you know, we are very conservative. The reason is because, you see, we started looking for another place. It's not today. I think two years ago, like a semiconductor, where three years ago, we are, you know, five years ago, we are starting, you know, collecting the technology. For the, I think, a new place, we already starting, feasibility study, contact local is more than, I think, one and a half years. Don't worry about that. I think today most right now because I think the governments, local governments put the, I think, you know, the solar industry is the first priority, just like I said. From electricity to the power, the power price right now as we contact, you know, four to five places I think outside of Xinjiang, mostly is around 25 cents to 30 cents per kWh. We don't think in the future, I think the power price is the, major competitive, I think, key factor. Rather than, I think, the policy and quality and the cost control and scalability, I think it's most important. Also the labor, I think, the management, you know. So as you can see, our cost structure, our cost, you know, cutting map in the future, in the history, also in the future, we are, I think, the number one in China. So we're not worried about that. Even though some people have already signed some agreements, I think it's not . For example, like Qinghai right now, the price is around 26 cents. Right now, we talk to local governments. They are very welcome us to there. The price is also the same. The only thing is some stimulation policy may be different, but just like we said, We also want to, you know, it's the ESG. We also want to contribute to the society, the government, the governance, you know, local people. So we're not wanting to take and taking. So basically, we're not worried about that. The reason is because even today, we all have capacity in Xinjiang. We're shipping to the waiver manufacturing center, for example, like in the Mongolia or Yunnan province or Gansu province. The shipping costs are almost, you know, two lemming biyuan per kg. Thinking about that, today, polysilicon consume, 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 weaver producer. So if we can move to, let's say, Inner Mongolia, inland province, so we can save that $0.03. per KWH from the power price, all right, to pay to the local government, local, I think, you know, power gradient. So I'm not worried about that.
spk00: Thank you. That's very helpful.
spk10: The next question comes from Colin Jeng with Daiwa Securities. Please go ahead.
spk09: Good evening, management. This is Colin from Daiwa. I've got three questions. The first one, can we share the cost difference between current P-type and the N-type polycysticone? And do we have any expectations of the potential price difference
spk05: between the p-type and the n-type process compliance because it's relevant to the asp for 2023 and beyond uh calling i think it's a good question basically right now i just mentioned that you know today we're already starting i think you provide n-type silicon to our major four major clients the only thing is right now the n-type sale production line in china is not a massive i think it's still i think in the It's not commercial, a very high commercial, I think, you know, level. So, for example, we provide our major four clients is around like, every month is around like, you know, 200 tons per, you know, total is around like 600 to 800, I think, tons per month. So, the price is not adding too much. It's around like only add two lemongrass yuan per kg. But today, I think that basically we can, from our output, we can, I think, end type is around like 30 to 40%. So if, let's say, in the future, you know, the shift from P to end type as the, I think, HGAP, IBC, TopCom, I think the downstream, I think, you know, the end type, you know, cell production line, I think popular, we think we can continue to increase end type, you know, 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, you know, let me be one or two, let me be per kg. The only thing is the volume, okay, the output, maybe we will go down. The reason is because take more time to depository to put the furnaces. But that will affect the output, maybe around 5% to, you know, 80%. So it's not a big deal to shift for us today, for our knowledge. I'm not talking about other players. To us, because we're very digitalized, also AI, I think, calculation on the furnaces. So it's a very modern, I think, technology. So it's easy for us to shift. Thank you, Colin.
spk09: Thank you. Thank you, Roman, very clear. So my second question, you know, we have been adding it to the U.S. entire list for like almost two months. I'm just wondering what is the actual inspection from the U.S. customers? So do we have, you know, any products which contain Horsham's sensitive powder was actually contained by the U.S. customer? So I'm wondering if there are any updates from that.
spk05: We didn't have, you know, the exact information. Basically, we only can read some information from U.S., I think, from, you know, some, I think, you know, loud, I think, researcher. I think, you know, basically, we see some, you know, some module producer right now, some shipments, I think, in the U.S. customers. I think, basically, U.S. customers holding, I think, want to see the traceability. To us, I think, you know, we are manufacturing, I think, Polysilicon. Our customer is China, all in China. It's a weaver producer. So we're not ending product, you know, finally shipping outside to, especially to U.S. So, yes, currently I think no effect to us. Of course, I think, you know, we see the Herschel products maybe, you know, export to U.S., maybe holding, you know, and also maybe in the future. On the module side, the module manufacturer has to show the traceability. So I don't think, you know, it's a good idea to do that. The reason is because, you know, the impact were, you know, to us will be temporary and very limited. But if this issue prolongers, I think the negative impact to the U.S. market will be much bigger than if, I think, to China solar prayers. because approximately 85% of poly and 98% of waiver, I think, are made in China. And the country, there is no alternative source for U.S. to replace. So we believe, I think, it is common interest to both U.S. market and Chinese solar producers, I think, to address the issue ASAP, especially to reach the common, I think, interest area That means the carbon nutritionality targets. So I'm not worried about that.
spk09: Thank you. Thank you, Long. So lastly, can I confirm one thing? Because I think I heard you mention the bottom line growth of 20% to 25% year-on-year in the long run. So is this a company's official guidance for at least a 20% to 25% year-on-year growth for net profit? for 2022, 2023, and beyond?
spk05: Okay, I want to answer that. We cannot give, given, you know, the future, I think, you know, forecast. The only thing is I say that because we just, you know, assume, let's say, next year the capacity, we can continue 50% expansion, okay, as soon as we finish the 4B. I think around 40,000 to 50,000 natural tens, we're adding to the existing, I think, the 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 150. Second half of next year is around like 130. We believe the bottom line, definitely I think that we can achieve 20 to 25 percent increase. In the future, we can only do is we would make efforts to continue expansion That's the annual average, I think, rate of 50% to expansion the capacity. But we cannot guarantee the bottom line. Really, it's because I cannot, you know, crystal ball the demand and the supply of polysilicon in the future. Just I mentioned that, you see, we, on the supply side, have two factors, right? How much real polysilicon we can supply? How much, you know, as if the technology shifted from, Just like you said, from P to N, how much we can provide the N-type silicon? From the 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.
spk09: Sorry, very clear. Thank you, Longbin. That's all my questions.
spk10: This concludes our question and answer session. I'll now turn the conference back over to Kevin Hu for any closing remarks.
spk02: Thank you, everyone, for participating in today's conference call. Should you have any further questions, just feel free to send us an email or give us a call. Thank you. Bye-bye. Have a nice day.
spk10: The conference is now concluded. Thank you for attending this presentation. You may now disconnect.
Disclaimer