Good day and welcome to 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, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the second quarter of 2021, which can be found on our website at www.dqsolar.com.

To facilitate today’s conference call, we also have 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 statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission.

These statements only reflect our current and preliminary view as of today and maybe subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today’s conference call is as of today, and we undertake no duty to update such information, except as required under applicable law.

Also during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is RMB -- 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..

688303 on 22 July, 2021. The total gross proceeds of the IPO are approximately RMB6.45 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 shares and indirectly holds 1.1% of Xinjiang Daqo's shares through Daqo New Energy's wholly-owned subsidiary Chongqing Daqo, for a total ownership of 80.7% of the A share listed subsidiary.

There is no Variable Interest Entity, VIE, structure between Daqo New Energy and Xinjiang Daqo. The successful IPO will offer us an additional venue to access the attractive capital markets 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 road map 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 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 2021, the Company expects to remain in 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 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 $256.1 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 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 included $2.4 million in non-cash 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 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 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 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 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, the 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. Please go ahead..

Hi, everyone. Thank you for taking my questions. 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 to trend in Q3 and Q4 and then also in 2022? Thanks..

Okay. Basically by the end of this year, we see -- didn't have new any capacity or new any you call it a single 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 higher 1.9 -- I'm sorry RMB1.9 per watt right now from RMB1.75 to RMB 1.99 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 that we stay in the high in the second half of the year.

The reason is because I think the module price is higher than the expected with the demonstrating strong and expected demand. Also within the price increase in cell and the wafer sector also shows that the demand is very strong.

I think in 2022, based on the -- our industry search, 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 kilowatts of solar module.

We think the overall cost reduction were contributing around a RMB0.05 to RMB0.10 per watt and bring down the module price to maybe $1 -- RMB1.65 per watt. So if the power price continue to go down, let's say 22 to 23 per kg, the module price can be further lower to RMB1.55 per watt. So basically, you can continue calculating on the module.

So we believe I think next year -- first half next year, the average ASP of the single polysilicon we think is around RMB150 per kg. For the second half of the year, we think it should be around like RMB130. I'm just around, okay, you can range for the 10%, so RMB130 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 the next year, we think our production we’ve got a 50% increase. So the bottom line continue [indiscernible] growth, Philip..

Great. Thank you, Longgen. That's really helpful. And then from the cost side, we've seen your costs increased 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 Q4 and then also for 2022?.

Okay. If you look at Q2, the cash cost is around $5.41 compared to Q1 $5.37. The cost of goods sold is a $6.31 compared to Q1 $6.29. The all cost plus everything together, I think it's 47 -- $7.30 compared to Q1 $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, the powder -- the silicon powder prices go up.

So, I think for Q3 and Q4 our costs maybe continue to slightly keep I think the -- maybe same, maybe slightly, I think, little up 1% because our policy -- the policy become metal powder, price jumper a lot. Especially this week, I think right now the prices are mostly go to I think, RMB20,000 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, the cut in the future in the next year..

Great. Okay, thanks. Congratulations on your successful IPO in China. 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 dividend So, just curious on how you're thinking about the U.S ADR. Thanks..

It's a good question. Actually also its the factor our share price right now in the U.S market is here undervalued compared to Asia. Basically, based on your calculation right now Daqo New Energy listing in U.S holds a total ownership of 80.7% of the Asia listed subsidiaries. By now 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 the -- Daqo New Energy's shareholding -- Xinjiang Daqo can be traded 2 years in Asia's market after Xinjiang Daqo IPO, which is I think July 22, 2024. That mean we can sell in shares.

I think the -- I think to pay back the U.S shareholders, that mean from 2 years from now on, okay, 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, Asia is averaging 10% of annual profit as a baseline, okay. So we think, Xinjiang Daqo 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 Asia as a high value valuation. So we needed to -- all these I think are 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 Asia and the U.S shareholders. Thank you, Philip..

Thank you very much for the detail. 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 them in the Asia, as you see the China, I think, want to call China SEC call it CR -- CSRC, it's already approved. The Daqo New Energy is the foreign holders, as the 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 [indiscernible] 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..

Great. Really appreciate the color. Thank you again, Longgen, and I'll pass it on..

Thank you..

Thanks, Philip..

The next question comes from Gary Zhao with Credit Suisse. Please go ahead..

Hey, hello. This is Garry from Credit Suisse. And Firstly, congratulations on the very strong second quarter results. And I’ve got three quick questions. The first one is actually to pull up with the earlier question on the kind of plans for the U.S listing platform.

So just wondering as you -- management also mentioned that contribute 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 country controlling shareholders been thinking of, kind of use kind of [indiscernible].

So that it is actually -- if you kind of privatized the U.S ADR, you actually get to the much higher kind of valuation. So just wondering if it's kind of a possible option the company would think of? Thank you...

Okay, Gary. I think, first of all, from [indiscernible] because you see to my knowledge to the Board, to the -- also the controller, shareholder controller from I think, at least I think, the short-term we're not interested in privatization. We know there's a lot of opportunities to do the arbitrator.

It's easier to privatization U.S shares than transfer to I think the Asia. It's not all perfect because we think right now the company is under, I think the uptick site. 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 expanding our future capacity.

In the next few years, by average 50% every year continued increase to guarantee or to make sure or bottom line can continue 20%, 25% increase to maintain the market value to reward I think the shareholders.

In the mean time I think what do we do is continue to distribute the dividends 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 [indiscernible] company, and either to buy back or continue to declare the dividend to the U.S shareholders. Ming, do you have any comments to the question? Gary, thank you..

Okay. Thank you. This is very helpful. And then 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 economy is very strong, and that's kind of a cash position and also the further kind of proceed already had to proceed from the Asia IPO.

So is that possible, the expansion target can be even kind of raised higher if the solar demand continue to pick?.

I think, first of all, if you look 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 expansion.

First of all, we successful, I think IPO, we can be -- I think the 4B name place is 35,000 tons -- metric tons. We were starting, I think we try production by the end of this year. Next year, we're at full capacity running. So we think that it will add up maybe, 40,000 to 50,000 metric tons for the next year.

But the detailed figures we will do, I think, in a late -- certain point time of later this year. Then for the year after that, 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 compound growth at 20%.

So with the Asia 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 continuing to -- from right now to around 20%. So we are planning to looking for beside Xinjiang, another place in our production base.

I think it's possible Yunnan province, Qinghai province, in Mongolia or even Shanxi. It's another place we can continue expanding around the 200,000 tons. So, we were divided into the two phases. The first phase is [indiscernible] tons, which I think the semiconductor, the production line is 1,500 metric tons. So, that I think we are planning.

We are right now looking. As soon as we finalize the place, we will announce that. Thank you, Gary..

Okay. Thanks. Okay. Thank you. Yes, so my last question is, I know it might be too early to tell, but just wondering if [indiscernible] share with us your view for the kind of the longer term polysilicon price. So, for example, by 2023, so when there may be more polysilicon capacity to be commissioned.

So when it would be or where do think is a kind of a more sustainable polysilicon price can achieve? Thank you..

I think just to answer that, Philip with 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 continuously I think, China, a lot of I think existing player continue its expansion, plus some new, I think comer, but you have to consider that.

As the technology continue to improve, maybe I think, in the next generation it is from P to change the P silicon -- P cell to change the NFL, 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 is not easy for newcomer, even, let's say, existing player, new hopes. For they the mono silicon, I think the structure percentage only, I think around is 50%. We can reach almost a 99.5%.

So I think the quality, also I think the -- it's a chemical, I say, the ramped up to reach the -- I think the real supply we call, it's taken 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, I think we think least I think the compound growth rate should be around 20%. China right now, if you look at that a country level, distributed generation, it's a very, very, I think potential market is very, very big.

Besides, of course, the U.S and China, I think as a trade war, I think -- but I still think new energy, you say 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 because we really don't know.

Some people -- the figures [indiscernible],some people say that the 500 mega -- kilowatt maybe by the -- 2025. And Mr. Lee, I think from [indiscernible] he estimated it maybe even by 2030 is 1,000 kilowatts. So it's a [indiscernible] silicon -- high quality silicon. It's around like 300,000 -- no, it's a 3 million tons -- metric tons.

So, we not worry about that. The reason is because we think we own the largest scale, the larger scale capacity in Xinjiang, which is as far as we’re finished, I think 4B our capacity maybe around 120,000 to 130,000 tons. Then we have another new place, we are looking for maybe by the middle of the 2022 come to -- put that into [indiscernible] action.

It's around 1,000 tons, then continue to add another 1,000 tons. We think we are -- we have the competitive edge. So that's all I think the long-term strategic plan..

Okay, okay. Yes, this is very helpful. And this is all the questions from me..

Great. Thank you, Gary..

The next question comes from Tony Fei with BOCI. Please go ahead..

Hi. 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 NDRC 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 of this year, including Xinjiang, Qinghai and Ming Sha [ph].

So we know these three provinces hosts 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 read that, the NRDC I think report. It gives three level of warning. I think -- unfortunately, I think Qinghai, Yunnan and [indiscernible] those I think have hefty energy supply province is the first -- I think the first cause, I think a warning. But you have to think about that. China, they have -- we put a priority.

We think the polysilicon production line polysilicon capacity is supported 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, I think solar polysilicon project 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 supply. So, I'm not worried about that, because I think the government is very clear to reach these targets. They needed I think, the solar continue to grow.

Definitely, the solar growth needed, I think of polysilicon.

Tony?.

Okay, great. Okay, great. So my second question is a follow-up on silicon powder supply. So you just mentioned the price has gone up the ladder recently. So it seems that the smaller producers 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 power supply will be a bottleneck to the future poly production with China does not allowing you build up in silicon powders capacities..

We think this situation where now I think momentum, we think the poly powder price go up is the short-term, I think situation. The reason is because in China, the silicon mantle [ph], majority produced I think in that province, and also [indiscernible], Xinjiang because probably is because of the shut of water.

So a lot of water power plants shut down. So that's why a lot of I think, the polysilicon metal, I think, a plant, I think shut down. Secondly, is also the new hope I think for some excellence, they are closed, I think they're a temporary closed their -- metal -- silicon metal plants.

So that's why cause I think short-term metal -- silicon metal price go up. I think in the future it would go down. Secondly is we also pay very attention to this situation. To us, we are also looking for upstream I think vertically integrated to upstream.

That mean the silicon metal, I think project, we are looking for that also possible maybe we go to investments, 1 out of 30 -- 300,010 projects in the future or maybe acquire some existing, I think plans to maintain, I think the -- I think sustainability, the poly powder supply is not to just from a single existing supply like successful poly powder manufacturers.

So, basically, we are looking for that. Yes, in the future, definitely we will I think also invest in this area because 300,000 ton total investments only like around RUB3.5 billion. The investment is not too much, but on top the technology also is not the bigger deal. The -- I think the silicon metal, the key issue is the stone resources.

Second is the [indiscernible] I think supply..

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

I don't think so. The reason is because I think it'd be also in the value chain for the solar industry. Also, I think, the -- I think the poly metal, basically is not only just provide, I think the powders for our solar industry but also provide I think silicone. Then also provided to some the other -- [indiscernible], yes.

So it's a lot of usage area, yes..

Okay, great. That's good to know. And my last questions 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 your 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 share-based compensation in the U.S ADR levels?.

We think, the -- I think a strong execution team needed to match, I think, an incentive policy. I think this is very important. Our U.S, I think, the incentive plans, I think help us to maintain our strong team together and continued expansion, have the people to continue expansion.

So today, you see, our team, management team, no one leave, because in China that it's a lot of attractive outside. So I think, 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 we have called second let's say, a share plan.

We can issue employee at half price of the share price or the market price to issue to the employees, the management period from 3 years to 5 years. So think, yes, we were thinking consider that in the second half of this year..

Okay. Great. Thank you very much, Longgen. I will pass it on..

Great. Thank you, Tony. [Operator Instructions] The next question comes from Lu Wang with Bernstein. Please go ahead..

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

Thank you, Lu. Basically if you look over I think the first half of this year, our market share, I think is around 18% to 20%. I didn't have extra figure, frankly speaking on the I think solar polysilicon side. And in the future, yes, we are continued to keep 50% capacity, anyway average, okay growth.

But we think all player maybe expansion quicker than us. So, we think by the year 2024, our capacity can reach 270,000, our market share can maintain around the 18%. So that's our target. Secondly is yes, we are starting to do the I think semiconductor polysilicon.

First of all, yes, I think it is 1,500 metric tons with I think that new projects I think 1,000 tons polysilicon production line together. We have to taking at least 2 to 3 years to make this production line successful.

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

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

Yes, in the future, I cannot tell you how much market share in the future as a semiconductor side we can take in the market share. But I can tell you right now, that around 50,000 tons semiconductor, I think polysilicon supply. We think in China right now is around, I think at 20,000 tons right now the usage. We want first to replace the import.

That's our first target. Thank you, Lu..

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 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 capacities cost will have to be higher than existing capacity in Xinjiang?.

Lu, I think it's good question. But if you look at our history, Daqo always I think did more than said. And frankly speaking, we are very conservative.

The reason is because you see we started looking for another place it's not today, I think 2 years ago, like semiconductor 3 years ago we are -- 5 years ago, we are starting -- collecting the technology. For the -- I think a new place, we are already starting a feasibility study, content local is more than I think, 1.5 years. Don't worry about that.

I think today, mostly right now, because I think the government, local governments put it I think the solar industry is the first priority, just said, from elective -- the power price right now, as we contact four to five places, I think outside of Xinjiang, mostly is around $0.25 to $0.30 per gigawatts.

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 polysilicon quality and as cost control and scalability, I think it's most important. Also the labor, I think the 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, I think, are the number one in the China. So we're not worried about that, frankly speaking.

So, even though some people is already signed some agreements, I think [technical difficulty], for example, at [indiscernible] right now, the price is around $0.26. Right now we talk to local governments, they are very welcome us to there. The price is also the same. The only thing 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 the society, the government -- the governance and the local people. So we never want to take in taking So basically, we're not worried about that.

The reason because even today, we all of capacity in Xinjiang, we're shipping to the wafer manufacturing center, for example, like in the Mongolia, or Yunnan province, or Guizhou [ph] province, the shipping costs almost RMB2 per kg. Thinking about that, today, polysilicon consume and every consumer in Q2, Q1 is around 660 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, Mongolia, Yunnan province, so we can save that $0.03 per kWh from the power price, right, to pay to the local governments. Local, I think, power grid, so I'm not worried about that..

Thank you. That's really helpful..

The next question comes from Colin Yang with Daiwa Securities. Please go ahead..

Good evening, management. This is Colin from Daiwa. I got two questions.

The first one, can you share the cost of 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 we are now, I just mentioned that today we're already starting provide N type silicon to our major -- four major clients. The only things right now, the N type sales production line in China is not massive. I think it's still, I think, in the research -- its not commercial, very high commercial level.

So for example, we provide our major four clients is around like every month is around like 200 tons per -- probably around like 600 to 800, I think tons per month. So the price is not adding too much. It's around, like only added RMB2 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 as the, I think, [indiscernible] I think 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 of the cost or whatever, we added too much, maybe around like a RMB1 or RMB2 per kg. The only thing is the volume, okay. The output maybe will go down. The reason is because it take more time to depository to put the furnaces.

But that will affect the output maybe around 5% to 80%, so it's not bigger deal to shift from -- for us, okay, today for our knowledge. I'm not talking about other player. To us, because we very digitalized also AI, I think, calculation on the furnaces, so it's very modern technology. So it is easy for us to shift. Thank you, Colin..

Thank you. Thank you, Longgen. Very clear. So my second question, we have been adding the [indiscernible] at least for like almost 2 months. And just wondering what is the actual inspection from the U.S customers? So do we have any products, which contain the portions for the powder was actually confirmed by the U.S customer.

So I was wondering if any updates from that?.

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

To us, I think we are manufacturing, I think polysilicon. Our customer in China -- most all in China is a wafer producer. So we're not any products, finally shipping outside to -- especially to U.S. So, yes, currently, I think no effect to us. Of course, I think we see the [indiscernible] product, maybe export to U.S., maybe holding.

Then also maybe in the future on a 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 is because the impact we’re -- to us will be temporary and very limited.

But if this issue prolong, I think the negative impact to the U.S market will be much bigger than if I think to China solar players, because they see approximately 85% of poly and 98% of wafer I think are made in China. And the contrary, 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 [technical difficulty] area. That mean the carbon neutrality led targets. So I'm not worried about that..

Thank you. Thank you, everyone. So lastly, can I confirm one thing, because I think I heard you mentioned a bottom line growth of 20% to 25% year-on-year in the long run.

So is this the Company's official guidance call like, at least a 20% to 25% a year-on-year growth of net profit for 2020 to 2023 and beyond?.

Okay. I want to emphasize that we cannot give -- given the future, I think forecasts. The only thing is I say that, because we just assume, let's say, next year the capacity, we can continue 50% expansion, okay. As soon as we finish with 4B, I think around 40,000 to 50,000 metric tons, we're adding to the existing plant.

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 [indiscernible], second half of next year is around like [indiscernible], we believe the bottom line definitely I think that we can achieve 20% to 25% increase.

In the future, we can only do is we will make efforts to continue expansion to the annual average, I think a rate of 50% to expansion the capacity. But we can't guarantee the bottom line really is because I can't ask crystal ball the demand and supply of polysilicon in the future. Just I mentioned that.

We, on the supply side have two factors, right? How much real polysilicon we can supply? How much if the technology shift upon, just like you said, from P to N, how much we can provide the 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 our efforts..

[Indiscernible]. Thank you, Longgen. That’s all my question..

This concludes our question-and-answer session. I will now turn the conference over 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 email or give us a call. Thank you. Bye, bye. Have a nice day..

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