Longgen Zhang - Chief Executive Officer Ming Yang - Chief Financial Officer Kevin He - Investor Relations.

Good day and welcome to the Daqo Second Quarter 2022 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Kevin He, Investor Relations. Please go ahead..

Hello, everyone! I'm 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 2022, 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 and the year. After that we will open the floor to Q&A from the audience.

Before we begin the formal remarks, I would like to remind you that certain statements on today's conference 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 containing any forward-looking statements. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission.

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

Also during the call we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer 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. Longgen, please go ahead. .

Hello! Good morning, good evening! We are very proud to deliver an excellent quarter with a record production volume and profits. Revenue reached $1.24 billion, gross profit was $947 million with gross margin of 76%.

Net income attributable to Daqo shareholders was $628 million, an increase of 17.2% from $535.8 million in the first quarter of 2022 and an increase of 170% from $232 million in Q2, 2021.

Our cash position at the end of the quarter was $3.3 billion, an increase of approximately $2.2 billion from $1.1 billion at the end of Q1, 2022, reflecting our strong cash flow generation. Cash and banking note receivable combined balances reached $4.6 billion. Operating cash flow was $1.1 billion for the first six months of this year.

During the quarter we operated at full capacity and produced 35,326 MT of polysilicon. More than 99% of our production were high-purity Mono-grade polysilicon products. We successfully ramped up our new Phase 4B facility to full capacity and further optimized its operational performance.

Our sequential improvements in gross profit and gross margin were primarily driven by a 28% reduction in our polysilicon production cost. With higher manufacturing efficiency and better economy of scale, we reduced our per unit electricity cost and depreciation cost by 7% and 13% in RMB terms quarter-over-quarter respectively.

In addition, our metallurgical-grade silicon cost in the second quarter was reduced by 37% as compared to the first quarter. With our facility in optimized stable operations, we believe we will be able to maintain, and possibly further improve, our cost structure in Q3 and Q4 this year.

We expect an even more favorable outlook for the cost at our new Inner Mongolia facility. As a chemical refining facility, safe and stable operations are extremely important for polysilicon production, and our facilities perform the best under such conditions.

In order to minimize the impact on operations, we will conduct our annual maintenance in phases spread throughout the third and fourth quarters. During the same time we will conduct some technology improvement projects which are expected to further save energy and optimize efficiency.

As a result, we expect our polysilicon production volume in the third quarter to be in the range of 31,000 to 32,000 MT.

With our better than expected operational performance in the first half of this year, we are increasing our guidance, our annual production volume to 129,000 to 132,000 MT for the full year of 2022, up from our previous guidance of 120,000 to 125,000 MT.

In June 2022 our major operating subsidiary, Xinjiang Daqo, received a total gross proceed of approximately RMB11 billion from its private offering on the Shanghai Stock Exchange. Upon completion of the private offering type, Daqo New Energy beneficially owns approximately 72.68% of Xinjiang Daqo.

Proceeds from the offering will be used primarily for our Phase 5A polysilicon project of 100,000 MT in Inner Mongolia. This new project is currently under construction and expected to be completed by the second quarter of 2023.

Driven by several favorable trends, the global solar industry saw robust demand in the first half of this year and demand both in China and overseas continues to exceed market expectations.

According to data from the China Photovoltaic Industry Association, China’s production of polysilicon and solar modules in the first half of this year was approximately 365,000 MT and 123.6 GW respectively, an increase of 53.4% and 54.1% compared to the same period of last year.

While solar PV products supply increased significantly compared to last year, ASPs kept rising across the entire solar value chain due to stronger than expected end market demand.

Despite rising ASPs, during the first half of this year, solar PV installations in China reached 30.9 GW and China exported 78.6 GW of solar modules, up 137% and 74%, respectively, over the same period of 2021.

Driven by strong end market demand and increased orders from wafer suppliers, polysilicon ASPs and profitability improved continuously during the first half of this year despite increased supply.

According to the China Silicon Association, the average price included VAT for high-density mono grade polysilicon increased significantly by 29.3% from RMB 229/kg in the first week in January 2022 to RMB 296/kg in the last week of July 2022. Nevertheless, our production is sold out for August and we have a strong order backlog for our products.

We understand that many newly built wafer facilities are idle because of the shortage of polysilicon, as capacity expansion is much faster in downstream than in polysilicon sector.

Beyond the urgency to address climate change that is driving various supportive policies to accelerate the adoption of solar energy globally, the recent conflict in Europe has led to an energy crisis with substantially higher natural gas and oil prices.

Solar PV is easier and faster to deploy its cost, which has already reached grid parity is locked-in for the next 20 to 30 years. The rise in energy costs has made solar PV increasingly attractive, especially in the countries currently facing energy shortages and seeking energy safety and independence.

For instance, in the second quarter, European solar PPA price increased substantially and the market saw a substantial increase in demand from Europe with module exports to Europe greater than 50% of total module export for China.

In June, our Board of Directors authorized the company to repurchase up to $120 million worth of its own issued shares on the open market.

As of today we have already repurchased approximately $50 million worth of our ADRs and we will continue to do so as we believe our current ADR price is seriously undervalued and not reflective of our position as an industry leader with strong profitability and operating cash flow.

With growing global policy support and attractive economics, we are confident that solar PV market demand and prices will remain strong, providing sustainable and healthy profits to the solar manufacturing value chain.

In the first half of this year, despite a 53.4% increase in production volumes in China over the same period of last year, polysilicon was still a drag on the entire solar PV manufacturing value chain and the capacity expansion was meaningfully slower than in the downstream sectors.

Challenges in gauging energy consumption approvals, long construction times, and delayed ramp-up times, as well as the operational inexperience of new players make polysilicon one of the sectors with the highest entry barriers and slowest expansion growth in the solar PV manufacturing value chain.

We expect this imbalance to continue for a while and help our sector greatly benefit from the robust market demand. We will continue to focus on our core business and further strengthen our industry leadership by increasing capacity, reducing our cost structure and improving product quality so as to continuously reward our shareholders.

Our vision is that in the not too distant future renewable energy will displace fossil fuels to become the primary source of energy for humans, with solar energy playing the biggest role, and our mission is to help make that vision a reality.

The company expects to produce approximately 31,000 MT to 32,000 MT of polysilicon in the third quarter of 2022 and approximate 129,000 MT to 132,000 MT of polysilicon in the whole year to 2022, inclusive of the impact of the company’s annual facility maintenance. Now, I will turn the call to our CFO, Mr. Yang..

Thank you, Longgen and good day everyone. Thanks you for joining our earnings conference call today. Now I will go over our second quarter 2022 financial results. Revenues were $1.24 billion compared to $1.28 billion in the first quarter of 2022 and $441 million in the second quarter of 2021.

The slight decrease in revenue as compared to the first quarter of 2022 was due to a slight decrease in sales volume compensated by a slight increase in average selling prices. Gross profit was $947 million for the quarter compared to $813.6 million in the first quarter of 2022 and $303 million in the second quarter of 2021.

Gross margin was 76.1%, compared to 63.5% in the first quarter of 2022 and 68.7% in the second quarter of 2021. The increase in gross profit and gross margin as compared to the first quarter was primarily due to lower production cost and higher average selling prices.

Selling, general and administrative expenses were $14.4 million compared to $15.5 million in the first quarter of 2022 and $9.3 million in the second quarter of 2021. SG&A expenses during the quarter included $2.0 million in non-cash share-based compensation costs related to the company’s share incentive plan.

R&D expenses were $2.7 million compared to $2.1 million in the first quarter of 2022 and $2.1 million in the second quarter of 2021. R&D expenses can vary from period-to-period and reflect R&D activities that take place during the quarter and most of the R&D activities during the quarter related to the development of our N-type polysilicon product.

Income from operations was $927.6 million compared to $796.9 million in the first quarter of 2022 and $292.4 million in the second quarter of 2021. Operating margin was 74.6% compared to 62.2% in the first quarter of 2022 and 66.3% in the second quarter of 2021.

EBITDA was $955 million compared to $827 million in the first quarter of 2022 and $312 million in the second quarter of 2021. EBITDA margin was 76.8% compared to 64.6% in the first quarter of 2022 and 70.6% in the second quarter of 2021.

Net income attributable to Daqo New Energy shareholders was $627.8 million, compared to $535.8 million in the first quarter of 2022 and $232 million in the second quarter of 2021. Earnings per basic ADS was $8.36 for the quarter compared to $7.17 in the first quarter of 2022 and $3.15 in the second quarter of 2021.

As of June 30, 2022 the company had $3.3 billion in cash and cash equivalents compared to $1.1 billion as of March 31, 2022 and $270 million as of June 30, 2021. And as of June 30, 2022 the notes receivable balance was $1.27 billion compared to $1.5 billion as of March 31, 2022 and $97 million as of June 30, 2021.

As of June 30, 2022, total bank borrowings were nil, compared to nil as of March 31, 2022 and total bank borrowings of $156.6 million as of June 30, 2021. And now on the company’s cash flow. For the six months ended June 30, 2022, net cash provided by operating activities was $1.13 billion, compared to $442 million in the same period of 2021.

The increase was primarily due to higher revenues and higher gross margin for the company. And for the six months ended June 30, 2022, net cash used in investing activity was $80 million, compared to $255 million in the same period of 2021.

The net cash used in investing activities in 2022 was primarily related to the capital expenditures on the company’s 100,000 MT polysilicon project in Inner Mongolia, and offset by $265 million in redemption of short term investments.

And for the six months ended June 30, 2022, net cash provided by financing activities was $1.58 billion, compared to net cash used in financing activities of $37 million in the same period of 2021.

The net cash provided by financing activities in 2022 was primarily related to the net proceeds of $1.63 billion from Xinjiang Daqo, a private offering in China, Shanghai stock exchange. And that concludes our prepared remarks, and now we will open the call for questions from the audience.

Operator?.

Thank you. [Operator Instructions]. Our first question comes from Philip Shen with ROTH Capital Partners. Please go ahead. .

Thanks for taking my questions. Congratulations on the strong results here! Wanted to talk about your view for a poly pricing. If you could share a little more color on how you expect it to develop in Q3 and Q4 with the announced expansions from competitors? And then how do you expect poly pricing to trend and be in 2023 by quarter. Thanks. .

Thank you, Philip. I think today, because we didn't have any technology barrier, so we sell end module. So basically polysilicon price is you know positive with core relationship with the module price. So today the module price, I think selling that to RMB $2.1, so can support the poly.

Right now I think the market price is almost close, I think 320, 310. So basically we believe the module price will continue to keep at that level, this level. So when you think of the price, I think right now Q3 is very strong. The Q4 we think it will continue to keep maybe to the end of the year.

It depends on the situation channel, with the channel in the rush installation. If that’s the case to continue, then also considering the new production, polysilicon production where we I think product I think sellable polysilicon. But we believe the poly price will continue to keep higher by – you know for I think the rest of this year.

And for the next year we believe there is not too much new polysilicon come out as we see that, even though just like I said, some new player come in because of the design time, because of construction time, because of the technology, because of the increments, I think the made, design made and also installation, all these factors add together.

I think at least I seen a new comer taking 18 to 24 to be a player. So even though considering the polysilicon come out, the price I think jumped back last year, let’s say second half of last year, some new comer come in. So they I think will maybe produce some new capacity in the second half next year.

So we consider the ’23, the first half of the year price will continue, keep about $250/kg. For the second half of next year, the price maybe will go down. I think it maybe will be $180 to $200. Then beyond next year, really we cannot project, you know the price will go to which direction.

But considering the market potential is high, if the polysilicon price is correlated, positive correlated with the model, and if the polysilicon supply is totally higher than demand, if that’s the case, for the wafer sale and the module production, only taken three to four months to use stock, to put into the production.

So basically only the module price go down, then the polysilicon will go down. Considering that, if the module price goes down, then the market demand will higher. I think that will stimulate the demand of polysilicon. So I think to a certain time, is some balance there.

So basically we are not thinking you know polysilicon will drop to below RMB120/kg, that’s what we believe. Thank you, Philip. .

Thank you, Longgen. That’s a lot of detail. I appreciate the color. You know you talked about your capacity expansion Phase 5A. Congratulations on your recent capital raise and you’re funded for the expansion and you’re targeting the Q2 ‘23 ramp up of 5A.

When do you think you made the decision on 5B, and can you remind us how much more capacity you could have in Inner Mongolia or elsewhere? Thanks. .

We see that you know considering today, combined all the cash and account, you know the banking nodes, we almost have $4.4 billion sitting in our account. So even though, let’s say we are considering I think Mongolia 5B, the 1,000 investment, that maybe considering around I think $1.2 billion, $1.3 billion investments.

We still have enough cash sitting there. The reason why we are going to do in the future, and it based on Asia, the public company requirement to continue the distribution, the dividend. Secondly is, during the – the whole industry I think lower circle, we are considering you know – we are rated with strong balance sheets to do consolidator.

I think that's all the major purpose. So basically our planning is for the next three years we are planning the capacity every year to increased 50%. Just like this year we’ve already given guidance. I think our guidance is 129,000 MT to 132,000 MT. So next year as you can see, our Mongolia 5A, we are putting to production.

We believe I think maybe around 70,000 tons will come out next year, come out from 5A. Then by the end of next year, the 5A for the year 2024, definitely the 1,000 tons plus you know Xinjiang 130,000 tons, so total together is 230,000 tons.

Then plus the 5B we are planning starting maybe certain times, depending on the Board makes decision, but we are starting to do some prepare work. We are going to start I think in the second half of this year, yeah, but we will announce that. .

Okay, thank you. That's great color. And just to explore something you said earlier Longgen. You talked about how you have a strong balance sheet to consolidate.

Does that suggest that with some of your peers struggling to get the capacity online and efficient and low cost, are you open to potentially acquiring some facilities in addition to your Greenfield 5B and 5A? Thanks. .

Yes, definitely. I think you know first of all based on our announcement, we will do I think will do I think [inaudible] silicon in Mongolia, Inner Mongolia, [inaudible]. So we also, we are starting from I think the ore, I think you know then from the industry silicon, then to the polysilicon.

I think the whole production extremely I think you know to expansion, to show all products, all used from Mongolia, that’s the first. I think then for all those products, you know more expansion in Inner Mongolia we will use around 68% to 70% green energy..

Got it, okay. .

So, is that the question about the green energy?.

No, I think Longgen it wasn’t about green energy. It was about, do you prefer to – could you consider acquiring other polysilicon projects that are struggling.

Is that something that you're open to or do you think you might – to expand capacity would you only do your own construction or do you think you might actually go out and buy other facilities that are under, well that have started production, but are struggling? Thanks. .

Of course. It only depend on you know in which situation. Just like you said, if some under – you know the – what’s it called? Underperformance or whatever you see is the struggling asset you know, of course we are weighted, that’s why we keep a strong financial statement and balance sheets, yes. .

Great! Okay, do you have a sense of timing as to when you could acquire another company’s polysilicon assets?.

We think the best time maybe I think in year 2024 or maybe next half of you know – second half of next year. It’s no time schedule, because right now yes, we see – it’s already [inaudible] in channel for selling, but the price is still too high..

Got it! Okay, great. One last question and I’ll pass it on. As it relates to the Chinese government, you know there have been some reports that maybe they get involved in the industry because the poly pricing is so high. What are your thoughts as to what they could do? Do you think that's actually possible and what do you think happens next? Thanks..

I think the Chinese government is encourage I think a free market. Even last year I think the price also had changed, but the government never say you know, come here and say hey, you have to you know sell in the products at a certain price.

I think in the whole industry, you know the value chain, I don’t think the governments will do anything on the price side. You know it will only depend on the market you know, how much the module price you can sell in – can you sell, right. Then the installation, even the state owned company right now is a step in the solar silicon power plant.

The COD plant or you know the distributor plant. So I don't think you know the governments will put their nose I think on the private sector, even the market, you know the pre-market, I don't believe. Even though some news there – I think all those news, you know some make mistakes, some with you – I don't know some people maybe intending to do that. .

Got it! Okay. Thank you for taking all my questions. I’ll pass it on.

Thanks!.

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

Yeah, thank you for taking my questions and congratulations on a very strong second quarter results. So I got three questions. So firstly I want to ask, so recently we have seen some of our polysilicon peers have signed long term polysilicon supply contracts with some new comers in the wafer industry.

Just wondering if Daqo is also you know planning negotiation with some wafer companies in terms of polysilicon contracts?.

Okay, the first kind, the question is about the long term contract with you know our downstream clients, the wafer producer. We’re starting entry I think you know the year 2020. Basically we see the price, polysilicon price will go up. So that’s why you know we signed those long term contracts. But Daqo is differentiated from our peers.

Basically we signed the long term contract in the cover, the year, three years to five years long term contracts and we locked the candidate. But we also – not locked the price, but we also collect the deposits, high deposits. So starting in the year 2020 we collect starting from RMB 3.6/kg to now RMB 7.2/kg.

So if the wafer producer is not paid the down payments, we don’t think the contracts have strong combined you know – the legal combination. So that’s why our policy will stick on there. Today we have I think nine long term contracts I think with our strategic clients, but we’ll continue to sign. I think we will point out another bigger one.

But we’re different from other people. You see, if you see the market we’re in now, we lease a lot of our peers, but those contracts I am not going to comment okay. That maybe not to receive any, even lower deposits. We still keep our principal. We have to collect a certain amount of deposits to keep the contracts, long term contracts effective.

Gary?.

Yeah, thank you. This is helpful. And my second question is also on the kind of the new comers. So I think recently there’s some news that there’s one company, Shanghai Holdings announced that they have kind of a commission to this long kind of political project.

So just wondering, so I imagine then maybe you actually have more, whether you believe those new comers, their kind of product can lead to be industry standard and how – and also second question, so usually I think for us it usually only takes around two to three months as to run proper capacity.

Then how long do you think it may take these new comers to run popular capacity to, if we were to have full utilization?.

In other comments, you know our downstream clients, basically what you say is that one of the clients is our clients and we have been using the focus, seeing our module, even partial capacity on the sale. They are now seeking investments in Xinjiang, Shanghai.

So we're not going to comment on whether they are going to really invest or not, whether they have the technology or not, but anyway today announced, a lot of people announced they want to jump into the polysilicon I think production.

But just like I said, because our polysilicon production long term investment construction period, the design and the equipments are made and also I think you know a lot of capital investments. So technology – with technology and the people, it’s not that easy to jump into then to immediately I think a ramp up of the product.

So we’re not to do any comment on that, but yes, I think today polysilicon production of our expansion have a lot of products when your there. If you have contract, I know maybe more than 10, I think you know the size of five – 50,000 metric tons production line is working out there.

But we don’t know really how much you know will come out of real production capacity. But as we know like [inaudible], like Tongwei, like [inaudible], I think those will be clear if they declare I think you know expansion, the schedule.

I think because they already improved I think their production, their quality and their scale, I think maybe that will be true and believable. Then other, we’re not going to do any comments, because really a lot of uncertainty there.

So that’s why I think today the polysilicon price, a lot of people you know projection polysilicon price changed, maybe turned around you know in the near term. But we consider it different, just like I mentioned there.

We think you know the polysilicon price is possible linked to module price and we think – I think in one year or more, I don’t think the price will do down. So we think the price maybe will slightly go down is the Q4 2023, then really back to maybe normal around the 120 in 2024. Thank you, Gary..

Yeah, thank you. So quickly my last question is on the share repurchase.

So I just wanted to ask if the company have any kind of guidance, what kind of share price range that we would consider to do more share repurchase and also when I look at the company, the numbers of shares in this first half, I saw that the number of shares actually increased a little bit.

So just wondering why is that, like because we are currently doing repurchase? Thank you..

Okay, thank you Gary! So we have started our share repurchase program and we have been repurchasing in the month of June and July and through the term B5 program for example.

And so far, I think as of today we purchased approximately $50 million or so and we will continue to repurchase in the coming months, especially given the open window period that’s coming up. And definitely you know we think the current share price levels certainly is extremely attractive.

You know you can see the company has almost $4.6 billion in capital and generating very healthy cash flow and you have – also has respectively the same as how much the company has in terms of cash-on-hand. And so definitely we will continue to purchase at the current cycle or even at higher than the current levels. .

Then also Gary, just to let you know that, because we are now, I think you know the Xinjiang Daqo is in the Asia listed. So we'll continue to declare the dividend policy. So in the future, especially this year, high profit will distribute a high I think you know quantity of capital of dividend. So we will continue to keep the repurchased program.

In order to protect the U.S. shareholders, and we're also considering because of Foreign Accounting Reporting Act, a possible listing in China contact you know the stock. We are considering the new primary listing in Hong Kong stock exchange, we are considering that also. Thank you. .

Thank you, Ming and Longgen. That’s all thank you. .

Okay, thank you..

Our next question comes from Chao Ji with Goldman Sachs. Please go ahead. .

Hi! Thank you for taking my question. Can you please share your view for the cost trend for the coming third and fourth quarter? And also when we ramp up our 5A project, what kind of production and costs or cost level that we could be looking for? Thank you. .

Okay. Hello Chao Ji! Thank you for questions about our costs. So I think quarter-over-quarter, well Q2 compared to Q1 you could see a 28% reduction in costs, while our current cost structure is about $7.26/kg and the previous quarter in Q1 with about $10/kg.

I think a lot of this reduction it coming from a reduction, for example in energy usage in terms of the utility, electricity and zinc [ph]. Also a reduction in both, our usage of silicon powder on a per unit basis, as well as a reduction in silicon powder pricing.

And we continue to see – I think based on our cost trends in June and July, for example we continue to see our costs to decline.

So for example, our June cost is below May and then July cost in below June as an example and benefiting both from economies of scale and manufacturing efficiencies, as well as continued reduction in silicon metal cost in the market in our procurement.

So – and actually we've taken the opportunity to purchase some additional silicon metal, supply in view of the current lower pricing. So we would expect our Q3 costs to be lower than our Q2 costs in beneficial trends and Q4 is also looking very positive.

And now for our Inner Mongolia cost, we would think that because of the scale of Inner Mongolia in terms of manufacturing efficiencies it’s a single 100,000 MT site and with a lower number of employees as an example compared to our Xinjiang site. So it has a very competitive cost structure.

So we would think Inner Mongolia as a minimum would be about the same cost as our base will be, I think which generally is about 3% to 5% than our – lower than our overall average cost. So we would think that Inner Mongolia will have even better cost than our Xinjiang Daqo cost. By the way, Inner Mongolia we will produce our own silicon metal.

I think we are starting project this afternoon at the border, Mongolia boarder next to Xin [ph]. And we think in our own silicon metal we produced maybe the first half of next year. So if we use our own silicon metal, I think the cash cost will be blow RMB 30/kg..

Great! Thank you so much. .

Thank you, Chao Ji..

Our next question comes from Alan Lau with Jefferies. Please go ahead. .

Thank you for taking my question and congratulations to management on the record breaking results again. So my first question is, in regards to – it’s a quick one and it's regards to what is the target dividend payout ratio, because last year we had around 20%.

So what do you expect to be a reasonable payout ratio for this year?.

Okay, first of all. I think you know I cannot give you exactly I think the target ratio, but basically the solar industry in Asia, I think the ratio is around 20% to even 50%. So I think this year 25% of the cash flow, also during the offering. So we believe I think the ratio in the future will be between I think 20% to 30%, even 40%.

So it’s based on the board, I think it makes a decision..

Understood! So, thanks a lot. And would you mind to share the progress on the plants in first of all the Phase 5A and also the project in Xinjiang Daqo.

Sorry, the Phase 5B project, like is there any approval or is the progress on the way?.

You mean the Phase 5A, the Phase 5A, we are now I think – yeah, I think we were starting the design last year October. I think we in the field I think it’s starting because of land issue, we are starting in the I think June and July.

Right now I think all the equipment we design and order will deliver to the sites during the August to the September before the winter. So basically we make a decision I think you know – we were starting I think the primary production in Q1, so ramp up in the Q2 of next year. So everything we are now in schedule.

Then the Phase 2, you mean the 5B, when possible I think it was starting I think this year, maybe Q4 we were starting. We are already starting all this design, already starting last week. Then also all the improvements, you know application we are already starting and finished showing the governments.

So basically we believe, I think we can start in I think Q4 this year. So hopefully we can start in production by the end of next year or even early 2024..

Okay, thank you. So my last question here is about, in view of the N-type transition trends, so and I also heard just now the management has mentioned there's some R&D cost in relation to N-type.

So can you share with us, what is the development as to now and like what's the percentage of N-type product and the company offer in its like existing plant and new plant?.

I think N-type, I think you know silicon for 5A we can 100% manufacturing I think in our anywhere 100,000 tons. If we produce – manufacturing P-type or maybe the capacity more than that, maybe you can reach to I think 110,000 tons even 120,000 tons.

So today in Xinjiang we are now – I think if we are manufacture N-type we can make – basically we now consider the equipments, the status and didn’t do any improvements, I think a technology improvement. We can produce 75% N-type polysilicon. This probably is right now, the N-type polysilicon in the market is not that bigger.

We are now only I think of one company right now, put I think N-type production; I think 15 GW, 16 GW right now starting. 8 GW I think last week and last month, this month another 8 GW starting production, so the demand is not too much. Every month, we are now, I think N-type right now we are serving around I think 800 to 1,000 MT.

So the price only is $3 – RMB3 plus compare the P-type, polysilicon price. So I don’t think this year N-type will account too much, maybe around 5% to 10% this year. Next year maybe around you know 15% to 25%. Really I think, P – transfer P to N, the technology still it think potentially still takes time.

At least takes I think you know one year and one and a half year to reach the cost effective N-type sale production line. .

Understood. Thanks a lot.

Once again thank you for taking my questions and congratulations!.

Great! Thank you, Alan. .

Our next question comes from Rajiv Chaudhri with Sunsara Capital. Please go ahead..

Congratulations Longgen on a great operational performance and great financial performance in the last quarter.

I have a couple of questions, the first one is, what is the interest rate that you are getting on the cash that you have on the balance sheet and what do you expect it to be over time? Because obviously, you will have a lot more cash accumulating in the next several quarters. .

Okay, I think because we're also A listed, Asia listed company here in China, I think there is more restrictions on the type of bank deposit we could do or higher yield investment products which generally need to be what’s considered principle protected or guaranteed by the issuing bank.

So I would say generally the current deposit rate is somewhere between 1.8% to about 2%, so that’s the current average interest rate we’re seeing right now. .

Okay.

And secondly, on the share buyback, should we expect that next year as well when you announce the dividends and the dividend payout ratio may be higher than the 20% that we had this year, that the share buyback will be the primary way that you will return cash to shareholders that who are listed in the United States and it will not be a dividend in other words.

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I think Rajiv, I think it depends on. First of all, I think it will consistently do the I think a dividends policy, because based on the Asia company they will do there. I think this dividend, I think declared percentage, just you know target, basically on the industry, basically on the – I think you know the experience.

I think it was between the profit, the net profit, attributable net profit, 20% to 50%, you know the range is there. We continue going to do repurchase program or dividend to the U.S. shareholders. It depends on the U.S. cap to market, right.

If let’s say the market value is higher, for example is like let’s say is 20 whatever in 100 billion or 200 billion, then we may declare dividend for the board you know considering. If the Daqo price, you know the valuation is under by today’s situation, definitely we’ll do the repurchase program.

So it all depends on market situation going, the valuation we consider. .

Right, right. Thank you, that’s very helpful. Finally you mentioned the possibility of a Hong Kong listing.

Is that a decision that has already been made? Are you thinking about it? And can you tell us more about what the time line might be for such an action?.

We are considering that, the reason because you know the possible – I think U.S., you know a foreign company reporting at, it’s possible you know the agreements, we reach agreements in time between the U.S. and China governments. So in order to protect the U.S. shareholders, yes the board is already considering discuss this issue.

So we already do some study. I think we got the banker, the U.S. banking proposal. Yes we consider, will consider, very serious considering the due primary listing in Hong Kong Stock Exchange. If we are going to take the fulfilling, we’ll it take quickly. I think maybe around I think six months we were down there.

So basically yes, in the near future we’ll announce that. .

Okay, thank you very much. .

Thank you, Rajiv. .

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

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