Q2 2024 Daqo New Energy Corp Earnings Call

August 26, 2024

Hello, and welcome to the dark coat, new energy second quarter 'twenty 'twenty four results conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad after today's presentation.

There will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad 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 Anita Shoe Investor Relations Director. Please.

Speaker Change: Go ahead.

Anita Shu: Hello, everyone I'm money that you the Investor relations about when you're out and thank you for joining our conference call today, California, Why don't you just issued its financial results for the second quarter of 'twenty 'twenty, four which can be found on our website at Ww don't dig.

Speaker Change: <expletive> here solar Dot com. So today attending the conference call, we have our chairman and CEO, Mr shall Shea our CFO, Mr. Ming Yang and myself the call today will begin with an update from Mr. Hu on market conditions on company operations and then Mr. Yao will discuss the company's financial performance for the quarter and the year after.

Anita Shu: That will open the floor to Q&A from the audience.

Speaker Change: 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 provision of the U S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and.

Operator: Our participants will be in listen only mode.

Operator: Should you need assistance, please signify conference specialist by pressing star than zero on your telephone keypad.

Speaker Change: Oh certainly.

Operator: After today's presentation, there will be an opportunity to ask questions.

Number of factors could cause actual results to differ materially from those containing any forward looking statements.

Operator: To ask a question, you may press star than one on your telephone keypad.

For information regarding these and other risks is included in our request for documents, we have filed with or furnished to the securities and Exchange Commission.

Operator: To withdraw your question, please press star than two.

Speaker Change: 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.

Operator: Please note this event is being recorded.

Anita Xu: I would now like to turn the conference over to Anita Xu, investor relations director.

Speaker Change: The other required under applicable law also during the call 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.

Anita Xu: Please go ahead.

Anita Xu: Hello everyone.

Anita Xu: I'm Anita Xu, the investor relations of Daqo New Energy.

Speaker Change: Mr. Hu will make his remarks regarding current market conditions and company performance and Chinese most all translate into English after he finishes.

Anita Xu: Thank you for joining a conference call today.

Speaker Change: Now I'll turn the call to our CFO or CEO.

Mr. Hu: And that single cell types in the fire.

Mr. Hu: Yeah.

Mr. Hu: Sure.

Mr. Hu: Okay.

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Anita Xu: Daqo New Energy is just issued a financial result for the second quarter of 2024, which can be found on our website at www.dqsolar.com.

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Mr. Shoes: Oh, Hello, everyone is funny to all know translate our CEO Mr shoes for March.

Oh, the solar industry experienced significant challenges during the second quarter as market prices fall across the solar value chain to below production called for nearly the entire industry.

Speaker Change: And of course, our powerful what kind of I S. T fell below our production costs. We were required in accordance with Italian were also recorded a noncash inventory impairment expense of 108 million because our inventory market value falls below book value. That's had a significant negative impact on our cost of revenue gross loss operating loss and net loss.

Speaker Change: Nevertheless, we continue to maintain a strong balance sheet and free up financial debt by the end of the quarter, we had a cash balance of 997 million and our combined cash and think they'll receive over the balance of $1 1 billion.

Speaker Change: To take advantage of higher interest rates compared to Thanksgiving. He purchased $1 4 billion U S dollars of short term investments on fixed term deposits during the quarter inclusive of short term investment and fixed term deposits, we had adequate liquidity with a balance of quick assets in the amount of $2 5 billion yourself.

Speaker Change: On the operational front during the second quarter. We started initial production that are 100000 metric tonnes phase <unk> polysilicon project and around Goliaths plant, which contributed approximately 12% of our total production volumes.

Overall, the total production volume of our two also come facilities for the quarter was 64961 metric tons.

Speaker Change: Our expectations and representing an increase of 2000, and 683 metric tons compared to production volume for the previous quarter.

Speaker Change: Through continued investment in R&D and dedicated into purity improvements at both facilities are overall anti product mix reached 73% during the quarter.

Speaker Change: Firstly, even on phase <unk>, which was still in the ramping up stage.

Speaker Change: So many personal and type of the product snakes, strengthening our confidence in achieving a hunger for southern tide by the end of next year.

Speaker Change: That's a R. A production cost trended down further in the second quarter decreasing by 3% from Q1, 'twenty 'twenty four to an average of 6.19 per kilo.

Speaker Change: In light of the current market conditions and pricing, we have adjusted our target production utilization rate for the third quarter and our production plan for the full year.

Speaker Change: We expect our Q3 'twenty 'twenty four total polysilicon production volume to be approximately 43000 metric tons to 46000 metric tons as we start up maintenance and lowered our production utilization rates to support pricing and reduce our cash burn as a result, we anticipate our full year 2024 production volume to be in there.

Speaker Change: Range up to 210000 metric ton to 220000 metric tons.

Speaker Change: During the second quarter solar market sentiment.

Speaker Change: The press and customers show little interest in purchasing for products. As a result, pulsar comprises kept setting new lows below production cost or even below cash cost polysilicon prices plummeted from slightly from about RMB 60 per kilogram on average we April so.

Speaker Change: RMB 42, 55 per kilogram in late April a further drop below RMB 40 per kilogram near the end of May through the end of June.

Speaker Change: Overall sales pressure intensified as industry wide plus the kind of inventory increased from approximately 18 to 20 days of production in early April to more than a month of production by the end of Q1.

Speaker Change: Prices declining for weeks to below the industry's cash cost and inventory accumulating we began to see mention of system production costs across the industry.

Speaker Change: Based on industry statistics, the total polysilicon production volume in China dropped about 15% from approximately 192 1000 metric tons per month in April to approximately a 162000 metric tons in June however, the supply paulsville kind of still exceeded the waiver of customer demand.

Speaker Change: Which has dropped to around 50 kept gigawatt issue due to a lower utilization rate in July although there have been further industry pause the production cuts and chicken demand from downstream manufacturers will be needed to drive inventory reduction and price recovery.

Speaker Change: That's all the industry has gone through multiple cycles in the past and based on our previous experience. We believe the current low price market downturn will eventually result in a healthier market I've pulled profitability of losses and cash burn won't be too many industry players exiting the business with some possible bankruptcy. This hope you bring the.

Speaker Change: Evidence of all capacity rationalization.

Speaker Change: Actually solve the current overcapacity and ultimately bring the solar PV industry back to normal profitability and better margins.

Speaker Change: This year will be challenging for China solar PV industry, I saw where manufacturers along the value chain experienced weak weak margin driven by oversupply excessive inventory at lower prices.

Speaker Change: First point, we may have reached a cyclical bottom, but do not yet see clear signs of potential improvement.

We believe that the current situation of selling below cost cause it's all sustainable and there are many solar firms are facing significant cash cash flow challenges leading to delays in loan repayment and what our deliveries.

Speaker Change: Therefore, we're likely to see some market consolidation with higher cost manufacturers gradually phasing out capacity exiting the business.

Speaker Change: So recently, the China photovoltaic industry Association has urged central and local governments financial institutions and companies to coordinate to accelerate industry consolidation.

Chinese policymakers are also calling for the healthy expansion of the solar industry.

China's ministry of industry, and information technology, and shoot or dropping early July by such rules for solar projects, such as meeting specific electricity consumption requirements and minimum capital ratio for new and expansion projects to.

To ensure the high quality of development of the solar PV industry and eliminate all data capacity.

Speaker Change: On the demand side, we continue to see strong growth in your solar PV installations in China. During the first half of 'twenty 'twenty, four which reached 102.48 gigawatt, representing a 30.7% year over year growth rate.

Speaker Change: We're all in the long run solar PV is expected to be one of the most competitive forms of power generation in China, and our continuous cost reductions of solar PV products and the associated reduction in solar energy generation costs are expected to create substantial additional demand for solar PV.

Speaker Change: We believe that we're well positioned to weather the current market downturn and emerge as one of the leaders in the industry to capture future growth.

Anita Xu: So today attending the conference call, we have our chairman and CEO, Mr. Xiang Xu, RCFO, Mr. Ming Yang and myself.

Ming Yang: So now I'll turn the call to our CFO, Mr. Ming Yang will discuss the company's financial performance for the quarter Ma'am. Please go ahead.

Ming Yang: [laughter].

Ming Yang: Thank you Mr. Sheehan Anita Hello, everyone. This is me.

Anita Xu: The call today will begin with an update from Mr. Xu on market conditions and company operations.

Ming Yang: Yang CFO of Taco New energy. We appreciate you joining our earnings conference call today.

Anita Xu: And then Mr. Yang will discuss the company's financial performance for the quarter in the year.

Anita Xu: After that, we'll open the floor to Q&A from the audience.

Ming Yang: I will now go over the company's second quarter 2024 financial performance.

Anita Xu: Before we begin the floor more 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 cover of provisions of the U.S, private security and litigation reform act of 1995.

Speaker Change: Revenues were 220 million I believe.

Speaker Change: <unk> two $415 3 million in the first quarter of 2024.

Speaker Change: We're in 37 million in the second quarter of 2023.

Speaker Change: The decrease in revenue compared to the first quarter of 2024 was primarily due to a decrease in the S. P as well as decreased sales volume.

Speaker Change: Gross loss was 159 million compared to a gross profit of 72 million in the first quarter of 2024, and 259 million in the second quarter of 2023.

Speaker Change: Gross margin was negative 72% compared to 17, 4% in the first quarter of 2024 and 47% in the second quarter of 2023.

Speaker Change: For the second quarter of 'twenty 'twenty four.

Speaker Change: We recorded a 108 million inventory impairment expenses that the company's inventories market value falls below book value.

Speaker Change: The decrease in gross margin compared to the first quarter of 2024. It was also due to lower ASP, which was partially mitigated by lower production costs.

Speaker Change: SG&A expenses were $37 5 million compared with $38 4 million in the first quarter of 2024, and $43 3 million in the second quarter point 23.

Anita Xu: These statements involving hair risks and uncertainties. A number of factors could cause actual results 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 were furnished to the Securities and Exchange Commission.

Speaker Change: Expenses during the second quarter included $19 6 million in noncash share based compensation costs related to the companys share incentive plan.

Speaker Change: <unk> to $19 6 million in the first quarter of 2024.

Speaker Change: R&D expenses were $1 8 million compared to $1 5 million in the first quarter of 'twenty 'twenty, four and $2 2 million in the second quarter of 2023.

Speaker Change: R&D expenses vary period.

Speaker Change: From period to period.

Speaker Change: You flip R&D activities that take place during the quarter most of our R&D.

Speaker Change: Activities has been around increasing our N type of centers.

Speaker Change: As a result of the foregoing loss from operations was $196 million compared to income from operations of $30 5 million in the first quarter of 2024, and 214 million in the second quarter of 2023.

Speaker Change: Operating margin was negative 89% compared to seven 3% in the first quarter of 2024 and 33, 6% in the second quarter of 2023.

Speaker Change: Foreign exchange loss was $1 4 million.

Speaker Change: Paired with <unk> 3 million in the first quarter of 'twenty 'twenty, four which is attributable to the volatility of the fluctuation of the U S dollar and Chinese Yuan exchange rate during the quarter.

Speaker Change: Net loss attributable to shareholders.

$20 million compared to net income of <unk>.

Speaker Change: $15 5 million in the first quarter of 'twenty 'twenty, four and 137 million in the second quarter of 2023.

Speaker Change: Loss per basic ads for the quarter was a dollar.

And 81.

Speaker Change: Compared to earnings per share from 24 cents in the first quarter up 1.4.

Speaker Change: <unk> 35 in the second quarter of 2023.

Speaker Change: Cause.

Speaker Change: Okay.

Speaker Change: Our non-GAAP adjusted net loss attributable to Darko, new LNG shareholders, excluding noncash share based compensation costs.

Speaker Change: It was $98 8 million compared to adjusted net income.

Speaker Change: non-GAAP attributable to that for new energy shareholders of 36 million in the first quarter of 2024, and $134 5 million in the same quarter of 2023.

Speaker Change: But just at a loss for basic a D S worth $1.55 compared to adjusted earnings per basic 80 years of 55 cents in the first quarter 'twenty 'twenty $4 75 in the second quarter of 2023.

Speaker Change: EBITDA was.

Speaker Change: Was negative 145 million compared to $76.

One 9 million in the first quarter of 2024.

Speaker Change: 230 million in the second quarter of 2023.

EBITDA margin was negative 66%.

Speaker Change: Compared to 18, 5% in the first quarter of 2024.

Speaker Change: 36% in the same quarter of 2023.

Speaker Change: Now on the company's financial condition.

As of June 30th 'twenty 'twenty four.

Speaker Change: He had a billion dollars in cash and cash equivalent at Fitbit cash compared to $2 7 billion as of March 31st 2024 and two.

Speaker Change: <unk>, one 7 billion as of June $38 23.

Speaker Change: As of June 30th for not only for the notes receivable balance was $80 7 million compared to 194 million as of March 31, 2024 and seven.

Speaker Change: $198 million, So June 30 of 2023.

No receivable to present bank note maturity within six months.

Speaker Change: As of June 32024, fixed term deposits within one year balance was $1 2 billion.

Speaker Change: Paired to nil in previous periods.

Speaker Change: For the six months ended June 30 of 2024 net cash used in operating activities.

Speaker Change: We're at $78 6 million compared to net cash provided by operating activities of 786 million in the same period of 2023.

Speaker Change: And for the six months ended June 30th point already for <unk>.

Speaker Change: Cash used in investing activities was $1 7 billion compared to 496 million in the same period of point in 'twenty three.

Speaker Change: The net cash used in investing activities in the second quarter was partly due to purchase of short term investment of fixed term deposits, which amounted to $1 4 billion.

Speaker Change: And regarding the company's purchase of property plant and equipment.

Speaker Change: For the first six months of this year this amounted to $292 million.

Anita Xu: 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.

Speaker Change: We currently anticipate full year capital expenditures in the range of 550 to 600 million, which is a further reduction from our earlier plan.

Anita Xu: 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 will occasionally reference monetary amounts in U.S, dollar terms.

Speaker Change: Capital expenditure for the second half of 'twenty 'twenty four is therefore expected to be the range of $260 million to $210 million.

Anita Xu: Please keep in mind that our functional currency is a Chinese RMB.

Speaker Change: I'm not sure for the year is primarily related to our inner Mongolia Polysilicon project.

Speaker Change: Phase one and phase two.

And for the six months ended June 32024, net cash used in finance activities was $43 million compared to 477 million in the same period of 2023, the net cash used in finance activities in the second quarter of 2024 was primarily related to dividend payments and share repurchases by all companies notice.

Anita Xu: We offer these translations into U.S, dollars solely for the convenience of the audience.

Anita Xu: Mr. Xu will make his remarks regarding current market conditions and company performance in Chinese.

Speaker Change: Subsidiary.

Speaker Change: And that concludes our prepared remarks, we'll now open the call to Q&A from the audience operator police again, we.

Anita Xu: Let's all translate into English after he finishes.

Operator: Hello and welcome to the Daqo New Energy Second Quarter 2024 Results Conference Call.

Operator: Hello and welcome to the Daqo New Energy Second Quarter 2024 Results Conference Call. Our participants will be in listen only mode. Should you need assistance, please signify conference specialist by pressing star than zero on your telephone keypad.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question.

Operator: Our participants will be in listen only mode.

Xiang Xu: So now I'll turn the call to our CEO.

Operator: Should you need assistance, please signify conference specialist by pressing star than zero on your telephone keypad.

Operator: After today's presentation, there will be an opportunity to ask questions.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than one on your telephone keypad. To withdraw your question, please press star than two. Please note this event is being recorded.

Operator: To ask a question, you may press star than one on your telephone keypad.

Speaker Change: Please press Star then two.

Operator: To withdraw your question, please press star than two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Operator: Please note this event is being recorded.

Xiang Xu: [inaudible] Mr. Lee, Mr. Lee,[inaudible] Mr. Lee, Mr. Lee, Mr. Lee, Mr. Lee, Mr. Lee, Mr. Lee,[inaudible] Mr. Lee, Mr. Lee, Mr. Lee[inaudible][inaudible] During the second quarter, solar market sentiment was depressed, and customers showed little interest in purchasing for products.

Speaker Change: The first question comes from Phil <unk>.

Anita Zhu: I would now like to turn the conference over to Anita Xu, Investor Relations Director.

Anita Zhu: I would now like to turn the conference over to Anita Xu, Investor Relations Director. Please go ahead.

Anita Zhu: I would now like to turn the conference over to Anita Xu, Investor Relations Director. Please go ahead. Hello everyone.

Phil: <unk> with Roth capital partners.

Anita Zhu: Please go ahead.

Speaker Change: Please go ahead.

Matt Ingram: Hi, This is Matt Ingram on for Phil. Thank you for taking our questions. Yeah. Looking ahead can you give us a sense of pricing and cost structure beyond this year do you think that there could be some recovery in price next year and how much room, how much more room do you have to lower the cost structure.

Anita Zhu: Hello everyone.

Anita Zhu: I'm Anita Zhu, the Investor Relations of Daqo New Energy.

Anita Zhu: I'm Anita Zhu, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy is just issued a financial result for the second quarter of 2024, which can be found on our website at www.dqsolar.com. So today attending the conference call, we have our chairman and CEO, Mr. Xiang Xu, RCFO, Mr. Ming Yang, and myself.

Xiang Xu: As a result, policy compressors kept studying new loads, below production costs, and even below cast costs.

Anita Zhu: Thank you for joining our conference call today.

Anita Zhu: Thank you for joining our conference call today. Daqo New Energy is just issued a financial result for the second quarter of 2024, which can be found on our website at www.dqsolar.com. So today attending the conference call, we have our chairman and CEO, Mr. Xiang Xu, RCFO, Mr. Ming Yang, and myself.

Anita Zhu: Daqo New Energy is just issued a financial result for the second quarter of 2024, which can be found on our website at www.dqsolar.com.

Speaker Change: Yeah.

Anita Zhu: So today attending the conference call, we have our chairman and CEO, Mr. Xiang Xu, RCFO, Mr. Ming Yang, and myself.

Speaker Change: Hello. This is me philosophically you might actually be thank you.

Speaker Change: Your question I think in recent months, particularly in August.

Xiang Xu: The call today will begin with an update from Mr. Xu on market conditions and company operations.

Anita Zhu: The call today will begin with an update from Mr. Xu on market conditions and company operations.

Xiang Xu: The call today will begin with an update from Mr. Xu on market conditions and company operations.

Speaker Change: We've already seen some pick up in the recovery of pricing.

Ming Yang: And then Mr. Yang will discuss the company's financial performance for the quarter in the year.

Anita Zhu: And then Mr. Yang will discuss the company's financial performance for the quarter in the year.

Ming Yang: And then Mr. Yang will discuss the company's financial performance for the quarter in the year.

Xiang Xu: Policy compressors plummeted from slightly above RMB 60 per kilogram on average in April to RMB 40 to 55 per kilogram in late April. And further drop below RMB 40 per kilogram near the end of June.

Speaker Change: Needless to say that the bottom are I guess in terms of June and July the pricing was below 40 RMB per kilogram.

Anita Zhu: After that, we'll open the floor to Q&A from the audience.

Anita Zhu: After that, we'll open the floor to Q&A from the audience. Before we begin the forward 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 cover of provisions of the U.S. Private Security Solidigation Reform Act of 1995. These statements involving hero risks and uncertainties. A number of factors could cause actual results defer materially from those containing any forward-looking statement.

Anita Zhu: After that, we'll open the floor to Q&A from the audience.

And as of now our pricing is the range of 41 to 42 RMB per kilogram. So we saw.

Speaker Change: Erase some range between a two to three RMB.

Anita Zhu: Before we begin the forward 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 cover of provisions of the U.S. Private Security Solidigation Reform Act of 1995. These statements involving hero risks and uncertainties. A number of factors could cause actual results defer materially from those containing any forward-looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with were 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.

Speaker Change: Kilogram in terms of price recovery and this was primarily a result of the industry.

Anita Zhu: Private Security Solidigation Reform Act of 1995.

Speaker Change: Production reduction.

Speaker Change: Slight uptick in demand.

Anita Zhu: Further information regarding these and other risks is included in the reports or documents we have filed with were 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 call is as of today, and we undertake no duty to update such information except as required under applicable law.

Speaker Change: From customers.

Speaker Change: So we do not think the current pricing is sustainable.

Speaker Change: So we do believe that.

Speaker Change: I'd say over the rest of the year, we should continue to see.

Anita Zhu: These statements involving hero risks and uncertainties. A number of factors could cause actual results defer materially from those containing any forward-looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with were furnished to the Securities and Exchange Commission.

Speaker Change: Uh huh.

Speaker Change: Likely.

Anita Zhu: 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.

Anita Zhu: 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.

Speaker Change: Between two two.

Speaker Change: Let's say for RMB kind of price recovery.

Speaker Change: Production continued to remain at a lower level.

Anita Zhu: 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.

Anita Zhu: Also during the call, we'll occasionally reference monetary amounts in U.S, dollar terms. Please keep in mind that our functional currency is a Chinese RMB. We offer these translations into U.S, dollars solely for the convenience of the audience.

Speaker Change: And while.

Speaker Change: For next year, we do believe that was demand continued to improve especially from new markets like middle East a.

Anita Zhu: Also during the call, we'll occasionally reference monetary amounts in U.S, dollar terms.

Speaker Change: The Latin America Africa and.

Anita Zhu: Please keep in mind that our functional currency is a Chinese RMB.

Anita Zhu: Mr. Xu will make his remarks regarding current market conditions and company performance in Chinese. Let's all translate into English after he finishes.

Speaker Change: And I think so there.

Speaker Change: Good.

Speaker Change: Market developments in China and Europe. For example, so we do think that our price.

Anita Zhu: We offer these translations into U.S, dollars solely for the convenience of the audience.

Speaker Change: Pricing should be covered two at least.

Xiang Xu: Mr. Xu will make his remarks regarding current market conditions and company performance in Chinese.

Anita Zhu: So now I'll turn the call to our CEO. Mr. Xu, Mr. Xu, Mr. Xu, Mr. Xu, Mr. Xu.

Xiang Xu: So now I'll turn the call to our CEO. Mr. Xu, Mr. Xu, Mr. Xu, Mr. Xu, Mr. Xu.

Speaker Change: Our production costs or maybe normalized to the current production cost Carlin production cost so.

Speaker Change: So we think maybe mid <unk>.

Speaker Change: Next year is when we will see normalized pricing for polysilicon.

Speaker Change: Great.

Speaker Change: But quickly followed by any of your cost structure.

Speaker Change: But we do think there continues to be a good opportunity to reduce costs I think we're seeing great success.

Speaker Change: Full cost transformer and I'm going to have a face to.

Facility I think you saw approximately 30% reduction of costs from Q2 to Q1, and we do expect that to the cost should be flat to slightly lower than Q2. So we think in the second half we should overall, we should see costs somewhat.

Anita Zhu: Let's all translate into English after he finishes.

Xiang Xu: [inaudible] Zhang Zhang Zhang Zhang Zhang Zhang[inaudible] Zhang Zhang Zhang Zhang[inaudible] Zhang Zhang Zhang Zhang Zhang Lee, Lee, Lee, Lee, Lee Lee, Lee, Lee, Lee, Lee, Lee, Lee, Lee, Lee, Lee Lee, Lee, Lee Lee, Lee, Lee, Lee, Lee Lee, Lee Lee, Lee, Lee, Lee, Lee,[inaudible] During the second quarter, solar market sentiment was depressed and customers showed little interest in purchasing for products. As a result, policy compressors kept studying new loads, below production costs and even below cast costs.

Around $6 or even slightly lower than $6.

Speaker Change: And we think they're just cost structure should continue next year.

Speaker Change: Really appreciate the color there and then can you just talk about the channel inventory in the market do you expect that to continue to grow near term and where do you think that peaks.

Xiang Xu: Overall sales pressure intensified as industry Y-plus-looking inventory increase from approximate 18 to 20 days of production in early April to more than a month of production by the end of June.

Speaker Change: Yeah.

Speaker Change: Oh, gosh, it's showing unless where it has already peaked.

Speaker Change: So inventory is actually coming Dallas of August and we think.

This should continue.

Speaker Change: To go down.

Speaker Change: I think primarily as a result of continued reduction in supply.

Speaker Change: So.

Speaker Change: We think you should probably reduce to a much more reasonable level by Q4 or by the end of the year.

Speaker Change: Right, so unless we see some kind of meaningful.

Xiang Xu: With prices declining for weeks to below the industry's cash cost and inventory accumulating, we began to see maintenance as a production cost across industry.

Speaker Change: Price recovery at least above the industry cash costs were are very unlikely to see improvements in production.

Speaker Change: Okay, great. Thank you for the color I'll pass it on.

Great. Thank you.

Speaker Change: The next question comes from Alan Lau with Jefferies. Please go ahead.

Alan Lau: Thanks for taking my question, so collect too.

Alan Lau: No about what is the breakdown on the impairment.

Speaker Change: 108 minutes because.

Speaker Change: And also the inventory level at the end of two killed because it appears that the production volume is higher than it was for them for 20000 choice training.

Xiang Xu: Based on industry statistics, the total policy income production volume in China dropped about 16 percent from approximately RMB 192,000 a month in April to approximately RMB 132,000 a month in June.

Speaker Change: $20 and a fair assumption on the inventory level by end of <unk> and if that is the case and the impairment of a 108 minutes seems huge so we'd like to know debate or something.

Speaker Change: Okay. So.

Speaker Change: The reality is the 108 million is a reduction in.

Speaker Change: Not just finished goods, but also work in process inventory and raw material.

It reduces our cost you know from a production cost saves around $6 19.

Speaker Change: Per kilogram to really the current or the current market pricing, which is below 40 RMB per kilogram.

Speaker Change: And about.

Speaker Change: 60% of that is related to our finished goods inventory.

Speaker Change: Okay and then.

Speaker Change: Looking at our inventory at the end of the.

Speaker Change: Quarter.

Speaker Change: It took me a minute let me quickly looked up.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Approximately 28000 metric tons.

Xiang Xu: However, the supply policy income still exceeded the wafer customer demand, which has dropped around 50 kip gigawatt in June due to lower utilization rate.

Speaker Change: Okay. So so we built roughly 20000 metric tons of inventory a lot like you said during the quarter because of the market conditions and the weak demand.

Xiang Xu: In July, although they're having further industry policy comproduction cuts, an uptick and demand from downstream manufacturers will be needed to drive inventory reduction and price your coverage.

Speaker Change: Although I think starting in August we are starting to see a reduction in inventory right now.

Yeah.

Speaker Change: Yeah.

Xiang Xu: The solar industry has gone through multiple cycles in the past, and based on our previous experience, we believe the current low market downturn will eventually result in a healthier market. As full profitability losses in cash burn will lead to many industry players exiting the business with some possible bankruptcies. This will bring the inevitable capacity rationalization eventually solved the current overcapacity and ultimately bring the solar PV industry back to normal profitability and better margins.

Speaker Change: Thank you so.

Speaker Change: If 60% is finished goods so yes.

Basically around I guess 60 to 70 million off the impairment is related to.

Speaker Change: Hmm T depending on 128 <unk> thousand.

Speaker Change: <unk> thousand tons right. So that's so like around two to $3 per kilogram. So.

Speaker Change: So this is huge because the.

Speaker Change: Production costs the spread between the E. S. P N. The production cost piece to be only one picked it up right. So right to know what did I Miss anything from this one.

Speaker Change: Okay.

Speaker Change: Okay. I think you were let's see if we look at it.

Xiang Xu: This year will be challenging for China solar PV industry as solar manufacturers along the value chain, experience weak margins driven by oversupply, excessive inventory and lower prices.

Speaker Change: Pricing, especially well what would it look you know.

Speaker Change: Well, we had to reduce our.

Speaker Change: Inventory to like somewhere in the range of 37 two.

Speaker Change: 38 RMB.

Per kilogram.

So that's what ill do a quick math.

Speaker Change: Got it.

Speaker Change: So the F D. A serious I have almost 38, but your production cautious only at around.

Speaker Change: 40, something strong has been time.

Speaker Change: 45, 45 RMB per kilogram.

Speaker Change: Yeah.

Speaker Change: Right or wrong.

Speaker Change: Yeah, that's right.

Speaker Change: Yeah.

Speaker Change: 12, RMB and then but if it's 28000 then it is still at most it should be like 300 million maybe.

Speaker Change: Since D D D payment from Mylan just 15.

Speaker Change: Yeah.

Speaker Change: Well.

Speaker Change: And then there's also a raw materials right and then.

Speaker Change: Our work in process inventory, that's also being.

Okay.

Speaker Change: Oh gosh.

Speaker Change: So maybe we'll move on to you are the guy didn't so.

Speaker Change: <unk> have noted that the production volume guidance on <unk>.

Speaker Change: Second half has reduced significantly so would like to know first of all do you thinking behind us just as to pretty soft cash and secondly.

Xiang Xu: At this point, we may have reached a thicker bottom, but do not yet see clear signs of potential improvements. We believe that the current situation of selling below cash costs is unsustainable and that many solar firms are facing significant cash flow challenges leading to delays in lower payment and order deliveries. Therefore, we are likely to see market consolidation with higher cost manufacturers gradually phasing our capacity and exiting the business.

Xiang Xu: So, recently, the China photovoltaic industry association has urged central and local governments financial institutions and companies to coordinate to accelerate industry and consolidation.

Speaker Change: What do you see.

Speaker Change: Who.

Speaker Change: The utilization rates of your peers do.

Xiang Xu: Chinese policy makers are also calling for the healthy expansion of the solar industry.

Speaker Change: Do they do they also cut their production.

Speaker Change: Volume as well.

Speaker Change: I would say yes.

Xiang Xu: China's Ministry of Industry and Information Technology issued a drafting early July that set rules for solar projects such as meeting specific electricity consumption requirements and minimum capital ratio for new and expansion projects to ensure the high quality development of the solar PV industry and eliminate our data capacity, on the demand side, we continue to see strong growth in new solar PV installations in China during the first half of 2024, which reached 102.48 gigawatts, representing 30.7% year-over-year growth rate.

Speaker Change: So for most of our peers I think with the exception of maybe one of the main one I think most have reduced utilization significantly I think in light of the current market pricing environment.

Xiang Xu: Overall, in the long run, solar PV is expected to be one of the most competitive forms of power generation in China, and a continuous culture reduction of solar PV products and the associated reduction in solar energy generation costs are expected to create substantial additional demand for solar PV.

Xiang Xu: We believe that we're well positioned to weather the current market downturn and emerge as one of the leaders in the industry to capture future growth.

Speaker Change: Certainly.

Speaker Change: You know the I think in the current.

Market condition, I think we have to balance right I think in the most economical way.

Ming Yang: So now I'll turn the call to our CFO, Mr. Ming Yang.

Speaker Change: In terms of maintaining production while at the same time minimizing cash burn cash loss.

Ming Yang: We'll discuss the company's financial performance for the quarter.

Speaker Change: We do believe that the current valuation level that we have.

Speaker Change: We're operating in.

Speaker Change: And the pricing remains at below cash cost.

Speaker Change: It's the most prudent and I think those are the most effective way of minimizing the therapy.

Speaker Change: The cash burn of the company.

Speaker Change: Sure sure.

Ming Yang: Please go ahead.

Speaker Change: In fact to see around 70% of utilization right. So will this impact the production costs or.

Ming Yang: Thank you, Mr. Xu and Anita.

Speaker Change: Okay fine.

Speaker Change: There's actually I would say overall, a very minimal impact on production cost I think once you want wanted to RMB.

Speaker Change: Yeah because.

Speaker Change:

Speaker Change: Almost.

Speaker Change: 80% of our courses.

Speaker Change: What we call a variable cost.

Speaker Change: Sure.

Speaker Change: The electricity and energy.

Speaker Change: And on other consumables.

Speaker Change: Dean.

Dean: And graphite and silicon see raw.

Dean: Yeah.

Dean: Understood.

Xiang Xu: Policy compressors plummeted from slightly above RMB 60 per kilogram on average in April to RMB 40 to 55 per kilogram in late April. And further dropped below RMB 40 per kilogram near the end of June. Overall sales pressure intensified as industry Y-plus-looking inventory increased from a approximately 18 to 20 days of production in early April to more than a month of production by the end of June. With prices declining for weeks to below the industry's cash cost and inventory accumulating, we began to see maintenance as a production cost across industry.

Dean: Regarding to the 60 pass it off.

Speaker Change: First one off $1 4 billion, so right to know how long, it's those investment and how liquid are those so basically the question is all related to buybacks because or would like to know what the liquidity of the company on that front.

Dean: Yeah.

Dean: Okay.

Speaker Change: Almost all of the fixed investment and term loans were purchased by.

Speaker Change: The Xinjiang Darko subsidiary right. So so in terms of the U S, let's call and all of our cash balances.

Speaker Change: Virtually all of it is in.

Xiang Xu: Based on industry statistics, the total policy will come production volume in China dropped about 15 percent from approximately RMB 192,000 a month in April to approximately RMB 132,000 in June. However, the supply policy will continue to exceed the wafer customer demand which has dropped around 50 kip gigawatts in June due to lower utilization rate. In July, although they're having further industry policy production cuts, an uptick in demand from downstream manufacturers will be needed to drive inventory reduction and price recovery.

Speaker Change: Illiquid savings accounts.

Speaker Change: Or or a money market fund.

Speaker Change:

Speaker Change: And then the one 4 billion primarily in either six months.

Speaker Change #100: But I would call it a fixed term deposits with Chinese domestic banks.

Speaker Change #100: Or.

Speaker Change #101: Uh huh.

Speaker Change #101: Our interest savings products offered by the banks.

I see so courageous.

Speaker Change #101: Mark.

Speaker Change #102: Oh, it's been three months right.

Xiang Xu: The solar industry has gone through multiple cycles in the past. And based on our previous experience, we believe the current low market downturn will eventually result in a healthier market. As full profitability losses in cash burn will lead to many industry players exiting the business. With some possible bankruptcies, this will bring the inevitable capacity rationalization eventually solved the current overcapacity and ultimately bring the solar PV industry back to normal profitability and better margins.

Speaker Change #102: Yes.

Speaker Change #103: I see so my last question is basically on the buyback. So the company has launched a 100 million buyback program.

Speaker Change #104: Program, So I'd like to know if the company is going to continue on the buyback and what is the planning.

Speaker Change #105: Off the buyback at like which.

Speaker Change #106: Price you would think its appropriate or do you think the current stock prices.

Speaker Change #107: The level, where you think the company will actually accelerate the buyback.

Speaker Change #107: Okay.

Speaker Change #108: Oh yeah.

Speaker Change #109: I think you all also in terms of the share repurchase.

Xiang Xu: This year will be challenging for China solar PV industry as solar manufacturers along the value chain experience week margins driven by oversupply excessive inventory and lower prices. At this point, we may have reached a cyclical topotum but do not yet see clear signs of potential improvement. We believe that the current situation of selling below cash costs is unsustainable and that many solar firms are facing significant cash flow challenges leading to delays in lower payment and lower delivery.

Speaker Change #110: So we are authorized and the amount of 100 million U S dollar back in July.

Speaker Change #110: So in terms of so we definitely think that our stock is undervalued, but in terms of the pace I would say that it will be contingent upon the market conditions are.

Speaker Change #110: And.

Speaker Change #110: Well well see even more.

Speaker Change #110: Opportunistic in terms of the repurchase.

Speaker Change #110: Right.

Xiang Xu: Therefore, we're likely to see some market consolidation with higher cost manufacturers gradually facing our capacity at exiting the business. So recently, the China photovoltaic industry association has urged central and local governments financial institutions and companies to coordinate to accelerate industry and consolidation. Chinese policy makers are also calling for the healthy expansion of the solar industry. China's Ministry of Industry and Information Technology issued a drafting early July that sets rules for solar projects, such as meeting specific electricity consumption requirements and minimum capital ratio for new and expansion projects to ensure the high-quality development of the solar PV industry and eliminate our data capacity.

Speaker Change #110: So where we're going to look to.

Speaker Change #110: To repurchase as many shares as possible for the company.

Speaker Change #110: Maximize the money that we spent in terms of its effectiveness.

Xiang Xu: So recently, the China photovoltaic industry association has urged central and local governments financial institutions and companies to coordinate to accelerate industry and consolidation. Chinese policy makers are also calling for the healthy expansion of the solar industry. China's Ministry of Industry and Information Technology issued a drafting early July that sets rules for solar projects, such as meeting specific electricity consumption requirements and minimum capital ratio for new and expansion projects to ensure the high-quality development of the solar PV industry and eliminate our data capacity.

Hershey: Hershey and and yes, yes explain sort of the cashless already.

Hershey: They're in the U S level. So so probably it's going to still go ahead in this year.

But that's our current assumption yeah.

Speaker Change #112: I see okay. Thank you I'll pass it on thank you.

Ella: Great. Thank you Ella.

Speaker Change #114: Again, if you have a question. Please press Star then one.

Speaker Change #115: The next question comes from Rajeev, Chowdhry with some sort of capital.

Speaker Change #116: Go ahead.

Rajeev Chowdhry: Good morning My.

Ming Yang: Hello everyone.

Xiang Xu: On the demand side, we continue to see strong growth in new solar PV installations in China during the first half of 2024, which reached 102.48 gigawatts, representing 30.7% year-over-year growth rates. Overall, in the long run, solar PV is expected to be one of the most competitive forms of power generation in China and a continuous culture reduction of solar PV products and the associated reduction in solar energy generation costs are expected to create substantial additional demand for solar PV. We believe that we are well positioned to weather the current market downturn and emerge as one of the leaders in the industry to capture future growth.

Ming Yang: This is Ming Yang, CFO of Daqo New Energy.

Rajeev Chowdhry: My question. The first question relates to the the fully loaded costs that you will incur in Q3 and Q4.

Ming Yang: We appreciate you joining our Ernie's conference call today.

Ming Yang: I will now go over the company's second quarter of 2024 financial performance. Revenues were 220 million compared to 415.3 million in the first quarter of 2024 and 637 million in the second quarter of 2023. The decreasing revenue compared to the first quarter of 2024 was primarily due to a decrease in the SPS as well as decreased sales volume.

Rajeev Chowdhry: Did you see the utilization rate shouldn't bad actually increase your fully loaded costs relative to the fourth quarter relative to the third quarter.

Ming Yang: Growth loss was 159 million compared to our growth profit of 72 million in the first quarter of 2024 and 259 million in the second quarter of 2023.

Speaker Change #118: Well I think interesting that's pass through with the cost structure.

Speaker Change #118: Polysilicon production.

Right right so roughly.

Ming Yang: Growth margin was negative 72 percent compared to 17.4 percent in the first quarter of 2024 and 40.7 percent in the second quarter of 2023.

35 to 40 per son is electricity and then another 35 precise silicon metal.

Speaker Change #118: And then majority of other cost is actually mostly consumables like graphite the slipping to see drawn and the packaging.

Ming Yang: For the second quarter of 2024, the company recorded 108 million in inventory impairment expenses as the company's inventory's market value falls below book value.

Xiang Xu: So now I'll turn the call to our CEO.

Ming Yang: So now I'll turn the call to our CEO, Mr. Ming Yang. We'll discuss the company's financial performance for the quarter. Please go ahead. Thank you, Mr. Xu and Anita.

Speaker Change #119: So if I as I look at what we would call you can call it variable costs, where we don't produce right. We don't we don't buy silicon metal, we don't buy the consumables.

Ming Yang: The decrease in growth margin compared to the first quarter of 2024 was also due to lower SPS which was partially mitigated by lower production costs.

Ming Yang: A CNA expenses were 37.5 million compared to 38.4 million in the first quarter of 2024 and 43.3 million in the second quarter of 2023. A CNA expenses during the second quarter included 19.6 million in non-cash share-based compensation costs related to the company's sharing incentive plans compared to 19.6 million in the first quarter of 2024.

Speaker Change #119: So these were percent actually more than 80% of the cost.

Xiang Xu: Mr. Xu, Mr. Xu, Mr. Xu, Mr. Xu, Mr. Xu.

Ming Yang: Hello, everyone. This is Ming Yang, CEO of Daqo New Energy. We appreciate you joining our earnings conference call today. I will now go over the company second quarter of 2024 financial performance. Revenues were 220 million compared to 415.3 million in the first quarter of 2024 and 637 million in the second quarter of 2023. The decreasing revenue compared to the first quarter of 2024 was primarily due to a decrease in the SP as well as decreased sales volume.

Ming Yang: Hello, everyone. This is Ming Yang, CEO of Daqo New Energy. We appreciate you joining our earnings conference call today.

Speaker Change #119: The remaining 20%.

Speaker Change #119: Approximately.

A 13% depreciation right, which is a noncash.

Ming Yang: I will now go over the company second quarter of 2024 financial performance. Revenues were 220 million compared to 415.3 million in the first quarter of 2024 and 637 million in the second quarter of 2023. The decreasing revenue compared to the first quarter of 2024 was primarily due to a decrease in the SP as well as decreased sales volume. Growth loss was 159 million compared to our growth profit of 72 million in the first quarter of 2024 and 259 million in the second quarter of 2023.

Ming Yang: Those of R&D activities has been around increasing our entire percentage.

Xiang Xu: As a result, policy compressors kept studying new loads, below production costs and even below cast costs.

Speaker Change #119: Portion, so yes, right depreciation will.

Speaker Change #119: You know the depression, the overall depreciation expense will be aggregated over a smaller volume.

Speaker Change #119: But I think the overall impact is not that much right because it's not a huge portion of our crosby well because of the the rest is labor.

Ming Yang: Growth loss was 159 million compared to our growth profit of 72 million in the first quarter of 2024 and 259 million in the second quarter of 2023. Growth margin was negative 72 percent compared to 17.4 percent in the first quarter of 2024 and 40.7 percent in the second quarter of 2023. For the second quarter of 2024, the company recorded 108 million in inventory impairment expenses as the company's inventory's market value falls below book value.

Labor was let me see.

Speaker Change #119: It was roughly 6% of our costs and then we were reducing labor costs by between 10% to 20%.

Ming Yang: Growth margin was negative 72 percent compared to 17.4 percent in the first quarter of 2024 and 40.7 percent in the second quarter of 2023. For the second quarter of 2024, the company recorded 108 million in inventory impairment expenses as the company's inventory's market value falls below book value. The decrease in growth margin compared to the first quarter of 2024 was also due to lower SP, which was partially mitigated by lower production costs.

Speaker Change #119: We were optimizing our.

Speaker Change #119: Our established staffing level for example, so I think the overall impact because actually not that significant.

Xiang Xu: Overall sales pressure intensified as industry Y-plus-looking inventory increased from a approximately 18 to 20 days of production in early April to more than a month of production by the end of June.

Speaker Change #119: We maintained production right, because where we're reducing.

Speaker Change #120: Reduction by what maybe.

Xiang Xu: With prices declining for weeks to below the industry's cash cost and inventory accumulating, we began to see maintenance as a production cost across industry.

Ming Yang: The decrease in growth margin compared to the first quarter of 2024 was also due to lower SP, which was partially mitigated by lower production costs. A CNA expenses were 37.5 million compared to 38.4 million in the first quarter of 2024 and 43.3 million in the second quarter of 2023. A CNA expenses during the second quarter included 19.6 million in non-cash share-based compensation costs related to the company's sharing incentive plans compared to 19.6 million in the first quarter of 2024.

Speaker Change #120: 30, 35% something like that.

Speaker Change #120: What I said at the previous level yeah.

Speaker Change #121: Second question is related to the the difference between production and sales. So you will produce 210 to 215.

Speaker Change #121: 15 of 230000 tons.

Speaker Change #121: But.

Speaker Change #122: The field is that likely to be higher than that right. I mean, if you expect inventories to get back to normal by the end of the year. Then sales is not likely to be a I don't know 242 to 50000 is that they're likely to look to think about it.

Ming Yang: R&D expenses were 1.8 million compared to 1.5 million in the first quarter of 2024 and 2.2 million in the second quarter of 2023. R&D expenses from period to period reflect on the activities that take place during the quarter. Those of our R&D activities has been around increasing our entire percentage. As a result of the foregone loss on operations was 196 million compared to income from operations of 30.5 million in the first quarter of 2024 and 214 million in the second quarter of 2023.

I I can only say, we well about that.

Ming Yang: R&D expenses from period to period reflect on the activities that take place during the quarter. Those of our R&D activities has been around increasing our entire percentage. As a result of the foregone loss on operations was 196 million compared to income from operations of 30.5 million in the first quarter of 2024 and 214 million in the second quarter of 2023. Operating margin was negative 89% compared to 7.3% in the first quarter of 2024 and 33.6% in the second quarter of 2020.

Speaker Change #123: You're talking about the full year right, but I think realistically in the first half we did build inventory. So so so volume was less than production and we expect the second half we will see more scale than production.

Speaker Change #124: Right right.

Speaker Change #125: But you kind of like Oh.

Speaker Change #125: Yes, it's early right. It's only August so it really depends on how much more skills, we can achieve relative to production.

I see but but for the year as a whole you expect sales to be greater than production right.

Ming Yang: Operating margin was negative 89% compared to 7.3% in the first quarter of 2024 and 33.6% in the second quarter of 2020. Secretary. Foreign exchange law was $1.4 million, compared to $0.3 million in the first quarter of 2024, which is attributable to the volatility of fluctuation of the US dollar and Chinese Union exchange rate during the quarter. Loss per basic ADS quarter was $1.81, compared to earnings per ADS of $24 in the first quarter of 2024 and $1.35 in the second quarter of 2023.

Speaker Change #126: On the local economy.

Speaker Change #127: So it's really up to Q4 performance.

Ming Yang: Secretary. Foreign exchange law was $1.4 million, compared to $0.3 million in the first quarter of 2024, which is attributable to the volatility of fluctuation of the US dollar and Chinese Union exchange rate during the quarter. Loss per basic ADS quarter was $1.81, compared to earnings per ADS of $24 in the first quarter of 2024 and $1.35 in the second quarter of 2023. Non-gap adjusted net loss attributable to Daqo New Energy shareholders, excluding non-catch share-based compensation costs, was $98.8 million compared to adjusted net income of a non-gap attributable to Daqo New Energy shareholders of $36 million in the first quarter of 2024 and $134.5 million in the second quarter of 2023.

Speaker Change #128: I see okay.

Speaker Change #129: And can you give us any specific examples of companies that are our competitors who are actually.

Speaker Change #130: Clothing shop.

Speaker Change #131: The thing from just reducing their output right now.

Speaker Change #131: Okay.

Speaker Change #131: Yes.

Uh huh.

Speaker Change #131: Yeah.

Speaker Change #131: Well I think one.

Speaker Change #131: Well known case.

Speaker Change #131: That happened recently is a company called Red Young.

Speaker Change #131: Which I think they have a nameplate of over 100000 metric ton.

And the company was a.

Speaker Change #131: The financial crisis, where they had problems we're paying their bank loans.

Ming Yang: Non-gap adjusted net loss attributable to Daqo New Energy shareholders, excluding non-catch share-based compensation costs, was $98.8 million compared to adjusted net income of a non-gap attributable to Daqo New Energy shareholders of $36 million in the first quarter of 2024 and $134.5 million in the second quarter of 2023. Adjusted loss per basic ADS was $1.50, compared to adjusted earnings per basic ADS of $0.55 in the first quarter of 2024 and $1.75 in the second quarter of 2023.

Speaker Change #131: And and they have major issues are repaying.

Speaker Change #131: Their suppliers.

And I'm gonna pay interest so our understanding is they are being consolidated by totally.

Speaker Change #132: And colleagues doing due diligence.

Speaker Change #133: Right now yeah, so I think that they have significantly reduced.

Speaker Change #134: Our production and then we know two other cases, where we're not going to say the company's name, but one.

Ming Yang: Adjusted loss per basic ADS was $1.50, compared to adjusted earnings per basic ADS of $0.55 in the first quarter of 2024 and $1.75 in the second quarter of 2023. EBITDA was negative $145 million compared to $76.9 million in the first quarter of 2024 and $230 million in the second quarter of 2023. EBITDA's margin was negative 66% compared to 18.5% in the first quarter of 2024 and 36% in the second quarter of 2023.

Speaker Change #135: A new intra nationally below 50000 metric ton facility actually never even started.

Speaker Change #135: That facility the facility remains idle, it's complete and idle and then there's another.

Ming Yang: EBITDA was negative $145 million compared to $76.9 million in the first quarter of 2024 and $230 million in the second quarter of 2023. EBITDA's margin was negative 66% compared to 18.5% in the first quarter of 2024 and 36% in the second quarter of 2023.

Speaker Change #135: Peer competitor I think they feel they claim they fell approximately 100 to 200000 metric ton capacity, but we are understanding is.

Speaker Change #135: The volume that.

Speaker Change #135: They're selling to the market is actually fairly trivial.

Speaker Change #136: Yeah. So those are those are the cases that we know a friend.

Ming Yang: Now on the company's financial condition. As of June 30, 2024, the company had a billion dollars in cash and cash equivalent and shifted cash compared to $2.7 billion of March 31, 2024 and $2.17 billion of June 30, 2023. As of June 30, 2024, the noticeable balance of $80.7 million compared to $194 million of March 31, 2024 and $798 million of June 30, 2023. No receivable to present banknotes with maturity within six months.

Speaker Change #137: So when you when you look at I mean, when you look at the year as a whole 2024 as a whole do you think that with the sales that you will do which would be let's say around your total production levels that you would have.

Xiang Xu: However, the supply policy will continue to exceed the wafer customer demand which has dropped around 50 kip gigawatts in June due to lower utilization rate.

Speaker Change #137: Gained or lost market share in 2000 and grateful.

I think at least based on the latest industry production. So even though we reduced utilization I think we're still maintaining market share.

Speaker Change #137: I think based on our current production level.

Ming Yang: And as of June 30, 2024, fixed term deposits within one year balance was $1.2 billion compared to a new in previous periods. For the six months and the June 30, 2024, net cash used in operating activities with $278.6 million compared to net cash provided by operating activities of $786 million in the same period of 2023. And for the six months and the June 30, 2024, net cash used in the investing activities was $1.7 billion compared to $296 million in the same period of 2023.

Speaker Change #137: We're roughly.

Speaker Change #137: 15%.

Speaker Change #137: I'm asking about.

Speaker Change #137: Yeah.

Speaker Change #137: First off the market.

Speaker Change #137: But you are not your total output would be about 10% higher than last year, Although I should say, maybe our total sales it'll be about 10% higher than last year right.

Speaker Change #137: So do you think that that is roughly the.

The growth rate of the market this year, 10%.

Speaker Change #137: Okay.

Speaker Change #137: Yeah.

[laughter].

Ming Yang: The net cash used in investing activities in the same quarter was prior later to purchase of short-term investment and fixed term deposits which amounted to $1.4 billion. And regarding the company's purchase of property and plant equipment for the first six months of this year, this amounted to $292 million. We currently anticipate four-year capital expenditures in the range of 550 to 600 million, which is a further reduction from our earlier plans. Capital expenditure for the second half of 2024 is therefore expected to be the range of 260 to 210 million.

Speaker Change #137: Okay.

Speaker Change #137: Yeah.

Speaker Change #137: Okay.

Ming Yang: As a result of the foregone loss on operations was 196 million compared to income from operations of 30.5 million in the first quarter of 2024 and 214 million in the second quarter of 2023.

Speaker Change #138: Well I think it really depends on especially Q4, because if you look at all of our production and sales volume in the first half.

Speaker Change #138: Especially for Q1, it's still relatively healthy it's truly Q2 it came down.

Ming Yang: Operating margin with negative 89%, I'm producing 7.3% in the first quarter of 2024 and 33.6% in the second quarter of 2020.

Speaker Change #138: And this quite we're expecting our Q3 sales volume and ship them to be above Q2.

Speaker Change #138: And then Q4 is looking at least for now is looking at a positive trend.

Speaker Change #138: So.

Ming Yang: Capital expenditure for the year is primarily related to our Inemongolia policy and project, Phase 1 and Phase 2. And for the six months and the June 30, 2024, net cash used in finance activities was 43 million, compared to 477 million in the same period of 2023. The net cash used in finance activity, the second quarter of 2024, was primarily related to dividend payments and should be purchased by our company's main subsidiary.

Speaker Change #138: I would say if I look at industry.

Speaker Change #138: Statistics, I think it's still expecting.

Speaker Change #138: Oh.

Speaker Change #138: Roughly 20% kind of improvement.

Speaker Change #138: Improvement.

Speaker Change #138: Okay.

Speaker Change #138: Maybe I'm wrong.

Speaker Change #138: Yeah. Okay. Thank you okay. Thank you.

Speaker Change #138: This concludes our question and answer session I would like to turn the conference back over to Anita Schuh for any closing remarks.

Operator: And that concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin. We will now begin the question and answer session. To ask a question, you may press star than one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two. At this time, we will pause momentarily to assemble our roster.

Anita Zhu: And that concludes our prepared remarks. We will now open the call to Q&A from the audience.

Operator: Operator, please begin. We will now begin the question and answer session. To ask a question, you may press star than one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two.

Anita Schuh: Thank you everyone again for participating in today's conference call should you have any further questions. Please don't hesitate to contact us. Thank you and have an awesome day goodbye.

Ming Yang: 4-inch loss was $1.4 million, compared to $0.3 million in the first quarter of 2024, which is attributable to the volatility and fluctuation of the US dollar and Chinese Union exchange rate during the quarter.

Speaker Change #140: Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Ming Yang: That loss, actually, with Daqo New Energy shareholders, was $120 million compared to net income of 15.5 million in the first quarter of 2024 and $103.7 million in the second quarter of 2023.

Ming Yang: Loss per basic ADS quarter was $1.81 compared to earnings per ADS of $0.24 in the first quarter of 2024, and $1.35 in the second quarter of 2023.

Ming Yang: Non-gap adjusted net loss, attributable to Daqo New Energy shareholders, excluding non-cash share-based compensation costs, was $98.8 million compared to just the net income of a non-gap attributable to Daqo New Energy shareholders of $36 million in the first quarter of 2024 and $134.5 million in the second quarter of 2023.

Ming Yang: Adjusted loss per basic ADS was $1.50 compared to just the earnings per basic ADS of $0.55 in the first quarter of 2024, $1.75 in the second quarter of 2023.

Ming Yang: EBITDA was negative $145 million compared to $76.9 million in the first quarter of 2024 and $230 million in the second quarter of 2023.

Ming Yang: EBITDA's margin was negative 66% compared to 18.5% in the first quarter of 2024 and 36% in the second quarter of 2023.

[music].

Operator: At this time, we will pause momentarily to assemble our roster.

Matthew Ingraham: The first question comes from Phil Shen with Roth Capital Partners. Please go ahead. Hi, this is Matt Ingramon for Phil.

Matthew Ingraham: The first question comes from Phil Shen with Roth Capital Partners. Please go ahead. Hi, this is Matt Ingramon for Phil. Thank you for taking your questions. Looking ahead, can you give us a sense of pricing and cost structure beyond this year? Do you think that there could be some recovery in price next year and how much more room do you have to lower the cost structure?

Ming Yang: Thank you for taking your questions. Looking ahead, can you give us a sense of pricing and cost structure beyond this year? Do you think that there could be some recovery in price next year and how much more room do you have to lower the cost structure?

Matthew Ingraham: Thank you for taking your questions. Looking ahead, can you give us a sense of pricing and cost structure beyond this year? Do you think that there could be some recovery in price next year and how much more room do you have to lower the cost structure?

Ming Yang: Hello, this is me, Mr. Phil, faculty minister. Thank you for your question. I think in recent months, particularly in August, we have already seen some pickup and recovery of pricing. The need I said at the bottom, I guess in terms of June and July, pricing was below 40 R&B per kilogram. As of now, pricing is the range of 41 to 42 R&B per kilogram, so we saw a range between two to three R&B per kilogram in terms of price recovery.

Ming Yang: Now on the company's financial condition.

Xiang Xu: In July, although they're having further industry policy production cuts, an uptick in demand from downstream manufacturers will be needed to drive inventory reduction and price recovery.

Ming Yang: As of June 30, 2024, the company had the billion dollars in cash and cash equivalent that it shifted cash compared to $2.7 billion out of March 31, 2024, and $2.17 billion out of June 30, 2023.

Ming Yang: And as of June 30, 2024, the noticeable balance of $80.7 million compared to $194 million out of March 31, 2024, and $798 million out of June 30, 2023.

Ming Yang: No receivable to present banknotes with maturity within six months.

Ming Yang: And as of June 30, 2024, six term deposits within one year balance was $1.2 billion compared to a NO in previous periods.

Ming Yang: For the six months under June 30, 2024, net cash used in operating activities with $278.6 million compared to net cash provided by operating activities of $786 million in the same period of 2023.

Ming Yang: And for the six months under June 30, 2024, net cash used in investing activities with $1.7 billion compared to $496 million in the same period of 2023. The net cash used in investing activities in the same quarter was prior later to purchase of short-term investment and fixed term deposits, which amounted to $1.4 billion.

Ming Yang: And regarding the company's purchase of property and plant equipment for the first six months of this year, this amounted to $292 million.

Ming Yang: We currently anticipate four-year capital expenditures in the range of 550 to 600 million, which is a further reduction from our earlier plans.

Ming Yang: Capital expenditure for the second half of 2024 is therefore expected to be the range of 260 to 210 million. Capital expenditure for the year is primarily related to our Inemongolia policy and project, Phase 1 and Phase 2.

Ming Yang: And for the six months and the June 30, 2024, net cash used in finance activities was 43 million, compared to 477 million in the same period of 2023.

Ming Yang: The net cash used in finance activity, the second quarter of 2024, was primarily related to dividend payments and should be purchased by our company's management subsidiary.

Ming Yang: And that concludes our prepare remarks.

Operator: We will now open the call to Q&A from the audience.

Operator: Operator, please begin.

Operator: We will now begin the question and answer session.

Ming Yang: This is primarily result of the industry's production reduction and a slight uptake in demand from customers. We do not think the current pricing is sustainable. We do believe that over the rest of the year, we should continue to see likely between two to four R&B kind of price recovery as a production continued to remain at a lower level. And while for next year, we do believe that demand continued to improve, especially from new markets like Middle East.

Operator: To ask a question, you may press star than one on your telephone keypad.

Operator: If you're using a speaker phone, please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star than two.

Operator: At this time, we will pause momentarily to assemble our roster.

Phil Shen: The first question comes from Phil Shen with Roth Capital Partners.

Phil Shen: Please go ahead.

Phil Shen: Hi, this is Matt Ingramon for Phil.

Phil Shen: Thank you for taking your questions.

Ming Yang: Looking ahead, can you give us a sense of pricing and cost structure beyond this year?

Ming Yang: Do you think that there could be some recovery in price next year and how much more room do you have to lower the cost structure?

Ming Yang: Hello, this is Ming, CEO of the faculty ministry.

Xiang Xu: This year will be challenging for China solar PV industry as solar manufacturers along the value chain experience week margins driven by oversupply excessive inventory and lower prices.

Ming Yang: Thank you for your question.

Ming Yang: I think in recent months, particularly in August, we've already seen some pickup and recovery of pricing.

Ming Yang: The need I said at the bottom, I guess in terms of June and July, pricing was below 40 R&B per kilogram.

Ming Yang: As of now, pricing is a range of 41 to 42 R&B per kilogram, so we saw a range somewhere between two to three R&B per kilogram in terms of price recovery. This is primarily a result of the industry's production reduction and a slight uptick in demand from customers.

Ming Yang: We do not think the current pricing is sustainable.

Xiang Xu: At this point, we may have reached a cyclical topotum but do not yet see clear signs of potential improvement. We believe that the current situation of selling below cash costs is unsustainable and that many solar firms are facing significant cash flow challenges leading to delays in lower payment and lower delivery. Therefore, we're likely to see some market consolidation with higher cost manufacturers gradually facing our capacity at exiting the business.

Ming Yang: We do believe that over the rest of the year, we should continue to see likely between two to four R&B kind of price recovery as a production continued to remain at a lower level.

Ming Yang: And while for next year, we do believe that demand continued to improve, especially from new markets like Middle East.

Ming Yang: So we think maybe mid next year is when we will see normalize pricing for policy.

Phil Shen: Great, thank you.

Ming Yang: And that quickly thought about your cost structure, sorry, but we do think there continue to be opportunity to reduce costs.

Ming Yang: I think we're seeing very successful cost trends from R&M to Q1 and we do expect that 2-3 costs should be flat to slightly lower than Q2.

Ming Yang: So we think in the second half we should overall we should see costs somewhere around $6.00 or slightly lower than $6.00.

Ming Yang: And we think there's just costs to continue to reduce costs.

Phil Shen: Next year.

Phil Shen: Really appreciate the color there.

Phil Shen: And then can you just talk about the channel inventory in the market?

Ming Yang: Do you expect that to continue to grow in your term?

Ming Yang: And where do you think that peaks?

Ming Yang: Okay actually, China and Lentui has already peaked.

Ming Yang: So Lentui is actually coming down as of August and we think this should continue to go down. I think primarily as a result of continuing reduction in supply. So we think it should probably reduce to a much more reasonable level by Q4 or by the end of the year.

Ming Yang: So unless we see kind of meaningful price recovery at least above the industry cash cost, we're a very unlikely to see improvements in production.

Phil Shen: Okay, great.

Phil Shen: Thank you for the color.

Phil Shen: I'll pass it on.

Phil Shen: Great.

Phil Shen: Thank you.

Alan Lau: The next question comes from Alan Lau with Jeffries.

Alan Lau: Please go ahead.

Alan Lau: I thank for taking my question.

Alan Lau: So we'd like to know about what is the breakdown on the impairment of 108 million because and also the inventory level at the end of 2K.

Alan Lau: Because it appears that the production volume is higher than sales volume for 20,000.

Alan Lau: So it's 20,000 is fair assumption on the inventory level by end of 2K.

Alan Lau: And if that is the case, then the impairment of 108 million seems huge.

Ming Yang: So we'd like to know the basis on that.

Ming Yang: Okay, so the reality is the 108 million is a reduction in not just finished goods but also work in process inventory and raw material which reduces our costs, you know, from our production cost, it saves around $6.19 per kilogram to really the current market pricing, which is below for Kilogram.

Ming Yang: And about 60% of those related to Finnish goods inventory.

Ming Yang: Okay.

Xiang Xu: Chinese policy makers are also calling for the healthy expansion of the solar industry.

Ming Yang: West, La America, Africa, and again I think further market development in China and Europe for example, so we do think that pricing should be covered to at least production costs or maybe normalize to our production costs, trial and production costs. So we think maybe mid next year is when we will see normalize pricing for policy. Great, thank you. And that quickly thought about your cost structure, sorry, but we do think there are continue to be an opportunity to reduce costs.

Ming Yang: And then looking at our inventory at the end of the quarter, you can be a minute, let me just quickly look up.

Ming Yang: Okay, it's approximately 28,000 metric times.

Ming Yang: Okay.

Ming Yang: So we build roughly 20,000 metric on the inventory, like you said, during the quarter because of the market conditions and the weekly math.

Ming Yang: But I think starting in August, we're starting to see the reduction in inventory.

Alan Lau: Thank you.

Alan Lau: So, if 60% is Finnish goods, so it's basically around, I guess, 60 to 70 million of the impairment is related to the impairment on 28,000 tons.

Alan Lau: So that's still around 2 to 3 dollars per kilogram.

Alan Lau: So that is in huge because the production costs are spread between the ASP and the production costs, a piece to be only 1 dollar per kilogram.

Alan Lau: So we'd like to know, did I miss anything from this run?

Alan Lau: Okay.

Ming Yang: I think we're going to see, if you look at pricing, especially what it looks, you know, what we have to reduce our inventory to, like somewhere in the range of say 37 to 38 RMB per kilogram.

Ming Yang: So that's what we do to create the math.

Ming Yang: So the ASP is 37 to 38, but your production costs is only at around 40 something.

Ming Yang: So it's the impairment.

Ming Yang: So it's 45 RMB per kilogram.

Ming Yang: Yeah.

Ming Yang: So that's around 12 RMB.

Ming Yang: And then, but it's 28,000 then it's still at most, it should be like 300 RMB maybe.

Ming Yang: So since the impairment amount is 15 million.

Ming Yang: Well, well, and then there's also raw materials.

Ming Yang: Right.

Ming Yang: And then working process inventory, that's also being reduced.

Ming Yang: Nice to see us.

Xiang Xu: China's Ministry of Industry and Information Technology issued a drafting early July that sets rules for solar projects, such as meeting specific electricity consumption requirements and minimum capital ratio for new and expansion projects to ensure the high-quality development of the solar PV industry and eliminate our data capacity.

Alan Lau: So maybe we'll move on to the guidance.

Alan Lau: So have noted that the production volume guidance on 3 Q and a second half has reduced significantly.

Alan Lau: So we'd like to know, first of all, the thinking behind us is this to preserve cash.

Alan Lau: And secondly, what do you see like the utilization rates of your peers?

Ming Yang: Do they also cut their production volume as well?

Ming Yang: I would say yes.

Ming Yang: So for most of our peers, I think with the exception of maybe one of the main ones, I think most have reduced utilization significantly, I think in light of the current market pricing environment.

Ming Yang: So we do believe that the currentization level that that we have, you know, that we're operating in, in light of, in the pricing remains at the low cash cost.

Ming Yang: You know, it's the most prudent, I think, of the company.

Ming Yang: Great, thank you. And that quickly thought about your cost structure, sorry, but we do think there are continue to be an opportunity to reduce costs. I think we're seeing very successful cost transfer in Mongolia phase 2 facility. I think you saw approximately 5% reduction of cost from Q2 to Q1 and we do expect that Q3 costs should be flat to slightly lower than Q2. So we think in the second half we should overall we should see costs somewhere around $6 or even a slightly lower than $6. And we think there's this cost to continue next year. Really appreciate the color there.

Ming Yang: So there's effectively around 70% of utilization, right?

Ming Yang: So will this impact the production cost or, or is it okay to fight?

Ming Yang: Actually, I would say overall very minimal impact on production costs.

Ming Yang: I think one to two RMB.

Ming Yang: Yeah, because it's almost 80% of our cost is what we call variable cost, which is electricity and energy and other customers being and graphite and the still can see raw.

Ming Yang: So regarding to the fixed deposit of an investment in of 1.4 billion.

Ming Yang: So we're like to know how long is those investment and how liquid are those?

Ming Yang: So basically, the question is related to buybacks because I'd like to know the liquidity of the company on that front.

Ming Yang: Okay, almost all the fixed investment and, and term loans were purchased by the Xinjiang Daco subsidiary, right?

Ming Yang: I think we're seeing very successful cost transfer in Mongolia phase 2 facility. I think you saw approximately 5% reduction of cost from Q2 to Q1 and we do expect that Q3 costs should be flat to slightly lower than Q2. So we think in the second half we should overall we should see costs somewhere around $6 or even a slightly lower than $6. And we think there's this cost to continue next year.

Ming Yang: So, so in terms of the US lift co and our cash balance, it's virtually all the is a liquid savings accounts or money market funds.

Ming Yang: So, and then that 1.4 billion is primarily in either six months.

Ming Yang: I could call it a fixed time deposit with Chinese domestic banks or a hard interest savings product offered by the banks.

Ming Yang: Oh, it's been three months, right?

Ming Yang: Yes.

Ming Yang: I see.

Alan Lau: So my last question is basically on the buyback.

Alan Lau: So the company has launched a 100 million buyback program.

Alan Lau: So I'd like to know if the company is going to continue on the buyback and what is the planning of the buyback, like which price do you think is appropriate or do you think the current stock price is the level where you think the company will actually accelerate the buyback?

Ming Yang: Thank you, Alan.

Ming Yang: So, in terms of the sheer repurchase program, so we have authorized any amount of 100 million US dollars back in July.

Ming Yang: So, in terms, so we definitely think that our stock is undervalued, but in terms of the pace, I would say that it will be contingent upon the market conditions, and we'll be more opportunistic in terms of the repurchase.

Ming Yang: So, we're going to look, obviously, to repurchase as many shares as possible for the company, to maximize the money that we spend in terms of its effectiveness.

Ming Yang: I see, and yeah, as you've explained, so the cash is already there in the US level.

Ming Yang: So, probably, it's still going to go ahead in this year.

Ming Yang: That's our current function, yes.

Alan Lau: I see.

Alan Lau: Thank you.

Alan Lau: So, I'll pass on.

Alan Lau: Thank you.

Operator: Great.

Operator: Thank you, Alan.

Operator: Again, if you have a question, please press star than one.

Rajiv Chaudhary: The next question comes from Rajiv Chaudhary with Sonsara Capital.

Rajiv Chaudhary: Please go ahead.

Rajiv Chaudhary: Good morning.

Rajiv Chaudhary: My question, the first question relates to the fully loaded costs that you will incur in Q3 and Q4.

Ming Yang: If you're reducing the utilization rate, shouldn't that actually increase your fully loaded costs relative to the fourth, relative to the third quarter?

Ming Yang: Well, I think, interesting.

Ming Yang: That has to do with the cost structure of policy and production, right? So, roughly 35 to 40% is electricity, and then another 35% is silicon metal, and then majority of other costs is actually mostly consumables, like graphite, the silicon seed rod, and the packaging.

Ming Yang: So, if I look at what we, these we would call, you can call as herbal costs where we don't produce, right?

Ming Yang: We don't buy silicon metal, we don't buy the consumables.

Ming Yang: So, these were percent actually more than 80% of the cost.

Ming Yang: Okay, the remaining 20%, approximately 13% is depreciation, right? Which is the non-cash portion.

Ming Yang: So, yes, right depreciation will, you know, the depreciation, the overall depreciation expense will be aggregated over a smaller volume, but I think the overall impact is not that much, right?

Ming Yang: Because it's not a huge portion of our cost.

Ming Yang: And while in terms of the rest is labor, labor, let me see, is roughly 6% of our cost, and then we were reducing labor cost by between 10 to 20%, you know, we're optimizing our staffing level, for example.

Ming Yang: Really appreciate the color there. And then can you just talk about the channel inventory in the market? Do you expect that to continue to grow in your term and where do you think that peaks? Okay, actually China and Mongolia has already peaked. So inventory is actually coming down of August and we think this should continue to go down. I think primarily as a result of continued reduction in supply. So we think it should probably reduce to a much more reasonable level by Q4 or by the end of the year.

Ming Yang: So, I think the overall impact is actually not that significant, as we maintain production, right? Because we're reducing production by maybe 35% or something like that.

Rajiv Chaudhary: Well, that's at the previous level.

Ming Yang: And then can you just talk about the channel inventory in the market? Do you expect that to continue to grow in your term and where do you think that peaks? Okay, actually China and Mongolia has already peaked.

Ming Yang: Okay, great. Thank you for the color.

Rajiv Chaudhary: A second question is related to the difference between production and sales.

Rajiv Chaudhary: So you will produce 210 to 250,000 tons.

Rajiv Chaudhary: But the sales are likely to be higher than that, right?

Ming Yang: I'll pass it on. Great.

Rajiv Chaudhary: I mean, if you expect inventory to get back to normal by the end of the year, then sales are likely to be, I don't know, 240 to 250,000.

Rajiv Chaudhary: Is that the right way to think about it?

Rajiv Chaudhary: I can only say, well, you're talking about the full year, right? But I think realistically in the first half, we did build inventory, so volume was less than production.

Rajiv Chaudhary: And we expected a second half, we will see more sales than production, right?

Rajiv Chaudhary: But again, it's early, right? It's only August, so it really depends on how much more sales we can achieve relative to production.

Rajiv Chaudhary: I see.

Ming Yang: Thank you.

Rajiv Chaudhary: But for the year as a whole, you expect sales to be greater than production, right?

Rajiv Chaudhary: It's a coastal town.

Rajiv Chaudhary: It's really up to Q4 performance.

Xiang Xu: Overall, in the long run, solar PV is expected to be one of the most competitive forms of power generation in China and a continuous culture reduction of solar PV products and the associated reduction in solar energy generation costs are expected to create substantial additional demand for solar PV.

Matthew Ingraham: So inventory is actually coming down of August and we think this should continue to go down. I think primarily as a result of continued reduction in supply. So we think it should probably reduce to a much more reasonable level by Q4 or by the end of the year. So unless we see kind of meaningful price recovery at least above the industry cash cost, we're a very unlikely to see improvement in production. Okay, great. Thank you for the color. I'll pass it on. Great. Thank you.

Rajiv Chaudhary: I see.

Rajiv Chaudhary: Okay.

Ming Yang: And can you give us any specific examples of companies that are of competitors who are actually closing shop as the thing from just reducing their output right now?

Ming Yang: Okay.

Ming Yang: Well, I think one well-known case that happened recently is a company called Rin Yang, which I think they have a nameplate of over 100,000 metric tons.

Ming Yang: And the company was in financial crisis where they had problems repainting their bank loans. And they have major issues repainting their suppliers and even paying interest.

Ming Yang: So our understanding is they're being consolidated by Conway.

Ming Yang: And Conway is doing due diligence on them right now.

Xiang Xu: We believe that we are well positioned to weather the current market downturn and emerge as one of the leaders in the industry to capture future growth.

Ming Yang: Yeah.

Ming Yang: So I think they have significantly reduced production.

Ming Yang: And then we know of two other cases where we're not going to save the company's name.

Ming Yang: But one, a new intra naturally built up 50,000 metric tons facility actually never even started that facility that facility remains idle. It's complete and idle.

Ming Yang: And then there's another peer competitor I think they've built, they've claimed they've built approximately 100 to 200,000 metric tons capacity.

Ming Yang: But we are understanding is the volume that they're selling to the market is actually fairly trivial.

Ming Yang: So now I'll turn the call to our CEO, Mr. Ming Yang.

Ming Yang: So those are the cases that we know.

Rajiv Chaudhary: So when you look at the year as a whole, 2024 as a whole, do you think that with the sales that you will do, which will be, let's say, around your total production levels, that you would have gained or lost market share in 2024?

Ming Yang: I think at least based on the latest industry production, so even though we reduced utilization, I think we're still maintaining market share.

Ming Yang: I think based on our current production level, we're roughly 15 percent.

Rajiv Chaudhary: But your total output would be about 10 percent higher than last year or I should say, maybe your total sales will be about 10 percent higher than last year, right?

Rajiv Chaudhary: So do you think that that is roughly the growth rate of the market this year, 10 percent?

Rajiv Chaudhary: Well, I think it really depends on, especially Q4 because if you look at our production and sales volume in the first half, especially for Q1, it's still relatively healthy.

Rajiv Chaudhary: It's really Q2, it came down.

Rajiv Chaudhary: And then this is why we're expecting our Q3 still volume and shipment to be above Q2.

Rajiv Chaudhary: And then Q4 is looking, at least for now, is looking at a positive trend.

Ming Yang: We'll discuss the company's financial performance for the quarter.

Ming Yang: So unless we see kind of meaningful price recovery at least above the industry cash cost, we're a very unlikely to see improvement in production. Okay, great. Thank you for the color. I'll pass it on. Great. Thank you.

Rajiv Chaudhary: So I would say if I look at industry statistics, I think it's still expecting roughly 20 percent kind of improvements.

Rajiv Chaudhary: Okay, maybe more.

Rajiv Chaudhary: Yeah, okay, thank you.

Operator: Okay, thank you.

Anita Xu: This concludes our question and answer session.

Anita Xu: I would like to turn the conference back over to Anita Schoo for any closing remarks.

Anita Xu: Thank you everyone again for participating in today's conference call.

Anita Xu: Should you have any further questions, please don't hesitate to contact us.

Anita Xu: Thank you and have an awesome day.

Operator: Goodbye.

Operator: The conference has now concluded.

Operator: Thank you for attending today's presentation.

Operator: You may now disconnect.

Ming Yang: Please go ahead.

Operator: [inaudible]

Ming Yang: Thank you, Mr. Xu and Anita.

Ming Yang: Hello, everyone.

Ming Yang: This is Ming Yang, CEO of Daqo New Energy.

Ming Yang: We appreciate you joining our earnings conference call today.

Alan Lau: The next question comes from Alan Lau with Jeffries. Please go ahead. Thanks for taking my question.

Alan Lau: The next question comes from Alan Lau with Jeffries. Please go ahead. Thanks for taking my question. So we'd like to know about what is the breakdown on the impairment of 108 million because and also the inventory level at the end of 2kg because it appears that the production volume is higher than sales volume for 20,000. So it's 20,000 is fair assumption on the inventory level by end of 2kg. And if that is the case and impairment of 108 million seems huge.

Ming Yang: So we'd like to know about what is the breakdown on the impairment of 108 million because and also the inventory level at the end of 2kg because it appears that the production volume is higher than sales volume for 20,000. So it's 20,000 is fair assumption on the inventory level by end of 2kg. And if that is the case and impairment of 108 million seems huge. So we'd like to know the basis on that.

Ming Yang: Growth loss was 159 million compared to our growth profit of 72 million in the first quarter of 2024 and 259 million in the second quarter of 2023.

Ming Yang: Growth margin was negative 72 percent compared to 17.4 percent in the first quarter of 2024 and 40.7 percent in the second quarter of 2023.

Alan Lau: So we'd like to know the basis on that. Okay, so the the reality is the 108 million is a reduction in not just finished goods, but also work in process inventory and raw material which reduces our costs you know from production costs to save the rent $6.19 per kilogram to really the current or the current market pricing which is below 40 arms. for Kilogram. And about 60% of those related to Finnish goods inventory.

Ming Yang: For the second quarter of 2024, the company recorded 108 million in inventory impairment expenses as the company's inventory's market value falls below book value.

Ming Yang: Okay, so the the reality is the 108 million is a reduction in not just finished goods, but also work in process inventory and raw material which reduces our costs you know from production costs to save the rent $6.19 per kilogram to really the current or the current market pricing which is below 40 arms. for Kilogram. And about 60% of those related to Finnish goods inventory. Okay.

Ming Yang: A CNA expenses during the second quarter included 19.6 million in non-cash share-based compensation costs related to the company's sharing incentive plans compared to 19.6 million in the first quarter of 2024. R&D expenses were 1.8 million compared to 1.5 million in the first quarter of 2024 and 2.2 million in the second quarter of 2023.

Ming Yang: R&D expenses from period to period reflect on the activities that take place during the quarter.

Ming Yang: And then looking at our inventory at the end of the quarter, you can be a minute, let me just quickly look up. Okay, it's approximately 28,000 metric times. Okay, so we build roughly 20,000 metric times the inventory, like you said, during the quarter because of the market conditions and the weekly math.

Alan Lau: Okay. And then looking at our inventory at the end of the quarter, you can be a minute, let me just quickly look up. Okay, it's approximately 28,000 metric times. Okay, so we build roughly 20,000 metric times the inventory, like you said, during the quarter because of the market conditions and the weekly math.

Ming Yang: Those of our R&D activities has been around increasing our entire percentage.

Ming Yang: Operating margin was negative 89% compared to 7.3% in the first quarter of 2024 and 33.6% in the second quarter of 2020.

Ming Yang: But I think starting in August, we're starting to see the reduction in inventory. Thank you. So if 60% is Finnish goods, so it's basically around, I guess 60 to 70 million of the impairment is related to the impairment on 28,000 tons. So that's still like around two to three dollars per kilogram. So that is in huge because the production cost, the spread between the ASP and the production cost appears to be only one dollar per kilogram.

Ming Yang: Secretary.

Ming Yang: Thank you. So if 60% is Finnish goods, so it's basically around, I guess 60 to 70 million of the impairment is related to the impairment on 28,000 tons. So that's still like around two to three dollars per kilogram. So that is in huge because the production cost, the spread between the ASP and the production cost appears to be only one dollar per kilogram. So we'd like to know, did I miss anything from this one?

Ming Yang: So we'd like to know, did I miss anything from this one? Okay, I think we're going to see if we look at pricing, especially what it looks, you know, what we have to reduce our inventory to, like somewhere in the range of say 37 to 38 RMB per kilogram. So that's what we do to create the math. So the ASP is 37 to 38, but your production cost is only at around 40 something.

Ming Yang: Okay, I think we're going to see if we look at pricing, especially what it looks, you know, what we have to reduce our inventory to, like somewhere in the range of say 37 to 38 RMB per kilogram. So that's what we do to create the math. So the ASP is 37 to 38, but your production cost is only at around 40 something. So it's the impairment. 45 RMB per kilogram. Yeah, around 12 RMB, but it's 28,000 and then it's still at most, it should be like 300,000 maybe. So since the impairment amount to be 15 million, well, and then there's also raw materials, right? And then working process of inventory, that's also being reduced.

Ming Yang: So it's the impairment. 45 RMB per kilogram. Yeah, around 12 RMB, but it's 28,000 and then it's still at most, it should be like 300,000 maybe. So since the impairment amount to be 15 million, well, and then there's also raw materials, right? And then working process of inventory, that's also being reduced.

Ming Yang: So maybe we'll move on to the guidance.

Alan Lau: So maybe we'll move on to the guidance.

Operator: So maybe we'll move on to the guidance.

Alan Lau: So I have noted that the production volume guidance on three Q and a second half has reduced significantly.

Ming Yang: So I have noted that the production volume guidance on three Q and a second half has reduced significantly. So I'd like to know first of all, the thinking behind this is this to preserve cash and secondly, what do you see like the utilization rates of your peers? Do they also cut their production volume as well? I would say yes. So for most of our peers, I think with the exception of maybe one of the main one, I think most have reduced utilization significantly, I think in light of the current market pricing environment.

Rajiv Chaudhri: So I have noted that the production volume guidance on three Q and a second half has reduced significantly. So I'd like to know first of all, the thinking behind this is this to preserve cash and secondly, what do you see like the utilization rates of your peers? Do they also cut their production volume as well? I would say yes. So for most of our peers, I think with the exception of maybe one of the main one, I think most have reduced utilization significantly, I think in light of the current market pricing environment.

Ming Yang: So I'd like to know first of all, the thinking behind this is this to preserve cash and secondly, what do you see like the utilization rates of your peers? Do they also cut their production volume as well? I would say yes. So for most of our peers, I think with the exception of maybe one of the main one, I think most have reduced utilization significantly, I think in light of the current market pricing environment.

Ming Yang: I think certainly, you know, the, I think in the current market condition, I think we have to balance, right? I think in the most economical way in terms of maintaining production while at the same time minimizing cash burn and cash loss. So we do believe that the currentization level that that we have, you know, that we're operating in, in light of the pricing that remains at the low cash cost, you know, is the most prudent, I think.

Rajiv Chaudhri: I think certainly, you know, the, I think in the current market condition, I think we have to balance, right? I think in the most economical way in terms of maintaining production while at the same time minimizing cash burn and cash loss. So we do believe that the currentization level that that we have, you know, that we're operating in, in light of the pricing that remains at the low cash cost, you know, is the most prudent, I think.

Ming Yang: So there's effectively around 70% of utilization, right? So will this impact the production cost or, or is okay supply? It's actually, I would say overall very minimal impact on production cost, I think, only one to two RMB. Yeah, because it's almost 80% of our cost is what we call variable cost, which is electricity and energy and other consumables being and graphite and the still can see raw. So we're going into the fixed deposit of an investment of 1.4 billion.

Rajiv Chaudhri: So there's effectively around 70% of utilization, right? So will this impact the production cost or, or is okay supply? It's actually, I would say overall very minimal impact on production cost, I think, only one to two RMB. Yeah, because it's almost 80% of our cost is what we call variable cost, which is electricity and energy and other consumables being and graphite and the still can see raw. So we're going into the fixed deposit of an investment of 1.4 billion.

Ming Yang: Foreign exchange law was $1.4 million, compared to $0.3 million in the first quarter of 2024, which is attributable to the volatility of fluctuation of the US dollar and Chinese Union exchange rate during the quarter.

Rajiv Chaudhri: So we're going into the fixed deposit of an investment of 1.4 billion. So we're going to know how long is those investment and how liquid are those? So basically the question is related to buybacks, because I'd like to know the liquidity of the company on that front. Okay, almost all the fixed investment and, and term loans were purchased by the Xinjiang Docko subsidiary, right?

Ming Yang: Loss per basic ADS quarter was $1.81, compared to earnings per ADS of $24 in the first quarter of 2024 and $1.35 in the second quarter of 2023.

Ming Yang: So we're going to know how long is those investment and how liquid are those? So basically the question is related to buybacks, because I'd like to know the liquidity of the company on that front. Okay, almost all the fixed investment and, and term loans were purchased by the Xinjiang Docko subsidiary, right? So, in terms of the U.S. LIFCO and our cash balance, it's virtually all there is a liquid savings account or a money market fund.

Rajiv Chaudhri: So we're going to know how long is those investment and how liquid are those? So basically the question is related to buybacks, because I'd like to know the liquidity of the company on that front. Okay, almost all the fixed investment and, and term loans were purchased by the Xinjiang Docko subsidiary, right? So, in terms of the U.S. LIFCO and our cash balance, it's virtually all there is a liquid savings account or a money market fund.

Ming Yang: EBITDA was negative $145 million compared to $76.9 million in the first quarter of 2024 and $230 million in the second quarter of 2023.

Ming Yang: EBITDA's margin was negative 66% compared to 18.5% in the first quarter of 2024 and 36% in the second quarter of 2023.

Ming Yang: So, in terms of the U.S. LIFCO and our cash balance, it's virtually all there is a liquid savings account or a money market fund. So, and then that 1.4 billion is primarily in either six months, I just call it a fixed time deposit with Chinese domestic banks or a higher interest savings product offered by the banks. I see.

Ming Yang: Now on the company's financial condition.

Ming Yang: As of June 30, 2024, the company had a billion dollars in cash and cash equivalent and shifted cash compared to $2.7 billion of March 31, 2024 and $2.17 billion of June 30, 2023.

Ming Yang: So, and then that 1.4 billion is primarily in either six months, I just call it a fixed time deposit with Chinese domestic banks or a higher interest savings product offered by the banks. I see. So, I know that for ages, present three months. Oh, it's been three months, right? Yes. I see.

Rajiv Chaudhri: So, and then that 1.4 billion is primarily in either six months, I just call it a fixed time deposit with Chinese domestic banks or a higher interest savings product offered by the banks. I see. So, I know that for ages, present three months. Oh, it's been three months, right? Yes. I see.

Ming Yang: As of June 30, 2024, the noticeable balance of $80.7 million compared to $194 million of March 31, 2024 and $798 million of June 30, 2023.

Ming Yang: No receivable to present banknotes with maturity within six months.

Ming Yang: So, I know that for ages, present three months. Oh, it's been three months, right? Yes. I see.

Ming Yang: And as of June 30, 2024, fixed term deposits within one year balance was $1.2 billion compared to a new in previous periods.

Rajiv Chaudhri: So, my last question is basically on the buyback. So, the company has launched a 100 million buyback program. So, I'd like to know if the company is going to continue on the buyback and what is the planning of the buyback, like, which price you think is appropriate or do you think the current stock price is the the level where you think the company will actually accelerate the buyback.

Ming Yang: So, the company has launched a 100 million buyback program. So, I'd like to know if the company is going to continue on the buyback and what is the planning of the buyback, like, which price you think is appropriate or do you think the current stock price is the the level where you think the company will actually accelerate the buyback.

Rajiv Chaudhri: So, the company has launched a 100 million buyback program. So, I'd like to know if the company is going to continue on the buyback and what is the planning of the buyback, like, which price you think is appropriate or do you think the current stock price is the the level where you think the company will actually accelerate the buyback.

Ming Yang: Thank you, Alan. So, in terms of the share, we purchased Graham, so we have authorized any amount of 100 million US dollars back in July. So, in terms, so we definitely think that our stock is undervalued, but in terms of the pace, I would say that it will be a contingent upon the market conditions, and we will be more opportunistic in terms of the repurchase. So, we're going to look, obviously we purchased as many shares as possible for the company, to maximize the money that we spent in terms of its effectiveness. I see, and yes, you've explained, so the cash is already there in the US level, so probably it's still going to go ahead in this year. That's our current function, yes. I see, thank you.

Rajiv Chaudhri: I see, thank you.

Operator: So, I'll pass on, thank you. Great, thank you, Alan. Again, if you have a question, please press star than one.

Rajiv Chaudhri: So, I'll pass on, thank you. Great, thank you, Alan.

Operator: Again, if you have a question, please press star than one.

Rajiv Chaudhri: The next question comes from Rajiv Chaudhary with Sonsara Capital. Please go ahead. Good morning. My question, the first question relates to the fully loaded costs that you will incur in Q3 and Q4. If you're reducing the utilization rate, shouldn't that actually increase your fully loaded costs relative to the third quarter? Well, I think, interesting, that has to do with the cost structure of a policy gun production, right? So, roughly 35% to 40% is electricity, and then another 35% is slick and metal, and then majority of other costs is actually mostly consumables, like graphite, the slick and seed rod, and the packaging.

Rajiv Chaudhri: The next question comes from Rajiv Chaudhary with Sonsara Capital. Please go ahead.

Rajiv Chaudhri: Good morning. My question, the first question relates to the fully loaded costs that you will incur in Q3 and Q4. If you're reducing the utilization rate, shouldn't that actually increase your fully loaded costs relative to the third quarter? Well, I think, interesting, that has to do with the cost structure of a policy gun production, right? So, roughly 35% to 40% is electricity, and then another 35% is slick and metal, and then majority of other costs is actually mostly consumables, like graphite, the slick and seed rod, and the packaging.

Ming Yang: For the six months and the June 30, 2024, net cash used in operating activities with $278.6 million compared to net cash provided by operating activities of $786 million in the same period of 2023.

Rajiv Chaudhri: So, if I look at what we, these we would call, you can call it a verbal cost where we don't produce, right? We don't buy silicon metal, we don't buy the consumables. So, these were percent actually more than 80% of the cost, okay? The remaining 20% cost, approximately 13% is depreciation, right? Which is the non-cash portion. So, yes, right depreciation will, you know, the depreciation, the overall depreciation expense will be aggregated over a smaller volume, you know, but I think the overall impact is not that much, right?

Ming Yang: And for the six months and the June 30, 2024, net cash used in the investing activities was $1.7 billion compared to $296 million in the same period of 2023. The net cash used in investing activities in the same quarter was prior later to purchase of short-term investment and fixed term deposits which amounted to $1.4 billion.

Ming Yang: And regarding the company's purchase of property and plant equipment for the first six months of this year, this amounted to $292 million.

Ming Yang: We currently anticipate four-year capital expenditures in the range of 550 to 600 million, which is a further reduction from our earlier plans.

Rajiv Chaudhri: Because it's not a huge portion of our cost. And while in terms of the rest is labor, labor, let me see, is roughly 6% of our cost, and then we were reducing labor costs by between 10 to 20%. You know, we're optimizing our staffing level, for example. So, I think the overall impact is actually not that significant. We maintain production, right? Because we're reducing production by maybe 35% or something like that. What's the previous level?

Rajiv Chaudhri: What's the previous level?

Ming Yang: The second question is related to the difference between production and sales. So you will produce 210 to 250,000 tons. But the sales are likely to be higher than that, right? I mean, if you expect inventories to get back to normal by the end of the year, then sales are likely to be, I don't know, 240 to 250,000. Is that the right way to think about it? I can only say, well, you're talking about the full year, right?

Rajiv Chaudhri: The second question is related to the difference between production and sales. So you will produce 210 to 250,000 tons. But the sales are likely to be higher than that, right? I mean, if you expect inventories to get back to normal by the end of the year, then sales are likely to be, I don't know, 240 to 250,000. Is that the right way to think about it? I can only say, well, you're talking about the full year, right?

Ming Yang: But I think realistically in the first half, we did build inventory, so volume was less than production. And we expect the second half will be more sales than production, right? But again, it's early, right? It's only August, so it really depends on how much more sales we can achieve relative to production. I see. But for the year as a whole, you expect sales to be greater than production, right? It's difficult to talk. It's really up to Q4 performance. I see.

Rajiv Chaudhri: But I think realistically in the first half, we did build inventory, so volume was less than production. And we expect the second half will be more sales than production, right? But again, it's early, right? It's only August, so it really depends on how much more sales we can achieve relative to production. I see. But for the year as a whole, you expect sales to be greater than production, right? It's difficult to talk. It's really up to Q4 performance. I see.

Ming Yang: And can you give us any specific examples of companies that are of competitors who are actually closing shop as the thing from just reducing their output right now? Well, I think one well-known case that happened recently is a company called Renyang, which I think they have a nameplate of over 100,000 metric tons. And that company was in financial crisis where they had problems repaying their bank loans. And they have major issues repaying their suppliers and even paying interest. So our understanding is they're being consolidated by Conway and Conway doing due diligence on them right now. So I think that they have significantly reduced production.

Ming Yang: Well, I think one well-known case that happened recently is a company called Renyang, which I think they have a nameplate of over 100,000 metric tons. And that company was in financial crisis where they had problems repaying their bank loans. And they have major issues repaying their suppliers and even paying interest. So our understanding is they're being consolidated by Conway and Conway doing due diligence on them right now. So I think that they have significantly reduced production.

Rajiv Chaudhri: Well, I think one well-known case that happened recently is a company called Renyang, which I think they have a nameplate of over 100,000 metric tons. And that company was in financial crisis where they had problems repaying their bank loans. And they have major issues repaying their suppliers and even paying interest. So our understanding is they're being consolidated by Conway and Conway doing due diligence on them right now. So I think that they have significantly reduced production.

Ming Yang: And then we know of two other cases where we're not going to say the company's name, but one new intra naturally built up 50,000 metric tons facility actually never even started that facility that facility remains idle. It's complete and idle. And then there's another peer competitor, I think they've built, they've claimed they've built approximately 100 to 200,000 metric tons of capacity. But we are understanding is the volume that they're selling to the market is actually fairly trivial.

Rajiv Chaudhri: And then we know of two other cases where we're not going to say the company's name, but one new intra naturally built up 50,000 metric tons facility actually never even started that facility that facility remains idle. It's complete and idle. And then there's another peer competitor, I think they've built, they've claimed they've built approximately 100 to 200,000 metric tons of capacity. But we are understanding is the volume that they're selling to the market is actually fairly trivial.

Ming Yang: So those are the cases that we know of right now.

Rajiv Chaudhri: So those are the cases that we know of right now.

Ming Yang: So those are the cases that we know of right now.

Ming Yang: And for the six months and the June 30, 2024, net cash used in finance activities was 43 million, compared to 477 million in the same period of 2023.

Ming Yang: When you look at the year as a whole, 2024 as a whole, do you think that with the sales that you will do, which will be, let's say, around your total production levels, that you would have gained or lost market share in 2024? I think at least based on the latest industry production, so even though we reduced utilization, I think we're still maintaining market share. I think based on our current production level, we're roughly 15% of the market.

Rajiv Chaudhri: When you look at the year as a whole, 2024 as a whole, do you think that with the sales that you will do, which will be, let's say, around your total production levels, that you would have gained or lost market share in 2024? I think at least based on the latest industry production, so even though we reduced utilization, I think we're still maintaining market share. I think based on our current production level, we're roughly 15% of the market.

Ming Yang: The net cash used in finance activity, the second quarter of 2024, was primarily related to dividend payments and should be purchased by our company's main subsidiary.

Ming Yang: But your total output would be about 10% higher than last year, or I should say maybe your total sales will be about 10% higher than last year, right? So do you think that that is roughly the growth rate of the market this year, 10%? Well, I think it really depends on, especially Q4, because if you look at our production until volume in the first half, especially for Q1, it's still relatively healthy, it's really Q2, it came down, and this point we're expecting our Q3 still volume and shipment to be above Q2, and then Q4 is looking, at least for now, is looking at a positive trend. So I would say, if I look at industry statistics, I think it's still expecting roughly 20% kind of improvements. Okay, maybe more.

Rajiv Chaudhri: But your total output would be about 10% higher than last year, or I should say maybe your total sales will be about 10% higher than last year, right? So do you think that that is roughly the growth rate of the market this year, 10%? Well, I think it really depends on, especially Q4, because if you look at our production until volume in the first half, especially for Q1, it's still relatively healthy, it's really Q2, it came down, and this point we're expecting our Q3 still volume and shipment to be above Q2, and then Q4 is looking, at least for now, is looking at a positive trend. So I would say, if I look at industry statistics, I think it's still expecting roughly 20% kind of improvements. Okay, maybe more.

Rajiv Chaudhri: Okay, thank you.

Ming Yang: And that concludes our prepared remarks.

Operator: This concludes our question and answer session.

Anita Zhu: This concludes our question and answer session.

Operator: We will now open the call to Q&A from the audience.

Anita Zhu: I would like to turn the conference back over to Anita Shu for any closing remarks. Thank you, everyone, again for participating in today's conference call.

Anita Zhu: I would like to turn the conference back over to Anita Shu for any closing remarks. Thank you, everyone, again for participating in today's conference call. Should you have any further questions? Please don't hesitate to contact us. Thank you, and have an awesome day. Goodbye.

Operator: Operator, please begin.

Operator: Should you have any further questions? Please don't hesitate to contact us. Thank you, and have an awesome day. Goodbye. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [inaudible]

Operator: We will now begin the question and answer session.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [inaudible]

Operator: To ask a question, you may press star than one on your telephone keypad.

Operator: If you are using a speaker phone, please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star than two.

Operator: At this time, we will pause momentarily to assemble our roster.

Matthew Ingraham: The first question comes from Phil Shen with Roth Capital Partners.

Matthew Ingraham: Please go ahead.

Matthew Ingraham: Hi, this is Matt Ingramon for Phil.

Matthew Ingraham: Thank you for taking your questions.

Matthew Ingraham: Looking ahead, can you give us a sense of pricing and cost structure beyond this year?

Matthew Ingraham: Do you think that there could be some recovery in price next year and how much more room do you have to lower the cost structure?

Ming Yang: Hello, this is me, Mr. Phil, faculty minister.

Ming Yang: Thank you for your question.

Ming Yang: I think in recent months, particularly in August, we have already seen some pickup and recovery of pricing.

Ming Yang: The need I said at the bottom, I guess in terms of June and July, pricing was below 40 R&B per kilogram.

Ming Yang: As of now, pricing is the range of 41 to 42 R&B per kilogram, so we saw a range between two to three R&B per kilogram in terms of price recovery. This is primarily result of the industry's production reduction and a slight uptake in demand from customers.

Ming Yang: We do not think the current pricing is sustainable.

Ming Yang: We do believe that over the rest of the year, we should continue to see likely between two to four R&B kind of price recovery as a production continued to remain at a lower level.

Ming Yang: And while for next year, we do believe that demand continued to improve, especially from new markets like Middle East.

Ming Yang: So we think maybe mid next year is when we will see normalize pricing for policy.

Matthew Ingraham: Great, thank you.

Ming Yang: And that quickly thought about your cost structure, sorry, but we do think there are continue to be an opportunity to reduce costs.

Ming Yang: I think we're seeing very successful cost transfer in Mongolia phase 2 facility.

Ming Yang: I think you saw approximately 5% reduction of cost from Q2 to Q1 and we do expect that Q3 costs should be flat to slightly lower than Q2.

Ming Yang: So we think in the second half we should overall we should see costs somewhere around $6 or even a slightly lower than $6.

Ming Yang: And we think there's this cost to continue next year.

Matthew Ingraham: Really appreciate the color there.

Matthew Ingraham: And then can you just talk about the channel inventory in the market?

Matthew Ingraham: Do you expect that to continue to grow in your term and where do you think that peaks?

Ming Yang: Okay, actually China and Mongolia has already peaked.

Ming Yang: So inventory is actually coming down of August and we think this should continue to go down. I think primarily as a result of continued reduction in supply. So we think it should probably reduce to a much more reasonable level by Q4 or by the end of the year.

Ming Yang: So unless we see kind of meaningful price recovery at least above the industry cash cost, we're a very unlikely to see improvement in production.

Matthew Ingraham: Okay, great.

Matthew Ingraham: Thank you for the color.

Matthew Ingraham: I'll pass it on.

Matthew Ingraham: Great.

Matthew Ingraham: Thank you.

Alan Lau: The next question comes from Alan Lau with Jeffries.

Alan Lau: Please go ahead.

Alan Lau: Thanks for taking my question.

Alan Lau: So we'd like to know about what is the breakdown on the impairment of 108 million because and also the inventory level at the end of 2kg because it appears that the production volume is higher than sales volume for 20,000.

Alan Lau: So it's 20,000 is fair assumption on the inventory level by end of 2kg.

Alan Lau: And if that is the case and impairment of 108 million seems huge.

Ming Yang: So we'd like to know the basis on that.

Ming Yang: for Kilogram.

Ming Yang: And about 60% of those related to Finnish goods inventory.

Ming Yang: Okay.

Ming Yang: And then looking at our inventory at the end of the quarter, you can be a minute, let me just quickly look up.

Ming Yang: Okay, it's approximately 28,000 metric times.

Ming Yang: Okay, so we build roughly 20,000 metric times the inventory, like you said, during the quarter because of the market conditions and the weekly math.

Ming Yang: But I think starting in August, we're starting to see the reduction in inventory.

Alan Lau: Thank you.

Alan Lau: So if 60% is Finnish goods, so it's basically around, I guess 60 to 70 million of the impairment is related to the impairment on 28,000 tons.

Alan Lau: So that's still like around two to three dollars per kilogram.

Alan Lau: So that is in huge because the production cost, the spread between the ASP and the production cost appears to be only one dollar per kilogram.

Alan Lau: So we'd like to know, did I miss anything from this one?

Ming Yang: So that's what we do to create the math.

Ming Yang: So the ASP is 37 to 38, but your production cost is only at around 40 something.

Ming Yang: So it's the impairment.

Ming Yang: 45 RMB per kilogram.

Ming Yang: Yeah, around 12 RMB, but it's 28,000 and then it's still at most, it should be like 300,000 maybe.

Ming Yang: So since the impairment amount to be 15 million, well, and then there's also raw materials, right?

Ming Yang: And then working process of inventory, that's also being reduced.

Alan Lau: So maybe we'll move on to the guidance.

Alan Lau: So I have noted that the production volume guidance on three Q and a second half has reduced significantly.

Alan Lau: So I'd like to know first of all, the thinking behind this is this to preserve cash and secondly, what do you see like the utilization rates of your peers?

Ming Yang: Do they also cut their production volume as well?

Ming Yang: I would say yes.

Ming Yang: So for most of our peers, I think with the exception of maybe one of the main one, I think most have reduced utilization significantly, I think in light of the current market pricing environment.

Ming Yang: So we do believe that the currentization level that that we have, you know, that we're operating in, in light of the pricing that remains at the low cash cost, you know, is the most prudent, I think.

Ming Yang: So there's effectively around 70% of utilization, right?

Ming Yang: So will this impact the production cost or, or is okay supply? It's actually, I would say overall very minimal impact on production cost, I think, only one to two RMB.

Ming Yang: Yeah, because it's almost 80% of our cost is what we call variable cost, which is electricity and energy and other consumables being and graphite and the still can see raw.

Ming Yang: So we're going into the fixed deposit of an investment of 1.4 billion.

Ming Yang: So we're going to know how long is those investment and how liquid are those?

Ming Yang: So basically the question is related to buybacks, because I'd like to know the liquidity of the company on that front.

Ming Yang: Okay, almost all the fixed investment and, and term loans were purchased by the Xinjiang Docko subsidiary, right?

Ming Yang: So, in terms of the U.S.

Ming Yang: LIFCO and our cash balance, it's virtually all there is a liquid savings account or a money market fund.

Ming Yang: I see.

Ming Yang: So, I know that for ages, present three months.

Ming Yang: Oh, it's been three months, right?

Ming Yang: Yes.

Ming Yang: I see.

Alan Lau: So, my last question is basically on the buyback.

Alan Lau: So, the company has launched a 100 million buyback program.

Alan Lau: So, I'd like to know if the company is going to continue on the buyback and what is the planning of the buyback, like, which price you think is appropriate or do you think the current stock price is the the level where you think the company will actually accelerate the buyback.

Ming Yang: Thank you, Alan.

Ming Yang: So, in terms of the share, we purchased Graham, so we have authorized any amount of 100 million US dollars back in July.

Ming Yang: So, in terms, so we definitely think that our stock is undervalued, but in terms of the pace, I would say that it will be a contingent upon the market conditions, and we will be more opportunistic in terms of the repurchase.

Ming Yang: So, we're going to look, obviously we purchased as many shares as possible for the company, to maximize the money that we spent in terms of its effectiveness.

Ming Yang: I see, and yes, you've explained, so the cash is already there in the US level, so probably it's still going to go ahead in this year.

Ming Yang: That's our current function, yes.

Ming Yang: I see, thank you.

Alan Lau: So, I'll pass on, thank you.

Alan Lau: Great, thank you, Alan.

Operator: Again, if you have a question, please press star than one.

Rajiv Chaudhary: The next question comes from Rajiv Chaudhary with Sonsara Capital.

Rajiv Chaudhary: Please go ahead.

Rajiv Chaudhary: Good morning.

Rajiv Chaudhary: My question, the first question relates to the fully loaded costs that you will incur in Q3 and Q4.

Rajiv Chaudhary: If you're reducing the utilization rate, shouldn't that actually increase your fully loaded costs relative to the third quarter?

Ming Yang: Well, I think, interesting, that has to do with the cost structure of a policy gun production, right?

Ming Yang: So, roughly 35% to 40% is electricity, and then another 35% is slick and metal, and then majority of other costs is actually mostly consumables, like graphite, the slick and seed rod, and the packaging.

Ming Yang: So, if I look at what we, these we would call, you can call it a verbal cost where we don't produce, right?

Ming Yang: We don't buy silicon metal, we don't buy the consumables.

Ming Yang: So, these were percent actually more than 80% of the cost, okay?

Ming Yang: The remaining 20% cost, approximately 13% is depreciation, right? Which is the non-cash portion.

Ming Yang: So, yes, right depreciation will, you know, the depreciation, the overall depreciation expense will be aggregated over a smaller volume, you know, but I think the overall impact is not that much, right?

Ming Yang: Because it's not a huge portion of our cost.

Ming Yang: And while in terms of the rest is labor, labor, let me see, is roughly 6% of our cost, and then we were reducing labor costs by between 10 to 20%.

Ming Yang: You know, we're optimizing our staffing level, for example.

Ming Yang: So, I think the overall impact is actually not that significant.

Ming Yang: We maintain production, right?

Rajiv Chaudhary: Because we're reducing production by maybe 35% or something like that.

Rajiv Chaudhary: What's the previous level?

Rajiv Chaudhary: The second question is related to the difference between production and sales.

Rajiv Chaudhary: So you will produce 210 to 250,000 tons.

Rajiv Chaudhary: But the sales are likely to be higher than that, right?

Rajiv Chaudhary: I mean, if you expect inventories to get back to normal by the end of the year, then sales are likely to be, I don't know, 240 to 250,000.

Rajiv Chaudhary: Is that the right way to think about it?

Ming Yang: I can only say, well, you're talking about the full year, right? But I think realistically in the first half, we did build inventory, so volume was less than production. And we expect the second half will be more sales than production, right?

Rajiv Chaudhary: But again, it's early, right? It's only August, so it really depends on how much more sales we can achieve relative to production.

Rajiv Chaudhary: I see.

Rajiv Chaudhary: But for the year as a whole, you expect sales to be greater than production, right?

Rajiv Chaudhary: It's difficult to talk.

Rajiv Chaudhary: It's really up to Q4 performance.

Rajiv Chaudhary: I see.

Rajiv Chaudhary: And can you give us any specific examples of companies that are of competitors who are actually closing shop as the thing from just reducing their output right now?

Ming Yang: So our understanding is they're being consolidated by Conway and Conway doing due diligence on them right now.

Ming Yang: So I think that they have significantly reduced production.

Ming Yang: And then there's another peer competitor, I think they've built, they've claimed they've built approximately 100 to 200,000 metric tons of capacity.

Ming Yang: But we are understanding is the volume that they're selling to the market is actually fairly trivial.

Ming Yang: So those are the cases that we know of right now.

Rajiv Chaudhary: When you look at the year as a whole, 2024 as a whole, do you think that with the sales that you will do, which will be, let's say, around your total production levels, that you would have gained or lost market share in 2024?

Ming Yang: I think at least based on the latest industry production, so even though we reduced utilization, I think we're still maintaining market share.

Ming Yang: I think based on our current production level, we're roughly 15% of the market.

Rajiv Chaudhary: But your total output would be about 10% higher than last year, or I should say maybe your total sales will be about 10% higher than last year, right?

Rajiv Chaudhary: So do you think that that is roughly the growth rate of the market this year, 10%?

Ming Yang: Well, I think it really depends on, especially Q4, because if you look at our production until volume in the first half, especially for Q1, it's still relatively healthy, it's really Q2, it came down, and this point we're expecting our Q3 still volume and shipment to be above Q2, and then Q4 is looking, at least for now, is looking at a positive trend.

Ming Yang: So I would say, if I look at industry statistics, I think it's still expecting roughly 20% kind of improvements.

Ming Yang: Okay, maybe more.

Rajiv Chaudhary: Okay, thank you.

Operator: This concludes our question and answer session.

Anita Zhu: I would like to turn the conference back over to Anita Shu for any closing remarks.

Anita Zhu: Thank you, everyone, again for participating in today's conference call.

Anita Zhu: Should you have any further questions?

Anita Zhu: Please don't hesitate to contact us.

Anita Zhu: Thank you, and have an awesome day.

Operator: Goodbye.

Operator: The conference has now concluded.

Operator: Thank you for attending today's presentation.

Operator: You may now disconnect.

Operator: [inaudible]

Q2 2024 Daqo New Energy Corp Earnings Call

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