Daqo New Energy Corp (DQ) Q2 2021 Earnings Call Transcript

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Daqo New Energy Corp (DQ 3.23%)
Q2 2021 Earnings Call
Aug 18, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Daqo New Energy Second Quarter 2021 Results Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Kevin He. Please go ahead.

Kevin He -- Investor Relations

Hello everyone, this is Kevin He, the Investor Relations of Daqo New Energy. Thank you for joining our conference call today. Daqo New Energy just issued its financial results for the second quarter of 2021, which can be found on our website at www.dqsolar.com. To facilitate today's conference call, we have also prepared a PPT presentation for your reference. Today attending the conference call, we have Mr. Longgen Zhang, our Chief Executive Officer; and Mr. Ming Yang, our Chief Financial Officer. The call today will feature an update from Mr. Zhang on market and operations and then Mr. Yang will discuss the Company's financial performance for the quarter. After that, we will open the floor to Q&A from the audience.

Before we begin the formal remarks, I would like to remind you that certain statements on today's call including expected future operational and financial the performance and industry growth are forward-looking statements that are made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements.

Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary views as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today and we undertake no duty to update such information, except as required in the applicable law.

Also during the call, we will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U.S. dollars solely for the convenience of the audience. Without further ago, I now turn the call over to our CEO, Mr. Zhang. Please go ahead.

Longgen Zhang -- Chief Executive Officer

Thank you, Kevin. Hello, everyone. Thank you for joining our conference call today. We are very excited to report an excellent quarter with strong revenue growth and a better than expected profitability as the company achieved record high production volume, gross profit and net income with the global focus on addressing the climate challenge with plans to reach carbon neutrality, market conditions remain strong for the polysilicon sector. The strong increase in downstream demand has led to a shortage of polysilicon and it caused our polysilicon ASP to rise significantly from $11.9 per kilogram in Q1 to $20.81 per kilogram in Q2. In July and August, the market price for mono-grade polysilicon has remained at approximately $26 to $28 per kilogram and we expect the strong price momentum to continue into the second half of this year. Despite the rise in solar module prices in the first half of this year, we continue to see stronger than expected market demand even at the new market prices.

Recently, the solar value chain has been stable at the new market prices and downstream manufacturers are currently able to pass through price increases to their customers. During the week of August 9, major solar wafer and solar cell manufacturers in China announced the price increases for solar wafers and cells, further demonstrating the strong end-market demand. We saw the uptick in polysilicon pricing in the last two weeks with a surge in orders from our diverse customer base. We expect the constrained polysilicon supply to be the main limiting factor to the size of the global solar market this year.

Polysilicon production is a complex chemical process and has the highest barrier to entry in the solar value chain. Based on our research, we expect to see approximately 180 to 220 thousand metric tons of additional polysilicon supply in 2022 considering a potential six months' ramp-up period for other polysilicon producers. This total global polysilicon supply can be used to produce approximately 240 to 250 gigawatts of solar modules, which can support approximately 200 to 210 gigawatts of solar installations in 2022.

So, the polysilicon sector will still be the one with most constrained supply across the main solar PV manufacturing value chain in 2022. On the demand side, more and more countries have set up time tables for peak carbon and carbon neutrality targets that will significantly increase demand for renewable energies including solar PV. In addition, there is still meaningful room for potential cost reduction across the value chain, which will effectively stimulate large demand, especially given that solar PV has already reached grid parity in many countries and the regions in the world. As a result, we believe polysilicon pricing will remain healthy in 2022, making our sector one of the most attractive sectors in the solar PV industries in the long run given its high entry barrier and operational complexity.

On the policy front, during the Politburo Central Committee meeting on July 30 regarding economic activity in the second half of 2021, with China's President, Mr. Xi Jinping presiding over the meeting. The central government reiterated the urgency for national coordination on carbon peak and carbon neutrality goals and the development of the peak carbon 2030 action plans and related policies as early as possible. In addition, China recently announced an ambitious program to massively deploy distributed generation solar projects at the local government level that is the country level. We believe solar will continue to be a strong beneficiary of the government policies and support.

With regard to our ESG initiatives, we are in the process of incorporating environmental, social and governance factors in all of our major business decisions, and we published our inaugural ESG Sustainability Report in July. We are already making substantial progress on the sustainability front, including installing a new wastewater treatment facility in 2018 that reduced our wastewater discharge density by 60% in 2020 compared to 2018. Furthermore, by increasing energy efficiency and energy recycling, as well as optimizing our production process, we reduced our comprehensive energy consumption density by 40% in 2020 compared to 2017. We will continue to work on our ESG efforts, including planning for greater renewable energy use as part of our energy sources in the future.

We continue to focus on initiatives to strengthen the Company's long-term competitiveness. Our major operational subsidiary, Xinjiang Daqo New Energy successfully completed its IPO listing on China's A share market and started trading on Shanghai Stock Exchange's Sci-Tech Innovation Board the ticker code is 688303, on July 22, 2021. The total gross proceeds of the IPO are approximately RMB6.45 billion, which will fund Xinjiang Daqo's polysilicon expansion project and provide additional capital for our future growth plans. Following the Xinjiang Daqo's IPO, Daqo New Energy directly holds approximately 79.6% of Xinjiang Daqo's shares and indirectly holds 1.1% of Xinjiang Daqo's shares through Daqo New Energy's wholly owned subsidiary Chongqing Daqo, for a total ownership of 80.7% of the A-share listed subsidiary. There is no Variable Interest Entity (VIE) structure between Daqo New Energy and Xinjiang Daqo. The successful IPO will offer us an additional value to access the attractive capital markets in China for future growth and expansion.

With our advantages of competitive cost structure, quality and technology advancement, outstanding operational expertise and experienced management team, we have set up a roadmap to increase our capacity to 720,000 metric tons by the end of 2024, representing approximately 50% annual average growth rate of our production capacity over the next three years to better serve the fast growing global solar PV market.

Now, I will discuss outlook guidance for the company for this year. The company produced 41,287 metric ton of polysilicon and sold approximately 42,531 metric tons of polysilicon in first half of this year representing full utilization level of the company's production facilities. For the second half of this year, the Company expects to remain to full utilization with sales volume similar to production volume. For the full year of 2021, the Company raises its production guidance from the previous level of 81,000 to 83,000 metric tons to a level of approximately 83,000 to 85,000 metric tons of polysilicon for the full year, inclusive of the impact of the Company's annual facility maintenance.

Now, I will turn the call over to our CFO, Mr. Yang, who would discuss the company's financial performance for the quarter. Thank you.

Ming Yang -- Chief Financial Officer

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

Revenues were $441.4 million compared to $256 million in the first quarter of 2021 and $133.5 million in the second quarter of 2020. With strong market demand for our products, ASP was $20.81 per kilogram in Q2 2021 compared to $11.90 per kilogram in the first quarter. As Longgen mentioned for the months of July and August, the market price for mono-grade polysilicon has further increased to approximately $26 to $28 per kilogram and we expect the strong price momentum to continue into the second half of this year.

Gross profit was $303.2 million compared to $118.9 million in the first quarter of 2021 and $22.7 million in the second quarter of 2020. Gross margin was 68.7% compared to 46.4% in the first quarter of 2021 and 17% in the second quarter of 2020. The increase in gross margin was primarily due to higher average selling prices. Selling, general, administrative expenses were $9.3 million compared to $9 million in the first quarter of 2021 and $10.1 million in the second quarter of 2020. SG&A expenses during the quarter includes $2.4 million in non-cash share-based compensation costs related to the company's share incentive plan and compared to $3 million in the first quarter of 2021 and $4.5 million in the second quarter of 2020.

Research and development expenses were $2.1 million compared to $1.2 million in the first quarter of 2021 and $2 million in the second quarter of 2020. Research and development expenses vary from period to period and reflect R&D activities that take place during the quarter. As a result of the foregoing, income from operations was $292.4 million compared to $109.2 million in the first quarter of 2021 and $10.8 million in the second quarter of 2020. Operating margin was 66.3% compared to 42.6% in the first quarter of 2021 and 8.1% in the second quarter of 2020.

Interest expense was $7.2 million compared to $7.8 million in the first quarter of 2021 and $6.7 million in the second quarter of 2020. Net income attributable to Daqo New Energy Corp shareholders was $232.1 million compared to $83.2 million in the first quarter of 2021 and $2.4 million in the second quarter of 2020. Earnings per basic ADS was $3.15 compared to $1.13 in the first quarter of 2021 and $0.03 in the second quarter of 2020. EBITDA was $311.7 million compared to $128.1 million in the first quarter of 2021 and $26.8 million in the second quarter of 2020. EBITDA margin was 70.6% compared to 50% in the first quarter of 2021 and 20% in the second quarter of 2020.

As of June 30, 2021, the company had $269.7 million in cash and cash equivalents and restricted cash, compared to $227.8 million as of March 31, 2021, and $115.8 as of June 30, 2020. As of June 30, 2021 notes receivable balance was $97 million, compared to $38.5 million as of March 31, 2021 and $8.2 million as of June 30, 2020. With the company's strong earnings and operating cash flow, we took the opportunity to further reduce our interest bearing debt balance during the quarter.

As of June 30, 2021, total bank borrowings were $156.6 million, of which $70.9 million were long-term bank borrowings, compared to total bank borrowings of $222.2 million, including $100.4 million of long-term bank borrowings as of March 31, 2021 and total bank borrowings of $264.8 million, including $116.9 million long-term being borrowings as of June 30, 2020.

With our strong cash balance and cash generation for this year, we expect that we would pay off all of our interest bearing bank borrowings before the end of the year. For the first half of 2021, net cash provided by operating activities was $442.3 million, compared to $47 million in the same period of 2020 and for the six months ended June 30, 2021, net cash used in investing activities was $255 million, compared to $60 million in the same period of 2020. The net cash used in investing activities in 2021 and 2020 was primarily related to the capital expenditures on the Company's polysilicon expansion projects.

For the first half of 2021, despite the strong increase in capital expenditures related to our polysilicon expansion, the Company generated $186 million of free cash flow. For the six months ended June 30, 2021, net cash used in financing activities was $37 million compared to net cash provided by financing activities of $16 million in the same period of 2020. The net cash used in financing activities in 2021 was primarily related to the repayment of bank loans.

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

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Philip Shen with Roth Capital Partners. Please go ahead.

Philip Shen -- Roth Capital Partners -- Analyst

Hi everyone. Thank you for taking my questions. You mentioned Longgen that the outlook for a poly pricing remains healthy in 2022. I was wondering if you could talk through how you expect your pricing to trend in Q3 and Q4 and then also in 2022? Thanks.

Longgen Zhang -- Chief Executive Officer

Okay. Basically, by the end of this year, we didn't have a new any capacity or new adding any new poly. I think the supply into the pipeline. So, we see right now. I think the current price, OK, around the average price around like $26 to $28 per kg, this were transfer to ending the module price, right now selling around that $175 to even high $101.9. No. I'm sorry the RMB1.9 per lot right now from RMB1.75 to RMB1.9 per lot. So, we see right now, I think as the poly supply is very tight, basically right now. So, as we mention that for next year, we see from now on to end of this year, I think the price will continue. I think, we stay at the high in the second half of the year. The reason is because I think that the module price is high than the expected with the demonstrating a strong and expected demand, also with the price increase in sale in the renewable sector also shows that the demand is very strong. I think in 2022 based on the, our industrial research, we expect to see I think approximately 180,000 to 280,000 metric tons of additional polysilicon supply, which can be used to produce approximately 240 to 250 gigawatts of solar module. We think the overall cost reduction, we're contribution around a RMB0.5 to RMB0.10 per watt and bring down the module price to maybe RMB1.65 per watt. So if the power price continue to go down. Let's say to $22 to $23 per kg. Okay, the module price can be further lowered to RMB1.55 per Watt. So, basically you can continue calculation on the module. So, we believe I think next year, first half of next year, the average ASP of the -- I think of polysilicon we think is around RMB150 per kg. For the second half of the year, we think it should be around like RMB130, I'm just around, OK. You can range further 10%. So, RMB130 per kg. So, I think for next year, as you see that our 4B capacity we'll put into production by the end of this year. So, next year, we think our production will get a 50% increase. So, the bottom line continue to get growth, Philip.

Philip Shen -- Roth Capital Partners -- Analyst

Great, thank you. Longgen. That's really helpful. And then from the cost side, we've seen your costs increase a little bit, not much, but just a little bit, what's the outlook for your cost structure, cost structure this year and Q3 and Q4 and then also for 2022.

Longgen Zhang -- Chief Executive Officer

Okay. If you look at Q2, the cash cost is around a $5.41 compared to Q1 $5.37. The cost of goods sold is $6.31 compared to Q1 of $6.29. The whole cost plus everything together, I think is a $7.30 compared to Q1 $7.15. So, yes, I think we slightly increased the realized because I think will the sales price go, ASP go up, the value adding tax also go up. So that's adding to the operating expenses. So, basically, I think from lower, especially in Q3, we see the polysilicon, the powder, the silicon powder prices go up. So, I think for Q3 and Q4 our cost maybe continue to slightly keep -- I think the maybe same, maybe slightly, I think little up, 1%. Because of the polysilicon metal powder price jumped a lot. Especially this week, I think right now the prices are almost go to I think RMB20,000 per ton. But for next year, definitely, because with additional 4B finished, the scalability of the production -- the production line plus the total I think the output, the scale, we think it would still have like 2% to 5% the cost -- the cutting in the future -- in the next year.

Philip Shen -- Roth Capital Partners -- Analyst

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

Longgen Zhang -- Chief Executive Officer

It's a good question, actually also, it's a factor. Our share price, we're now in the U.S. market is here with on a value compared to Asia. Based on your calculation right now, Daqo New Energy listing in U.S. holds a total ownership of 80.% of the Asia listed subsidiaries. By now, almost it's kind of more than 80% on the price. Right. So, there is also Daqo New Energy is not the VI structure between Daqo New Energy and the Xinjiang Daqo. So, Xinjiang Daqo right now is Daqo New Energy's shareholding and Xinjiang Daqo it can be traded three years in Asia market after Xinjiang Daqo IPO, which is I think on July 22, 2024. That's mean we can't selling shares -- I think to payback the U.S. shareholders, that's meaning from -- three years from now, OK, from the IPO. Xinjiang Daqo also has made a commitment letter to its shareholders that it will pay cash dividends in the next three years, no less than 30% of its distributable profit during the three years period. In China, Asia is averaging 10% of annual profit at baseline. Okay. So, we think Xingjiang Daqo plan needs to be also be approved by the shareholders meeting and together with its 2021 Annual Report, early in the middle of April 2022. So, as the 80% shareholder of Xingjiang Darko, we are expected to receive cash dividends as a financial partner for potential buyback or even dividend distributed in the U.S. market. Of course, for the further if developing expansion, we can continue to raise money in Asia as a high valuation. So, we needed that all these I think information I just also want to remind you that we cannot guarantee the dividend plan of Xingjiang Daqo because it needs to be approved by Xingjiang Daqo's shareholders. So, basically, yes, we have some channel to arbitrate in the future. But definitely, I think we are not, the arbitrator player. We are the manufacturer. We are, I think, the manager company and make our efforts to pay rewards to our shareholders of both Asia and the U.S. shareholders. Thank you, Philip.

Philip Shen -- Roth Capital Partners -- Analyst

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

Longgen Zhang -- Chief Executive Officer

It's no problem, because we see when we listed in the Asia, the China -- I think what to call it China SEC -- called CSRC, it's already approved, the Daqo New Energy is the foreign holders -- the shareholders. So, when we declare dividends, basically, we have to -- basically it's easy to exchange to the U.S. dollar. But we just pay the dividend tax. So, if we set a middle company Hong Kong, which will pay 10%, if we directly pay the [Indecipherable], we have to pay 10% dividend tax. So, with that money, we can do either buyback or just continue to distribute our dividend to the U.S. shareholders.

Philip Shen -- Roth Capital Partners -- Analyst

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

Longgen Zhang -- Chief Executive Officer

Thank you.

Ming Yang -- Chief Financial Officer

Thanks, Philip.

Operator

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

Gary Zhou -- Credit Suisse -- Analyst

Hey, this is a Gary from Credit Suisse. And firstly, congratulations on the very strong second quarter results, and I have three quick questions. So, first one is actually to follow-up with the earlier question on the kind of the plans for the U.S. listing platform. So just wondering as to, Longgen also mentioned that continued as huge kind of valuation gap between Asia and the U.S. ADR. So, it seems like a kind of a big kind of arbitrage opportunity here. So just wondering what the company of other kinds of country controlling shareholder being thinking of, kind of use -- so the kind of a large bridge loans or other kind of financing vehicles. So that it is actually -- if you kind of arbitrage the U.S. ADR to the much higher kind of valuation is your stake. So, just wondering if it's kind of a possible option the company reducing costs? Thank you.

Longgen Zhang -- Chief Executive Officer

Okay. Gary, I think, first of all, from [Indecipherable] to my knowledge to the Board, to also the controller -- shareholder controls from I think at least, I think the short term, we're not interested in privatization. We know there is a lot of opportunity to do the arbitrator. It's easier to privatization U.S. shares than transfer to I think the Asia. It's not our purpose because we think right now the company is under, I think the uptick side. We want the U.S. shareholders to enjoy the returns. So, that's why our strategy is continue to raise capital in Asia market, continue to expanding our future capacity in the next few years, by average 50% every year continue to increase to guarantee or to make sure our bottom line can continue to 20%, 25% increase to maintain the market value to reward, I think, the shareholders. In the meantime, I think what do we do is continue to distribute I think the dividends to maximize use of the Chinese law, I think, as you can see at least 30% of distributable profit can be distributed. So, I think we will do that. I think, declare the dividends and exchange the foreign -- U.S. currency to the [Indecipherable] company and either to buyback or continue to declare the dividend to the U.S. shareholders. Ming, do you have any comments. Gary thank you.

Gary Zhou -- Credit Suisse -- Analyst

Thank you. This is very helpful. And then my second question is on the expansion plan. So, earlier you mentioned that by by 2024 your target to achieve 270,000 polysilicon capacity. Just wondering if we will have a more kind of a specific timeline for this expansion? And secondly, given that you're current economy is very strong and that's kind of cash position and also the further kind of a -- and already got the proceeds from the Asia IPO. So, is that possible the expansion target can be even kind of raised to higher if the polysilicon continue to peak?

Longgen Zhang -- Chief Executive Officer

I think first of all, if you look our balance sheet, by the end of the July 30, I think the balance sheet is very strong and I think with the -- we want to maintain -- I think the market share continue to -- maintain the market share. Definitely, yes. We want to expansion. First of all with successful, I think, IPO, we can be, I think, the 4B main phase is 35,000 metric tons. We're starting, I think the trial production by the end of this year. Next year, we're full capacity running. So, we think that will add that maybe 40,000 to 50,000 metric tons for the next year. But the detailed figures we will do I think in a late -- certain point in time of later of this year. Then for the year after that, just I mentioned that in order to keep the market share, we see the whole market, the solar market continue to -- end market continue to at least the average I think compound growth at 20%. So, with the Asia market, I think capital excess possible. We -- the company inside is generating the cash. With our strong management team, I think we have the ability to maintain the market share, continue to fund right now I think around 20%. So, we're planning to looking for besides Xingjiang, another place in our production base. I think it's possible in Qinghai Province in the Mongolia or even Shanxi. It's another place that we can continue to expansion around the 200,000 tons. So, we were divided into the two phases. The first phase is 10,000 metric tons, which I think the semiconductor. I think the production line is I think 1,500 metric tons. So, that's, I think we are planning. We are right now looking as well as we finalized the -- I think finalized the place and we will announce that. Thank you. Gary.

Gary Zhou -- Credit Suisse -- Analyst

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

Longgen Zhang -- Chief Executive Officer

I think I just answered, Philip, the question about you know the ASP of this year and next year. So yes, for 2023, 2024, really we have to considering the demand and the supply. From a supply side, we continue to see, I think China, a lot of I think existing player continue to expansion plus some new I think comer. But you have to consider that as the technology continue to improve, maybe I think in the next generation the P silicon sale to change to N sale, that's asking for high quality. So, who can produce N-type polysilicon that's most important, the market share, you can continue to have the market share. Second, we just mentioned that this is a CMC, it's a chemical manufacturing control. It's not easy for a new comer, even let's say, existing player new hopes to be the mono-silicon, I think, the structural percentage only I think around 50%. We can reach almost a 99.5%. So, I think the quality, also I think that it's a chemical, I'd say. the ramp up to reach I think the real supply, we'll call, it take a time, so I think that from supply side. From demand side, really, I can't tell you because, look at the global, I think the carbon, I think neutrality targets, I think -- we think at least, I think the compound growth rate should be around 20%. China right now, If you look at account level, distributed generation, it's a very, very -- I think potential market is very, very big. Besides of course the U.S. and China I think the trader war. I think, but I still think, New Energy, the renewable energy is the future. This is the major toll to reach the global, I think the carbon-neutrality targets. So, from I think the demand side really, Gary, you may be the expert because we really don't know. Some people they think as advice, but some people said that the 500 kilowatts maybe by 2025 and Mr. Li. I think if I'm lucky, he estimated as maybe even by 2030, 1,000 gigawatts. So, it's a need a lot of silicon, high quality silicon, it's around like 300,000 -- no, it's a 3 million tonnes -- metric tons. So, we not worry about that. The reason is because we think we own the largest scale, larger scale capacity in Xinjiang, which is as soon as we finish, I think 4B, our capacity maybe around 123,000 to 130,000 tons. Then we have another new place. We are looking for maybe by the middle of the 2022 come to -- put that into -- try pull back in. It's around 1,000 tons and continue to add another 1,000 tons. We think we are -- we have the competitive edge. So that's all our I think a long-term strategic plan.

Gary Zhou -- Credit Suisse -- Analyst

Okay. Yes. This is a very helpful and those are all the questions from me. Thank you.

Ming Yang -- Chief Financial Officer

Great. Thank you, Gary.

Operator

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

Tony Fei -- BOCI -- Analyst

Hi. Good evening management. This is Tony from BOCI. Three questions from my side. And the first one is still regarding the industry capacity expansion. So, just yesterday, the NRDC had a conference to update on the energy consumption status in China, according to which there was -- nine provinces in China has been increased in the energy intensity in the first half of this year including Xinjiang, Qinghai, and Ningxia. So, we know these three provinces hosts most of the new capacity announced by your peers. So, do you think this will slow down their pace in terms of the new capacity expansion?

Longgen Zhang -- Chief Executive Officer

Yes. Everybody read that -- the NRDC I think report. It gives three level of warning. I think -- unfortunately, I think Xinjiang, Qinghai, and Ningxia. Those I think have hefty supply province is the first -- I think the first I think cost -- I think warning. But you have to thinking about that. China, they have -- we put at priority. We think the polysilicon production -- polysilicon capacity is support -- continues the solar industry. If in the first priority, I think, so the governments, I think are definitely will put any new additional adding New Energy. I think the priority, put I think on the solar, polysilicon projects as first. So then even existing I think the energy consumption some province have to change their structure to reduce I think at the carbon -- the energy I think supply to increase the green energy, I think the supply. So, I'm not worried about that because I think the government is very clear to reach these targets. They need I think the solar continue to growth. Definitely the solar growth need I think polysilicon. Tony?

Tony Fei -- BOCI -- Analyst

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

Longgen Zhang -- Chief Executive Officer

We think this situation right now, I think momentarily, I think the polymer powder price go up is the short-term, I think, the situation. The reason is because in China, the silicon majority produced I think in Yunnan province and also Sichuan, Xinjiang province because of the shut of water. So, a lot of water power plant shutdown. So, that's why a lot of I think the poly -- silicon metal, I think the plant I think shutdown. Secondly, is also the new hope, I think for some accidents. They are closed. I think they are temporary closed. They are silicon metal plants. So, that's why I think short-term silicon metal price go up. I think in the future it will go down. Secondly, is we also pay at very attention to this situation. To us, we are also looking for up stream, I think very vertically integrated to upstream. That's I mean the silicon metal I think projects. We are looking for that also possible maybe we go to investments. One of the 300,000 tons projects in the future or maybe acquire some existing I think plants to maintain, I think sustainability, the powder supply, it is not just from I think existing supply like successful how poly powder manufacturers. So, basically we are looking for that. Yes, in the future, definitely, we will I think also invest in this area because 300,000 total investments only like around $3.5 billion, it's -- the investment is not too much plus the technology also is not the bigger deal. I think the silicon metal, the key issue is the strong results. Second is the I think, yesterday I think supply.

Tony Fei -- BOCI -- Analyst

But do you think the energy quota will be reached for the powder supply?

Longgen Zhang -- Chief Executive Officer

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

Tony Fei -- BOCI -- Analyst

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

Longgen Zhang -- Chief Executive Officer

We think -- I think a strong execution team need to match, I think, we have, I think incentive policy. I think this is a very important. Our U.S., I think the incentive plan, I think, help us to maintain our strong team together and to continue to expansion, have the people to continue to expansion. Today, you see, our team -- management team no one leave. Because in China, there is a lot of attractive outside. So, I think for Asia today, we didn't have new I think incentive plan. Yes. In the future, we will do that. But look the valuation is so big, right, it's almost a $120 billion. So, I think we have called a second let's say a share plan. We can issue employee at half price of the -- half share price of the market price to issue to the employee, divestment period from three years to five years. So I think, yes, we were thinking consider that in the second half of this year.

Tony Fei -- BOCI -- Analyst

Okay, great, thank you very much. Longgen. I'll pass it on.

Ming Yang -- Chief Financial Officer

Great, thank you, Tony.

Operator

[Operator Instructions] The next question comes from Lu Wei with Bernstein [Phonetic]. Please go ahead.

Lu Wei -- Bernstein -- Analyst

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

Longgen Zhang -- Chief Executive Officer

Thank you, Lu. Basically, if you look our, I think the first half of this year, our market share, I think, is around 18% to 20%. I didn't have extra figure frankly speaking on the, I think our solar polysilicon side. And in the future, yes, we are continued to keep 50% capacity annually average, OK, growth. But we think all player maybe expansion quicker than us. So, we think by the year 2024, our capacity can reach 270,000, our market share can maintain around the 18%. So, that's our target. Secondly is, yes, we are starting to do the, I think, semiconductor polysilicon. First of all, I think it is 1,500 metric tons. We'll reach I think that new projects, I think, 100,000 tons of polysilicon production line together. We have to taking at least two to three years to make this production line successful. I mean, successfully not only produce the polysilicon and a semiconductor polysilicon, but also to I think to qualified by the downstream, I think the user. It's take time as you know that the semiconductor chips and also the wafers, I think, take at least I think two to three years. But in China, right now -- the good thing in China right now the downstream on the semiconductor is very -- expansion very quickly. So, it's give us opportunity to maybe can -- should the -- I think the qualification period down to maybe one to two years. Yes, in the future, I cannot tell you how much market share of -- in the future the semiconductor side we can taking the market share. But I can tell you right now, we'll be I think around 50,000 tons semiconductor, I think our polysilicon supply. We think China right now is around I think 20,000 tons right now the usage. We want first to replace the imports, that's our first priority. Thank you, Lu.

Lu Wei -- Bernstein -- Analyst

Thank you. And to follow up on the targeted market share, I think one potential problem is that the faster mover and the first mover is probably going to secure the areas or the provinces where they have the cheap electricity and also the energy quarter in terms of total energy consumption and energy intensity. So, potentially which makes backhaul left with provinces with higher electricity prices and also some bottleneck in terms of securing this energy quota. Do you think that can be a potential problem and even if we are -- Daqo is able to expand capacity, will that be the case that the new capacities cost will have to be higher than existing capacity in Xinjiang?

Longgen Zhang -- Chief Executive Officer

Lu, I think it's a good question. But if you look at our history, Daqo always, I think, did more than said and frankly speaking, we are very conservative. The reason is because we see -- we started looking for another place is not today, I think two years ago. Like semiconductor we are three years ago -- five years ago, we are starting to collect the technology. For the, I think, a new place we already starting feasibility study, contact local is more than I think one and a half years. Don't worry about that. I think it's a very, most the right now, because I think the governments, local governments, put I think the solar industry the first priority just I said. From illustrative, the power price right now as we contact four to five places, I think outside of Xinjiang. Most is around $0.25 to $0.30 per watt. We don't think in the future, I think, the power price is the major competitive, I think the key factor. Rather than I think the polysilicon quality and as the cost control and scalability, I think is most important. Also the labor, I think the management. So, as you can see our cost structure, our cost cutting map in the future -- in the history, also in the future, we are, I think, the number one in the China. So, we're not worried about that frankly speaking. So, even though some people is already signed some agreements, I think, for example, like Qinghai right now, the price is around $0.26. We know we talked local governments there, they will come us to there, the price is also same. The only thing -- some stimulation policy maybe difference, but we -- just like we said, we also want to, it's yes. We also want to contribute to the society, the governance and local people. So, we're not want just to taking, taking. So, basically we're not worried about that. The reason because even today we all capacity in Xinjiang. We're shipping to the wafer manufacturing center for example like in the Mongolia or Yunnan province or Guizhou province. The shipping costs almost RMB2 per kg. Thinking about that, today, polysilicon consume and every consume in Q2, Q1 is around a 60 KWH per kg. So, it's almost $0.03 extra because we do the shipments from Xinjiang to our wafer producer. So, if we can move to, let's say in the Mongolia, Yunnan province, so we can save that $0.03 per KWH from the power price, all right, to pay to the local government -- local I think power grid. So, I'm not worried about that.

Lu Wei -- Bernstein -- Analyst

Thank you. That's very helpful.

Operator

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

Colin Yang -- Daiwa Securities -- Analyst

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

Longgen Zhang -- Chief Executive Officer

Colin. I think it's a good question. Basically right now, I just mentioned that, today, we're already starting, I think, provide N-type silicon to our major -- four major clients. The only thing right now, the N-type sale production line in China is not massive. I think a few. I think in the research, in that commercial, very high commercial I think level. So for example, we provide our major four clients is around like every month -- in around like 200 tons -- total is around like 600 to 800 I think tons per month. So, the price is not adding too much, is around like only at RMB2 per kg, but today I think basically we can -- from our output, we can -- I think N-type is around like 30% to 40%. So if, let's say, in the future, the shift from P to N type as the -- I think HKT, IDC. CompuCom I think the downstream, I think the N-type sale production line, I think, popular. We think we can continue to increase N-type to 70% to 80%, based on today, our technology. So it's not a big issue. The cost -- we don't think the cost we will add too much, maybe around like -- RMB1 or RMB2 per kg. The only thing I think is the volume. Okay. The output, maybe we will go down. The reason is because it is taking more time to depository -- for the furnaces. But that were affected, the output maybe around 5% to 8%. So, it's not a big deal to shift from -- for us, OK, today for our knowledge. I'm not talking about other player. To us because we very digitalize, also AI I think calculation on the furnaces. So, it's a very modern I think technology. So, it's easy for us to shift. Thank you. Colin.

Colin Yang -- Daiwa Securities -- Analyst

Thank you. That was very clear. So my second question, we have been [Indecipherable] for like almost two months. I'm just wondering what is the actual inflection from the U.S. customers? So, do we have any products which contained Hoshine -- the powder was actually contained by the U.S. customer. I was wondered if there are any updates from that?

Longgen Zhang -- Chief Executive Officer

We didn't have the exact information. Basically, we only can read some information from U.S. I think some think aloud I think a researcher, I think basically we see some, some -- the module producer right now some shipments I think in the U.S. customers. I think basically U.S. customers are holding, I think want to see the traceability. To us, I think we are manufacturing. I think polysilicon. Our customer is China, most all in China, it's a wafer producer. So, we're not any product finally shipping outside to especially to U.S. So, yes, currently, I think, no effect to us -- of course, I think, we see the Hoshine product maybe exported to U.S. maybe holding and also maybe in the future on the module side, the module manufacturer have to show the traceability. So, I don't think it's a good idea to doing that. The reason is because the impact to us will be temporary and then limited. But if this issue put longer, I think, the net impact to the U.S. market will be much bigger than I think to China sort of players because they see approximately 85% of poly and not 80% of wafer, I think are made in China and currently, there is no alternative for U.S. to replace. So, we believe -- I think it is coming to both U.S. market and Chinese market -- for our producers. I think to address the issue ASAP, especially to reach the common. I think area -- that's I mean the carbon neutrality targets. So, I'm not worried about that.

Colin Yang -- Daiwa Securities -- Analyst

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

Longgen Zhang -- Chief Executive Officer

Okay. I want to emphasize that we cannot give the future I think forecast. The only thing is I say that because we just assume, let's say, next year the capacity, we can continue 50% expansion. Okay. As far as we finish the 4B, I think run a 40,000 to 50,000 metric tons, we're adding to the existing, I think, the plants. So, I think for next year, I just mentioned that assume the selling price for the first half of this year -- next year is around like a 1.50, second half of next next year is around like a 1.30. We believe the bottom line, definitely, I think that we can achieve 20% to 25% increase. In the future, we can only do is we will make efforts to continue expansion, the annual average, I think a rate our 50% to expansion the capacity, but we cannot guarantee the bottom line, really is because I cannot crystal ball the demand and the supply of polysilicon in the future. Just, I mentioned there, you see we on the supply side have two factors. All right. How much real polysilicon we can supply, how much if the technology shifted, just like you said from P to N, how much we can provide the N-type silicon. From demand side, we really don't know the potential market in the future, the growth. So, basically, I cannot answer your question in the future, but yes, we make efforts.

Colin Yang -- Daiwa Securities -- Analyst

Got it, very clear. Thank you. Longgen. That's all my questions.

Operator

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

Kevin He -- Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Kevin He -- Investor Relations

Longgen Zhang -- Chief Executive Officer

Ming Yang -- Chief Financial Officer

Philip Shen -- Roth Capital Partners -- Analyst

Gary Zhou -- Credit Suisse -- Analyst

Tony Fei -- BOCI -- Analyst

Lu Wei -- Bernstein -- Analyst

Colin Yang -- Daiwa Securities -- Analyst

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