Daqo New Energy Q4 2024 Earnings Report

Daqo New Energy EPS Results

• Actual EPS: -$2.71
• Consensus EPS: -$0.69
• Beat/Miss: Missed by -$2.02
• One Year Ago EPS: N/A

Daqo New Energy Revenue Results

• Actual Revenue: $195.36 million
• Expected Revenue: $153.54 million
• Beat/Miss: Beat by +$41.82 million
• YoY Revenue Growth: N/A

Daqo New Energy Announcement Details

• Quarter: Q4 2024
• Date: 2/27/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 27, 2025
• Conference Call Time: 8:00AM ET

Daqo New Energy (NYSE:DQ), together with its subsidiaries, manufactures and sells polysilicon to photovoltaic product manufacturers in the People's Republic of China. Its products are used in ingots, wafers, cells, and modules for solar power solutions. The company was formerly known as Mega Stand International Limited and changed its name to Daqo New Energy Corp. in August 2009. Daqo New Energy Corp. was founded in 2006 and is based in Shanghai, the People's Republic of China.

Daqo New Energy Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day and welcome to the Deco New Energy Fourth Quarter twenty twenty four Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhao.

[Operator]

Please go ahead.

[Jessie Zhao, Investor Relations at Daqo New Energy]

Hello, everyone. I'm Jessie Zhao, the Investor Relations of Jaccong New Energy. Thank you for joining our conference call today. Daikou New Energy just issued its financial results for the fourth quarter of twenty twenty four, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Chairman and CEO, Mr.

[Jessie Zhao, Investor Relations at Daqo New Energy]

Zhang Xu our Executive CEO, Ms. Anita Xu our CFO, Mr. Min Liang and myself. Mr. Xu is on the business sheet now, so he will make a brief introduction followed by Mr.

[Jessie Zhao, Investor Relations at Daqo New Energy]

Anita Xu on our management's remarks. Today's call will begin with an update from Mr. Xu, our management, our market conditions and the Company's operations. And then Mr. Liang will discuss the Company's financial performance for the quarter and the year.

[Jessie Zhao, Investor Relations at Daqo New Energy]

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

[Jessie Zhao, Investor Relations at Daqo New Energy]

Further information regarding these and other risks is included in the reports or documents we have dealt 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 goal to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today, and we undertake no duty to update such information, except as required under applicable law. Also during the call, we will occasionally reference monetary amounts in U.

[Jessie Zhao, Investor Relations at Daqo New Energy]

S. Dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We offer these translations into U. S.

[Jessie Zhao, Investor Relations at Daqo New Energy]

Dollars solely for the convenience of the audience. Now, I will turn the call to our Chairman and CEO, Mr. Zhang Xu,

[Xiang Xu, Chairman & CEO at Daqo New Energy]

Hello, everyone. This is Xu Zhang, the CEO of Dark New Energy. We appreciate you joining us for the conference call today. Anita, go ahead.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Okay. Thank you, Mr. Xu. Hello, everyone. This is Lanita Zhu.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Thank you for joining our conference call today. And I'll now deliver some management remarks on behalf of Mr. Zhu. So in 2024, we faced a challenging market environment with excess capacity in the solar PV industry, leading to sharp price declines across the entire value chain. We proactively managed these difficulties by curtailing to reduce cash burn, particularly in the third and fourth quarters.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Nevertheless, we reached an annual polysilicon production volume of two zero five and sixty eight metric tons in 2024, meeting our guidance of 200,000 metric tons to 210,000 metric tons, which represented an increase of 3.7% year over year compared to 197,831 metric tons in 2023. Our N type product mix increased significantly from approximately 40% of total production in 2023 to 70% in 2024. And we sold 181,352 metric tons in 2024, ending the year at a reasonable inventory level. Despite slower growth in demand for solar PV products globally, a mismatch between demand and supply drove prices lower in 2024, even below cash costs. Overall, our polysilicon ASP decreased significantly from US11.28 dollars per kilogram in 2023 to US5.66 dollars per kilogram in 2024.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

And revenue came in at US1 billion dollars compared to US2.3 billion dollars in 2023 as a result of lower ASPs as well as lower sales volume. As post Huotan ASPs fall below production costs starting in the second quarter of twenty twenty four, we recorded a non cash provision for inventory impairment in expense with a negative gross margin of 20.7% for 2024. Due to the continuous negative gross margin, we recorded a non cash long lived asset impairment charge of US175.6 million dollars for the quarter related to our older polysilicon production line. Despite the losses, Daokunu Energy continued to maintain a strong balance sheet and ample cash reserves. At the end of twenty twenty four, the company had a cash balance of US1 billion dollars short term investments US10 million dollars bank notes receivable US55 million dollars and a fixed term bank deposit balance of US1.1 billion dollars Overall, the company maintains strong liquidity with a balance of quick assets of US2.2 billion dollars which can be readily converted to cash if needed.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

This solid financial position ensures we are well equipped to navigate the market downturn and remain strategically resilient. On the operational front, during the fourth quarter, the company continued to operate at a lower utilization rate of 40% to 50% of our nameplate capacity in light of weak market prices. The total production volume at our two post silicon facilities for the quarter was 34,236 metric tons, further decreasing from the third quarter by 9,356 metric tons. Meanwhile, we intensified our efforts to reduce inventory and our sales volume reached 42,191 metric tons in fourth quarter compared to 42,101 metric ton in the previous quarter. As a result of lower utilization, idle facility related costs for the quarter was approximately USD 1.02 per kilogram, which was primarily related to noncash depreciation expense.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Overall, post Lucan unit production costs edged up 3% sequentially to an average of US6.81 dollars per kilo. However, thanks to our relentless efforts to improve operational efficiency, our cash costs declined further to US5.04 dollars per kilogram, a 6% quarter over quarter decline compared to US5.34 dollars per kilogram in the third quarter. Due to the current market pricing environment, we currently expect total polysilicon production volume in the first quarter of twenty twenty five to be approximately 25,000 metric tons to 28,000 metric tons. We plan to maintain a relatively low utilization rate in 2025 until a turning point emerges in the sector. As a result, we currently anticipate full year production volume in 2025 to be approximately 110,000 metric tons to 140,000 metric tons.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Discussions on industry self regulation measures have been ongoing since the fourth quarter. Meanwhile, the polysilicon market remains sluggish heading into the quarter as downstream customers continue drawing down accumulated inventory and coping with lower wafer capacity utilization rates of approximately 50. Polysilicon pricing remained stable within the cyclical bottom range of RMB36 to 42 per kilogram throughout the quarter. In November and December, leading poly producers reduced production to offset the higher hydroelectricity costs during the winter season and to mitigate inventory risks. As such, industry production polysilicon continued to decline month over month.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

According to industry statistics, the total production volume in China descended to approximately 100,000 metric tons per month in December, the lowest level in the year. On December 26, Polysilicon Futures Trading officially launched with the initial benchmark price set at RMB38.6 per kilogram. Although some prices were quoted higher at RMB42 to RMB43 per kilogram, futures trading volumes remained small and had limited impact on spot pricing. On a positive note, new solar PV capacity in China reached a record high of 68 gigawatts in December, which was beyond expectations and reinforced market confidence in the resilience of solar PV in the short run and market potential in the medium to long term. Despite the significant challenges resulting from overcapacity in the solar PV industry, we have seen proactive initiatives to restore the industry's healthy development.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

On 12/06/2024, led by the China Photovoltaic Industry Association, our company along with other major solar PV manufacturers have reached consensus that implementing self discipline would be fundamental to mitigating the irrational competition amid falling prices and heightened global trade pressures. Moreover, the solar PV industry continues to show strong demand prospects. For the year 2024, China's newly installed solar PV capacity grew 28% year over year to two seventy seven gigawatts, which not only hit a record high, but also exceeded market expectations. We remain optimistic that as supply adjusts to more rational levels, we'll see a better balance between supply and demand this year. In the long run, as a renewable energy source and one of the lowest cost sources of electricity worldwide, solar power continues to be a key driver in global energy transition and sustainable development.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Looking ahead, Daqo New Energy will capitalize on the long term growth in the global solar PV market and strengthen its competitive edge by enhancing its higher efficiency, entire technology and optimizing its cost structure through digital transformation and AI adoption. As one of the world's lowest cost producers with the highest quality entire product, a strong balance sheet and no financial debt, we believe we're well positioned to weather the current market downturn and emerge as one of the leaders in the industry to capture future growth. So now, I will turn the call to our CFO, Mr. Ming Ye, who will discuss the company's financial performance for the quarter. Ming, please go ahead.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Thank you, Anita, and hello, everyone. This is Ming Yang, CFO of Daqo New Energy. We appreciate you joining our earnings conference call today. I will first go over the company's fourth quarter twenty twenty four financial performance, then follow with our full year 2024 financial results. Revenues were $195,400,000 compared to $198,500,000 in the third quarter of twenty twenty four and $476,300,000 in the fourth quarter of twenty twenty three.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

The decrease in revenue compared to the third quarter of twenty twenty four was primarily due to a decrease in ASP, mitigated by an increase in sales volume. Gross loss was $65,300,000 dollars compared to $60,600,000 in the third quarter of twenty twenty four and gross profit of $87,200,000 in the fourth quarter of twenty twenty three. Gross margin was negative 33% compared to negative 30.5% in the third quarter of twenty twenty four and 18.3% in the fourth quarter of twenty twenty three. The decrease in gross margin compared to the third quarter of twenty twenty four was mainly due to the decrease in average selling prices. Selling, general and administrative expense were $29,400,000 compared to $37,700,000 in the third quarter of twenty twenty four and $39,000,000 in the fourth quarter of twenty twenty three.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

SG and A expenses during the fourth quarter of twenty twenty four included $14,900,000 in non cash share based compensation expense compared to the company's share related to the company's share incentive plan compared to $18,900,000 in the third quarter of twenty twenty four. The company recognized $18,100,000 in non cash expense related to allowance for expected credit loss of receivables in the fourth quarter, mainly due to uncertainty on the recoverability of long age receivables. The company recognized $175,600,000 in fixed asset impairment loss, mainly related to its older polysilicon production lines in the fourth quarter of twenty twenty three due to the continuous downtrend in the polysilicon selling prices that impair the recoverability of carrying amounts of these assets. R and D expenses were $400,000 compared to $800,000 in the third quarter of twenty twenty four and $3,300,000 in the fourth quarter of twenty twenty three. R and D expenses reflect R and D activities that take place during the quarter and can vary from period to period.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

As a result of the above mentioned, loss from operations was $300,900,000 compared to $98,000,000 in the third quarter of twenty twenty four and income from operations of $83,300,000 in the fourth quarter of twenty twenty three. Operating margin was negative 154% compared to negative 49% in the third quarter of twenty twenty four and and seventeen 0.5% in the fourth quarter of twenty twenty three. Net loss attributable to Daqo New Energy shareholders was $180,000,000 compared to $60,000,000 in the third quarter of twenty twenty four and net income of $53,300,000 in the fourth quarter of twenty twenty three. Loss per basic ADS was $2.71 compared to $0.92 in the third quarter of twenty twenty four and income per ADS of $0.76 in the fourth quarter of twenty twenty three. Adjusted net loss attributable to Daqo New Energy shareholders, including non cash share based compensation costs, was $170,600,000 compared to $39,400,000 in the third quarter of twenty twenty four and adjusted net income of $74,000,000 in the fourth quarter of twenty twenty three.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Adjusted loss per basic ADS was $2.56 compared to $0.59 in the third quarter of twenty twenty four and adjusted earnings per basic ADS of 1.06 in the fourth quarter of twenty twenty three. EBITDA was negative $236,000,000 compared to negative $34,000,000 in the third quarter of twenty twenty four and $128,200,000 in the fourth quarter of twenty twenty three. EBITDA margin was negative 121% compared to negative 17% in the third quarter of twenty twenty four and twenty six point nine percent in the fourth quarter of twenty twenty three. Now, I will go over the company's full year 2024 financial results. Revenues were RMB1.03 billion compared to $2,300,000,000 in 2023.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

The decrease was primarily due to lower polysilicon average selling prices and further compounded by lower sales volume. Gross loss was $212,900,000 compared to gross profit of $920,700,000 in 2023. Gross margin was negative 20.7% compared to 39.9% in 2023. The decrease in gross profit was primarily due to lower ASP and inventory impairment. For the year of 2024, the company reported $81,400,000 in inventory impairment expenses compared to $500,000 in 2023.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

SG and A expenses were $143,100,000 compared to $213,200,000 in 2023. The decrease was primarily due to the reduction in non cash share based compensation costs related to the company's share incentive plan, which was $72,400,000 dollars and $121,000,000 in 2024 and 2023, respectively. The company recognized $175,600,000 in fixed asset impairment loss mainly related to its older products and facilities in 2024. R and D expenses were $4,600,000 compared to $10,100,000 in 2023. And as a result of the foregoing, loss from operations were $564,000,000 compared to income from operations of $783,400,000 in 2023.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Operating margin was negative 54.8% compared to 33.9 in 2023. Net interest income was $29,400,000 compared to $52,300,000 in 2023. The decrease in interest income was primarily due to lower cash and bank balance as well as lower bank interest rate. Net loss attributable to Daqo New Energy shareholders was $345,000,000 compared to net income of $429,500,000 in 2023. Loss per basic ADS were $5.02 compared to earnings per basic ADS of $5.75 in 2023.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Adjusted net loss attributable to Daqo New Energy shareholders was $272,800,000 compared to $563,000,000 in 2023. Adjusted loss per basic ADS were $4.12 compared to adjusted earnings per basic ADS of $7.14 EBITDA was negative $338,000,000 compared to $918,600,000 in 2023. EBITDA margin was negative 32.9% compared to 39.8 in 2023. Now on the company's financial condition. As of 12/31/2024, the company had $1,038,000,000 in cash, cash equivalents and interested cash compared to $853,400,000 as of September as of 12/31/2023.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

And as of 12/31/2024, the note receivable balance was $55,200,000 compared to $84,500,000 as of 09/30/2024 and $116,400,000 as of 12/31/2023. Notes receivable balance represent bank notes with maturity within six months. And as of 12/31/2024, the balance of fixed term deposits within one year was RMB1.087 billion compared to RMB1.275 billion as of 09/30/2024, and none as of 12/31/2023. Now on the company's cash flows. For the twelve months ended 12/31/2024, net cash used by OpGen activities was 4,370,000 compared to $1,600,000,000 provided by operating activities in the same period of 2023.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

The decrease was primarily due to lower revenues and gross margin. For the twelve months ended 12/31/2024, net cash used in investing activities was $1,478,000,000 compared to $1,196,000,000 in the same period of 2023. The net cash used in mixed activities in 2024 was primarily related to capital expenditures on the company's 5A and 5B processing expansion projects in Baozhoek City, Inner Mongolia and purchases of short term investments and fixed term deposits. For the twelve months ended 12/31/2024, net cash used in financing activities was $47,400,000 compared to $795,000,000 in the same period of 2023. Net cash used in finance activities in 2024 was primarily related to $35,800,000 in dividend payments made by the company's subsidiary, Xinjiang.co, to its minority shareholders.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

And that concludes our prepared remarks. We will now open the call to Q and A from the audience. Operator, please begin.

[Operator]

We will now begin the question and answer session. The first question today comes from Alan Hong with JPMorgan. Please go ahead.

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

Hi. Thanks for letting me to ask the questions. I have like three questions here. The first question is, I would like to know the reason for the how is the cash spend in fourth quarter last year? On my telly, it seems like we have spent around RMB0.2 billion cash in fourth quarter.

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

We like to have a billion of the break down. My second question is I would like to hear management's thoughts on the pricing outlook in the next two quarters. And the number three question is, I mean, like there's been like various news talking about potential policy intervention to suppress the industry capacity kind of like a supply side reform. I would like to hear your own thoughts on this. Thank you.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

So, hold on, we're going to look at the numbers really quick.

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

Thank you.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Okay. Alan, thank you for your questions. Maybe I'll talk about the pricing outlook first before Minh answers your first question. So I think in the short run, we are likely to see poly prices to increase in the next couple of months, at least before the end of the second quarter twenty twenty five. Like I talked about in the commentary section, starting the fourth quarter of twenty twenty four, the industry has initiated several discussions on self regulation that would potentially cap the overall production volume.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So right now the overall industry utilization rate is roughly around 50% across all. And

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

as a

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

result, based on industry statistics, we have seen domestic poly supply to drop starting from December. So in December, the overall production volume is around 104,000 metric tons. And in January, it has even lowered to 97,000 tons. And while wafer supply in Jan is only about 45 gigawatts, which is roughly equivalent or I should say supply is slightly lower than demand. So we expect supply to be in the range of 90,000 to 100,000 at least until May, primarily driven by the seasonality effect of hydroelectricity power, which will be relatively high during the low wind season up until May.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

And as of last week, the domestic industry inventory in the poly sector is around

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

250,000

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

tonne and also about 200,000 at the end gate or wafer manufacturers level. So we believe the poly inventory may remain high throughout 2025, but would reduce gradually in the next few months, leading to a potential poly price upside in the second quarter. And another catalyst to mention for a price uptick is the new regulation that have been talked about, the market reform, which would lead to potential front loading. So in the first quarter, the NDRC and also the National Energy Administration actually released new policies on distributed solar installations and also on the renewable power tariff reform. So we would see a distributed solar regulation to take effect on May 1 and also the market base on gas pricing to be implemented for all new renewable projects starting from June 1.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So we expect to see some potential front loading, especially because there's this impulsive uncertainty to the yield of new projects starting from June 1. So as we see higher therefore, we expect to see higher visibility in industry inventory depletion and potential uptick in price across the balance sheet, at least in the first half of twenty twenty five. But demand in the second half of twenty twenty five and onwards appears to be somewhat more challenging if there are not enough new application scenarios or alternative business models, we may ask them to determine the user project returns. So in the mid term to the more longer term, we think that the overall industry utilization would remain around 40% to 50%, especially as

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

the corporates are complying

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

to the sales regulation measures to maintain or to promote a more healthy development industry. So price would likely linger in the range of RMB 40 to RMB 45 for end type and 37 to 40 for P type. So we see more clear turning points in the industry. I hope that answers your question.

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

So you say 45 to 50 for N type is your expectation?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

For the more mid term?

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

Yes.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So up until, I would say, the end the second half or till the end of this year.

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

Got it. Yes. So the next question is on the supply side reform and also like the cash consumption in fourth quarter.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Okay. I think if you look at cash on consumption, right, so I think about roughly $80,000,000 is related to operations or spend on the operations and then roughly $40,000,000 is related to the CapEx and then the remaining is mainly related to changes in the balance sheet items between operating assets and operating liabilities. So these are the main ones.

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

Got it. Thank you. And the last question I have is, we'd like to hear your thoughts on how the government may conduct a pipeline reform in our industry.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Okay. I think from our understanding is, right now, the National Energy Administration and in partnership with the Ministry of Industry and Technology and the National Development and Informed Commission, I think combined, they're looking at how to stem the losses within the industry, right? I think previously they were looking at how would the self discipline framework would work. And I believe thus far they're not too pleased with it in terms of the results. So it looks like it might be likely that they might come forth with certain type of policy.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

We don't know what that policy looks like yet. I mean, it might be some combination of capping production, some kind of production quota. And I think retiring inefficient capacity or older technology and things like that. So I think we are yet to see what the policy looks like. I believe that's still being discussed and being formed.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

But it might look like some of their former policies related to this, for example, what had happened in aluminum.

[Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan]

Yes. Got it. And thank you very much for answering my questions. And I'll pass it on.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Very great. Thank you so much, Alan.

[Operator]

The next question comes from Phil Shen with Roth Capital. Please go ahead.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Hey guys.

[Operator]

There seems to be some issues with Phil's line. The next question comes from Meng Wan Wang with Goldman Sachs. Please go ahead.

[Wan Wang, Prime Brokerage at Goldman Sachs]

Yes. Hi. Thanks management for taking my question. So my first question is about the turning point you mentioned. So as Anita said that you expect poly price hike is likely to stand till end of the second quarter.

[Wan Wang, Prime Brokerage at Goldman Sachs]

So what's the exact turning point we are looking for in order to raise our production? Yes, and also if it will be great if you can elaborate more on the basis that we come to our production target. Is it the so called production quarter assigned to us or it's simply because we are more bearish on the net outlook? Thanks.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Sure. Thank you, Moen. So for your first question, it's very difficult for us to estimate the exact timing of the turning point, because in 2024, if we look at the broader picture, the total production volume actually reached just 1,820,000 metric tons and the nameplate capacity of every sector on the main value chain has reached on average over 1,200 gigawatts. So for poly, the nameplate production capacity of of all completed projects, regardless of whether it has been temporarily shut down or never started initial production, actually exceeded 1,400 gigawatts, which is roughly 2,200,000 metric tons. That's more than double of demand.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

And if we look at the outlook for 2025 based on industry forecast, we see that global demand would actually be in the range of five fifty to 600 gigawatts. And from that, we expect China solar installations to be in the range of two fifty to 300 gigawatts, which would be roughly equivalent to 1,400,000 to 1,600,000 metric tons of polypropylene. So if we take these numbers into consideration, it's not difficult to see that it will be a somewhat more prolonged cycle to rebalance the current overcapacity or oversupply in the entire industry. So we would either need to see a stronger demand or a more rapid rebalancing in terms of supply. And in terms of our production target, we have decided to maintain a relatively low utilization rate on the backdrop of abiding to the self regulation measures that has been led by the CPIA as well as considering our own strategic own strategy to cap our Casper in 2025.

[Wan Wang, Prime Brokerage at Goldman Sachs]

Yes, sure. Thanks for that. So just to follow-up, what's the current utilization rate in our Qingdai and Inner Mongolia capacity? And since we plan to maintain the utilization rate at a low level for the whole year, will we consider to shut down our Qingdai base or because the Inner Mongolia base alone has more than enough right to meet the production target?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

We have decided to open both our Xinjiang in Inner Mongolia based on our strategies, of course, because we also have to take into account our employees in both facilities, as well as our obligation in order to fulfill our social responsibility to the community. But I guess you're correct in terms of further lowering our utilization rate, but that will be contingent upon

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

market development. If

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

demand is worse than we expected and we might consider to grow the normal utilization range, but also considering we need to see the balance between fixed cost, variable cost and a number of factors before we proceed to lower our utilization.

[Operator]

The next question comes from Phil Shen with Roth Capital. Please go ahead.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Hey guys, hopefully this is better now. Can you hear me okay?

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Yes. Now it's great, yes.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Okay, great. Thanks, Ming. So the audio was a little bit unclear for me earlier, so apologies if some of these questions have been asked. As a follow-up to the first questioner on the supply side reform, I heard your answer that there could be some kind of policy put in place, but you don't know what it looks like yet. Do you have a sense of the timing of when the policy could be released?

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Is it soon or is it maybe much later in the year? Thanks.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Obviously, it's uncertain with regard to timing of the policy. China will have its high level central government committee meeting coming up in early March. We believe, from what we heard, it should it could be around that time that because that's the time when the government announces a lot of their policy, for example, economic policy and government policy. So that's one possible timeline in early March or it could be later. We don't know yet.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

But we all we know is that they are in discussion and they are quarantined.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Great. And so and they would release the supply side framework for not just poly, right, but also every step in the supply chain?

[Operator]

For the

[Ming Yang, Chief Financial Officer at Daqo New Energy]

entire solar industry, yes.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Yes. Okay, great. Thanks. And then from a pricing standpoint, I may have missed this, but can you share what kind of pricing you expect for Q1? Should it be similar to Q4?

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

And then do you expect poly pricing to adjust slightly higher as we get into the back half of 2025? What's the cadence of price for polysilicon Q1 through Q4? Thanks.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Thank you, Phil. So I mentioned about in the beginning of the Q and A session, we believe that in the near term, poly prices will somewhat tick off slightly. So end time will be more on the higher range of the RMB40 to RMB45. But going to the second half of the quarter, because we're likely to see some front loading before June 1, driven by the renewable power tariff reform and new policies on the distribution of the installation. Due to the uncertain yields of these projects, The only certainty is to get installed before June 1.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So we believe that we might see a stronger demand in the first half compared to the second half. And hence, overall in the second half of the year, price for N type would be in the range of 40 to 45, maybe more on the lower end and 37 to 44.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Anita, it was a little bit hard to hear you. Can you speak closer to the microphone? Did you say in the first half it's 40 to 45 and in the back half it might be 37%? Does it feel in the yes,

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

that's much more exciting?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So I

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

would say in the first half it's more on the higher range of 45%, but in the second half will be more on the lower range.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Okay, got it. And you're much clearer now.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Okay.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

So, yes.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Okay. And P type will be around 37 to 40. But of course that would also be contingent upon whether there will be additional supply coming out after May.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Right. Meaning more production from other players?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Yes, especially because we're going to the rain season. So the hydroelectricity power tariff would drop significantly compared to where it is right now.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Got it. Okay. Thank you. It's much clearer now. Thank you.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

So, okay. So we have a sense for pricing now. We've talked about supply side reform. What about on the demand side? We've seen some changes recently to the feed in tariff outlook and that's going away.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

And with the load growth in China, there seems to be based on some of my industry sources, there could be an upside surprise to demand. Are you seeing that yet with the potential for that? And if so, how do you expect that to play out through the year? Thanks.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So, like I talked about previously, we think that or based on industry forecast, we have also seen global demand to be in the range of five fifty to 600 gigawatts. And from that, we expect China solar installation to be in the range of two fifty to 300 gigawatts. And that would be relatively stable in terms of year over year growth compared to two seventy seven gigawatts in 2024, primarily because we think the inflation of the utility scale has peaked in the short run. We would need to see a more structural reform either in the grid system or a frequency modulation control to optimize the system such as the development of energy storage before demand can further boost. And for distributed installations, we think that market oriented reform poses the biggest uncertainty to the yields of new projects and hence the pace of installation with somewhat slowdown after June 4.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Before we see more transparency on the regulation, of course, because although it has been released by NDRC and the NEA for the new regulation, they actually delegated the specific details to provincial levels. So we will need to see from that level what the local government what the specific plans will look like from the provincial levels before end of twenty twenty five. And we think that besides the Chinese market, international demand will primarily come from emerging markets. So for instance, like Latin America, Middle East, Africa, etcetera, because they have the big potential for renewable energy due to the rapid growth in electricity demand. So for instance, Saudi Arabia's goal is to have renewable account for 50% of energy composition by 02/1930.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So they plan to have a newly installed 20 gigawatts of solar from 2024 onwards. And beside the emerging markets, we think that for The U. S. Will be somewhat stagnant, primarily because after Trump has been elected, he has signed several executive orders, for instance, delaying or suspended the IRA subsidy and also halting the exiting the Paris agreement. So we think that in The U.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

S, the renewable energy would be pivoted towards supporting the fossil fuel industry.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Thank you for the color and I'll pass it on.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Great. Thanks, Phil.

[Operator]

The next question comes from Alan Lang with Jefferies. Please go ahead.

[Alan Lau, Analyst at Jefferies]

Thanks a lot. So I would like to come to some of the details in the financials. So actually the cash cost of the production in 4Q has lowered to almost RMB 35 per kilogram. Would like to note if there's any further room of to come down and the reason of that because is it because there was some impairment in cost which brings down the COGS or this RMB35 per kilogram actually reflects the cash cost of the company?

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Hello, Alan. This is Ming. I would say that the current RMB35 per kilogram is reflective of the company's current cash costs. Okay. I think cash cost reduction come from a number of points, including a better manufacturing efficiency and then cost savings on material procurement.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

But in particular, right, as we reduce production, I think now the productions are primarily focused in our most efficient manufacturing facility, both in Xinjiang and in Mongolia. So these have lower electricity usage per unit production, for example. So I think that's why we saw this the tax cost reduction. I think right now our outlook for Q1 is cash costs should remain at the current level or maybe just slightly lower, but not too much lower as our current expectation.

[Alan Lau, Analyst at Jefferies]

I see. That's clear. And another question

[Alan Lau, Analyst at Jefferies]

sorry.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Yes, I think similar to Q4, maybe just slightly lower than Q3.

[Alan Lau, Analyst at Jefferies]

I see, I see. Another question is in regards to FBR because one of the major peers has also got around 10,000 tons of kind of pilot lines got environmental approvals. So would like to listen on your views on the technology and would you also explore into certain lines for FPR? And what's your view on the cash cost of RMB 28?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So first of all, it's hard for us to comment on our competitors' cash cost, but I could give more color on our own strategy, of course. So I think that we definitely respect innovation industry, but modified Siemens process has been refined over decades and has delivered proven cost efficiency, scalability and high quality polysilicon, which is critical to meeting our customer specifications. And we have also consistently worked toward further lowering our costs through technology improvements such as lowering our energy consumption or silicon powder consumption etcetera. So we can position competitively in this cyclical market. And we definitely acknowledge the clear advantage of SDR, which would be lower energy consumption and I guess, hence, lower cost, which makes it easier to get relevant carbon footprint certifications in the future.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

But we still believe that FBR has its inherent risks such as its purity challenges. It's still not possible to use 100% FBR in downstream production. So there is a maximum blend percentage when you are trying to produce in the downstream sectors. There is also challenge associated with hydrogen displacement during the deposition process and also hydrogen retention leading to potential defects or degraded risks. And also the process instability caused by things like the reactor clogging, maybe the uneven silicon deposition can also lead to increased downtime.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

But that being said, we're not complacent. So our R and D team and I would like to highlight that we also established our research center in Inner Mongolia last quarter in 2024, which will continue to evaluate all innovations and maybe more on the emerging technologies that could potentially be transformative in the future, including the FER in order to assess the long term viability of different technologies. And I think I believe that should there be other technologies or FER that demonstrates clear sustainable advantages without compromising the product quality, we will consider the different process as well. But for now, our strategy remains centered on leveraging our existing strength, so our operational excellence, our customer trust and also our financial strength to navigate this market dynamics amid this market down cycle.

[Alan Lau, Analyst at Jefferies]

Understood. Thanks a lot for the detail, Dan. So basically there's no concrete plans in pursuing FBR for now, right?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

There's no concrete plans, but we are also doing our research, of course. We are keeping an eye on all sorts of technologies that could be potentially transformative in the future.

[Alan Lau, Analyst at Jefferies]

Understood. So another question is, I recall there was $100,000,000 buyback announced last year. Wonder if when the company thinks it would be appropriate to start the buyback and is there any consideration in selling down your Asia platform as well in order to fund the buyback

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

million share buyback, we are still keeping an eye and closely monitoring the market dynamics. I think like we mentioned before, we were more conservative and waiting to see when a turning point would emerge. But I think based on the recent news and our assessment of repurchasing. But for selling down our A shares and potentially buying back on the U. S.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

ADRs to close down this gap in terms of the huge differences in valuation, we have definitely considered such plans. However, after the new regulation rolled out on selling down on issuers, which was announced in May, should your share price be trading below your issue price, which would be $21.49 plus. It's somewhat more difficult to pursue such plan, which is why we announced to extend our voluntary our selling down backing our lock off, yes, in January.

[Alan Lau, Analyst at Jefferies]

I see. So but I think from an industry perspective, you would still like to see there is a turning point before you commit for the buyback, right?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Yes. Yes. Because we think this cycle will somewhat be prolonged as our competitors are also have strength in terms of stronger, I guess, shareholder background and also we haven't heard things like recalling back the loan. So I think it's still early stage right now, but we're definitely keeping an eye and monitoring the market dynamics and decide when would be the good timing to start with HFC.

[Alan Lau, Analyst at Jefferies]

And my last question is about the 2025 production guidance. It appears to be less than 50% of utilization rate if you think about the capacity of the company is close to 300,000 and seems slightly lower than the numbers out there in the after the December CDIA meeting. So would like to know if it is coherent with the supply side self discipline initiative because there is a lower estimated demand in 1Q. So the progress portion is lower in 1Q, but like is this basically the number you have in the self discipline agreement?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

I think from the self discipline measures, they basically overall they would have a quota for the company based on your past shipping volume as well as your nameplate capacity as of now. And that's more like a maximum cap of the level of production that you can produce for the entire year. We haven't heard anything such as punishment associated with producing lower than the quota. And we have actually made our target for 2025 based on our own company's strategy while complying to the self regulation measures. I think our primary goal in 2025 is to maintain a level that would meet our customer demand while capping or reducing our cash burn in the entire year.

[Alan Lau, Analyst at Jefferies]

I see. So basically, it's like it's positive. Could you guys say that if demand improves? There's a possibility to further increase a bit on the production if the demand really beats expectation?

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Yes, yes. That's the guidance as we assess the market conditions right now. But there is a possibility of potentially increasing our utilization rates, just the market demand becomes stronger than we expect.

[Alan Lau, Analyst at Jefferies]

I see. That's very clear. Thanks a lot for taking my question.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Okay. Thanks, Alan. Thank you.

[Operator]

The next question comes from Zihui Hu with CICC.

[Zihui, Analyst at China International Capital Corporation (CICC)]

This is Zihui from CICC. My first question is whether we participate in poly futures trading now and how the point is? And my second question is what's the current inventory level of company? Thanks.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

Thank you, Sukuih. I'll answer the first question and Ming can answer the second question. So in terms of the futures market, in the fourth quarter last year, we've already registered a label for the futures market and obtained relevant approvals. So we are among the first batch of manufacturers to be able to participate in the futures market. But after the futures market comes online December, the registered brands generally quoted above RMB45, but the listing price was relatively low at RMB38.6 when it just opened.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

So I would say it's more of a capital gain right now and the main contract which is the June 25 has an average daily trading volume of about 10,000 lots, which is not a lot. So the overall market pool is still relatively small right now. And as it's trading at around 43 to 44.5, I believe, it has not yet met our expectations. And I would say the willingness for us to participate is still relatively weak at the moment. And in fact, I believe for other players, I think right now it's more preferable to transact with futures merchants to indirectly exploit the hedging opportunities.

[Anita Zhu, Deputy Chief Executive Officer at Daqo New Energy]

But that being said, we're definitely monitoring the progress of the market and waiting to see a more detailed guidelines on how to participate and see whether it would be a good strategy that fits our overall company strategy to take advantage of the future of hedging.

[Zihui, Analyst at China International Capital Corporation (CICC)]

Sure. And I'll hop on.

[Zihui, Analyst at China International Capital Corporation (CICC)]

Okay. Go ahead.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

So the current sellable inventory proposal for the company is less than 20,000 metric tons per month and there is a decline of close to 10,000 metric tons compared to the end of last quarter. So it's improving rapidly, I would say. Yes, and it's continuing to come down as well.

[Zihui, Analyst at China International Capital Corporation (CICC)]

Sure. That's all my questions. Thanks.

[Ming Yang, Chief Financial Officer at Daqo New Energy]

Great. Thank you.

[Operator]

This concludes our question and answer session. I'd like to turn the conference back over to management for any closing remarks.

[Jessie Zhao, Investor Relations at Daqo New Energy]

Thank you, everyone, again for participating in this conference call. Should you have any further questions, please don't hesitate to contact us. Thank you and have an awesome day. Goodbye.

[Operator]

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

Participants

Executives

• Jessie Zhao, Investor Relations
• Xiang Xu, Chairman & CEO
• Anita Zhu, Deputy Chief Executive Officer
• Ming Yang, Chief Financial Officer

Analysts

• Alan Hon, Head of Asia Power & Utilities and Renewables Equity Research at JP Morgan
• Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC
• Wan Wang, Prime Brokerage at Goldman Sachs
• Alan Lau, Analyst at Jefferies
• Zihui, Analyst at China International Capital Corporation (CICC)