Daqo New Energy - Q2 2023
August 3, 2023
Transcript
Operator (participant)
Good day, and welcome to the Daqo New Energy second quarter 2023 results conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the call over to Ms. Anita Zhu, Investor Relations Director. Please go ahead.
Anita Zhu (Director of Investor Relations)
Hello, everyone. I'm Anita Zhu, 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 2023, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our new Chairman and CEO, Mr. Xiang Xu, our former CEO, Longgen Zhang, CFO, Mr. Ming Yang, and myself. The call today will begin with an update from Mr. Zhang on our new Chairman and CEO, followed by his comments on market and operations. Then Mr. Yang will discuss the company's financial performance for the quarter and the year. After that, we'll open the floor to Q&A from the audience.
Before we begin the formal remarks, I would like to remind you that certain statements on today's call, including expected future operational and financial performance and industry growth, are forward-looking statements that are made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. These statements only reflect our current and preliminary review as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties.
All information provided in today's call is as of today, and we undertake no duty to update such information, except as required under applicable law. Also, during the call, we'll 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. Now I'll pass it on to Mr. Zhang.
Longgen Zhang (Former CEO and Director)
Thank you, Anita. Good morning, good evening. Efficient operation of our polysilicon facilities in the second quarter of 2023 resulted in the production volume of 45,306 metric tons, representing an increase of 11,458 metric tons as compared to the previous quarter. Our Phase 5A, 100,000 metric tons polysilicon project in Inner Mongolia reached full production capacity in June. Our production cost decreased by 8.3% from Q1 to $6.92 per kg, primarily due to improvements in manufacturing efficiency, as well as a reduction in the cost of metallurgical-grade silicon. For the quarter, we generated $230 million in EBITDA, with strong operating cash flow and continued to maintain a strong balance sheet with no financial debt.
At the end of the quarter, the company had a cash balance of $3.2 billion and a combined cash and a banking note receivable balance of $4 billion. With an addition of our new Inner Mongolia Phase 5A facility, our total annual polysilicon nameplate capacity has expanded to 205,000 metric tons. For the third quarter, we expect our total polysilicon production volume to be approximately 55,000 metric tons to 57 metric tons, representing an increase of 21%-26% as compared to Q2 2023. All year production is expected to be approximately 193,000 metric tons to 198,000 metric tons of polysilicon, representing an increase of 44%-48% as compared to 2022.
In addition, based on our new semiconductor-grade polysilicon project, with 1,000 metric tons annual capacity, is expected to start pilot production by the end of September of this year. With our fully digitized and highly automated production system that optimizes operational efficiency, improves cost structure, and further enhances product quality for the N-type polysilicon product, we are confident that our Inner Mongolia project will further enhance the company's competitive edge. The polysilicon industry experienced increased challenges and substantial price volatility during the second quarter. As several new polysilicon facilities and new entrants finally started production, with some reaching full capacity, production capacity in the first half of this year. The shortage of polysilicon of the past two years came to an end. The increased supply ultimately led to relatively oversupply and excess industry inventory.
In an effort to gain market shares with inferior quality products, new entrants and some established industry players engaged in aggressive pricing. Expectations of lower future pricing in the market led to delays and reductions of downstream customer orders, as well as aggressive pricing requests by customers. The situation worsened significantly in the second half of May, as inventory reduction efforts by leading polysilicon producers led to a race to the bottom that saw polysilicon prices decline by approximately 70% at the end of the second quarter compared to Q1 levels. In the second half of June, polysilicon prices reached bottom, and customers began ordering aggressively at the lower prices. By middle of July, we saw an approximately 15%-20% price recovery compared to the bottom reached in June.
Recently, we have also seen an increase in the ASP premium for N-type polysilicon, with a meaningful increase in demand volume. We expect that this trend will further benefit us as the industry transitions to next-generation N-type technology. We shipped 53,502 metric tons of polysilicon in Q2, meaningfully more than our production level and a substantial increase over Q1 shipments. Polysilicon inventory at our original Xinjiang facility decreased to less than a week's production volume. As our facility in Inner Mongolia is newly established, its products require customer qualification before we can ship meaningful volumes to customers, and the qualification process took longer than anticipated due to market volatility during the period. At the end of the quarter, with customer orders on hand that covered all our inventory, we had practically sold all shippable products.
The customer qualification process for the products of our Inner Mongolia facility completed successfully in July. At the end of July, with brisk customer orders and demand, we had further reduced our polysilicon inventory to a very healthy level of approximately one week of production across our two facilities. For the second quarter, we recorded approximately $19.7 million in foreign exchange loss, or approximately $0.26 per ADS. Near the end of April, the company received approximately RMB 4.96 billion in cash dividends from its subsidiary, Xinjiang Daqo, which was approximately $716.7 million, based on the exchange rate on the date the dividend funds were received. During the quarter, the company converted approximately RMB 1.85 billion to U.S. dollar to fund our share repurchase program.
As the USD to Renminbi currency, Chinese currency exchange rate fluctuated significantly during the months of May and June, and as required by accounting standards, we recorded an unrealized foreign exchange loss, primarily related to our quarter-end cash balance of RMB 3.1 billion, held by the company in an offshore account. Regarding the company's share buyback program, at the end of July, the company had already repurchased 4.16 million ADS for approximately $188.7 million under the current program, with average cost of approximately $45.32 per ADS. Combined with the program completed in 2022, in aggregate, the company has already repurchased 6 million ADS for approximately $308.6 million.
The continuous cost reduction in solar PV products and the associated reduction in solar energy generation costs are expected to create substantial additional green energy demand, which is likely to exceed most analysts' expectations. It is generally expected that solar PV will eventually become one of the most important energies to power the world. As the solar PV technology keeps evolving, we believe that the increasing needs for polysilicon of very high purity, such as N-type polysilicon, will help differentiate us from our competitors. While most of our competitors will likely struggle with the current market environment, Daqo New Energy has one of the best balance sheets in the industry, with no financial debt. This will help us with the current market environment successfully?
We are optimistic that as the solar end market continues to grow, and as our customers continue to expand the capacity, particularly for N-type solar products, prices will improve. We will continue to maintain solid growth and capture the long-term benefits of growing global solar PV market. Moving to outlook and guidance. The company expects to produce approximately 55,000 metric tons to 57 metric tons of polysilicon during the third quarter of 2023. The company expects to produce approximately 193,000 metric tons to 198,000 metric tons of polysilicon for the full year of 2023, inclusive of the impact of the company's annual facility maintenance. This outlook reflects Daqo New Energy's current and preliminary view as of the date and this press release, and may be subject to change.
The company's ability to achieve these projections is subject to risks and uncertainties. See Safe Harbor statement at the end of this press release. Now, I'm turn to the call to our CFO, Ming. Please go ahead.
Ming Yang (CFO)
Thank you, Longgen, hello, everyone. Thank you for joining our earnings conference call today. Now I will discuss our financial results for the second quarter of 2023. Revenues were $636.7 million, compared to $709.8 million in the first quarter of 2023, and $1.24 billion in the second quarter of 2022. The decrease in revenue compared to the first quarter of 2023 was primarily due to a decrease in average selling prices, mitigated by an increase in sales volume. Gross profit was $258.9 million, compared to $506.7 million in the first quarter of 2023, and $947 million in the second quarter of 2022.
Gross margin was 40.7%, compared to 71.4% in the first quarter of 2023, and 76% in the second quarter of 2022. The decrease in gross margin compared to the first quarter of 2023 was primarily due to lower average selling prices, which was partially mitigated by lower production costs. Selling, general, and administrative expenses were RMB 43.3 million, compared to RMB 41.3 million in the first quarter of 2023, and RMB 14.4 million in the second quarter of 2022. The slightly higher SG&A expenses compared to the previous quarter was due to higher shipping volume that result in higher shipping expenses.
SG&A expenses during the second quarter also includes $27.5 million in non-cash share-based compensation costs related to the company's share incentive plans, compared to $28 million in the first quarter of 2023. R&D expenses were $2.2 million, compared to $1.9 million in the first quarter of 2023, and $2.7 million in the same quarter of 2022. R&D expenses vary from period to period and reflect R&D activities that take place during the quarter. Most of our R&D activities for the quarter were related to product purity improvement-related activities. Foreign exchange losses were $19.7 million, compared to nil in the first quarter of 2023 and also in the second quarter of 2022.
The significant volatility and fluctuation in the U.S. dollar to Chinese Renminbi exchange rate during this quarter resulted in primarily an unrealized foreign exchange loss related to our quarter-end cash balance of RMB 3.1 billion, held by the company in an offshore account. As a result of the above mention, income from operations was RMB 214 million, compared to RMB 463.8 million in the first quarter of 2023, and RMB 927.6 million in the second quarter of 2022. Operating margin was 33.6%, compared to 65.3% in the first quarter of 2023, and 74.6% in the same quarter of 2022.
Net income attributable to Daqo New Energy shareholders was $103.7 million, compared to $278.8 million in the first quarter of 2023, and $627.8 million in the second quarter of 2022. Earnings per basic ADS was $1.35, compared to $3.56 in the first quarter of 2023, and $8.36 in the same quarter of 2022. Adjust the net income, Non-GAAP, attributable to Daqo New Energy shareholders, including non-cash share-based compensation costs, was $134.5 million, compared to $310 million in the first quarter of 2023, and $630 million in the same quarter of 2022.
Adjusted earnings for basic ADS was $1.75, compared to $3.96 in the first quarter of 2023, and $8.39 in the second quarter of 2022. EBITDA was $230 million for the quarter, compared to $490 million in the first quarter of 2023, and $955 million in the second quarter of 2022. Gross margin was 36%, compared to 69% in the first quarter of 2023, and 76.8% in the same quarter of 2022. Now on the company's financial condition.
As of the June 30th, 2023, the company had RMB 3.169 billion in cash, cash equivalents, and restricted cash, compared to RMB 4.1 billion as of March 31st, 2023, and RMB 3.3 billion as of June 30th, 2022. As of June 30th, 2023, the note receivable balance was RMB 798.5 million, compared to RMB 791 million as of March 31st, 2023, and RMB 1.27 billion as of June 30th, 2022. Note receivables represents bank notes with maturity within 6 months. Now on the company's cash flow. For the six months ended June 30th, 2023, net cash provided by operating activities was RMB 786 million, compared to RMB 1.13 billion in the same period of last year.
For the six months ended June 30th, 2023, net cash using investing activities was $495.7 million, compared to net cash using investing activities of $80 million in the same period of 2022. The net cash using investing activities in the first half of 2023 was primarily related to the capital expenditures on the company's polysilicon project in Baotou City, Inner Mongolia. For the six months ended June 30th, 2023, net cash using finance activities was $477.5 million, compared to net cash provided by financing activities of $1.58 billion in the same period of 2022.
The net cash using financing activity in the first half of 2023 was primarily related to $174 million in the company's share repurchases and $306.6 million in dividend payments made by the company, Xinjiang Daqo, subsidiary to its minority shareholders. That concludes our prepared remarks. Operator, we will now open the floor for questions.
Operator (participant)
Thank you. We'll now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time, we'll pause momentarily to assemble the roster. First question will be from Philip Shen of ROTH MKM. Please go ahead.
Philip Shen (Managing Director, Senior Research Analyst)
Hi, everyone. Thanks for taking the questions. Longgen, sorry to see you leave and was wondering if you could touch on your personal situation and, you know, give us some color as to, you know, timing.
Ming Yang (CFO)
Mm-hmm.
Philip Shen (Managing Director, Senior Research Analyst)
- and, and, and detail on, you know, what you might do next. You know, it sounds like from the release that you're leaving effective immediately, but you're on the call today, so just curious, you know, if, if there's any more you can share. Thanks.
Ming Yang (CFO)
Thank you, Philip. I think, you know, I working for the company more than five years and, know everybody well. Then also, remember, our new CEO and Chairman, he stay Daqo is longer than me. Basically, he also know this industry very well. Even during the past five years, we're working together and, I think, you know, during personal, I think a family personal reason, I'm leaving. I think, you know, still, I turn over the control to Mr. Xu. I think, you know, I hope, I think he will, you know, direct the company to the next, you know, high step. Did I answer your question, Philip?
Philip Shen (Managing Director, Senior Research Analyst)
Yeah. Thank you, Longgen. Shifting over to pricing, you know, you talked about the dynamics of how pricing fell in Q2, and then there was a bit of a recovery. Can you talk about what you see for polysilicon pricing in Q3, Q4, and, and also, 2024? You know, how much higher or lower could poly pricing go in 2024? Thanks.
Ming Yang (CFO)
I think in last year, Q4, during the seasonal and also, some, you know, downstream clients, I think they, you know, planning to stop, you know, demand, shut down the capacity. Almost, you know, the 5 bigger polysilicon plants have the inventory by the end of last year. As the Q1, because Chinese New Year is coming, you know, in February, so demand immediately come up. In Q1, the price continued to go up, back from, I think, Q4, the bottom, almost 80 RMB yuan per kg to 240. Really, because I think a new entrance, the inventory, I think, digested. Immediately, I think, you know, I think in May and June, the price continued to go down.
Especially, I think in June, the price almost go down to the bottom. Basically, I think, you know, breakeven even, I can call. RMB go to like, you know, RMB 55-RMB 60. You know, for some reason, as you know that
Longgen Zhang (Former CEO and Director)
... by the end of last year, last month, I think two company, I'm not mentioning, okay? They have, I think, the facilities, you know, have some problem in the bottom, you see. Almost one of the bigger player almost stop Xinjiang all production. So I think right now, beside that, I think the market come back. The order is coming, I think, you know, in the pipeline, especially some order-
Philip Shen (Managing Director, Senior Research Analyst)
Yeah.
Longgen Zhang (Former CEO and Director)
is, is continue, we see in Q3, Q4. The demand right now is a little hot. The price right now back, like, N-type is around 83-85 renminbi per kg. The P-type, I think, is around, like, 65, 63, 65, you know, per kg renminbi. We think, you know, in Q3, we still is very profitable. I think this situation will continue lasting to October. During November and December, another, I think, seasonal come up, come, come up. The winter is coming. The western country is maybe, you know, the Christmas Day, then Chinese New Year is coming. I think, you know, during November, December, or January, and February, the price definitely is go to deep again. Also, I think as other, if you like, Daqo, Mongolia, we are full capacity running.
Like, TBEA, they also, the first project in Mongolia is not very successful. Okay, last year, they started trial production, still not full capacity running, but they will now tell the market they were full capacity running by next month. We see, you know, the supply is continued to go up. I think, you know, the next year, the polysilicon price, even next two years, especially, I think, you know, very clear, the polysilicon produced in China right now is different price from polysilicon produced outside of China. For example, like Wacker, OCI, because they can easily to traceability to export, you know, use their silicon, produce final products, export to U.S.
For right now, I think, you know, next two years, Chinese polysilicon maybe were, you know, stable, maybe between, I think, around RMB 60 to around RMB 70, between RMB 75, you know, I think, like that, you know, channel. That's what I'm thinking, okay? I think, this also will push, I think, some Chinese producer, silicon producer, will move outside to China, to other locations, outside of China, to produce silicon. As you can see that, like, U.S. IRA already attract a lot of company right now, Chinese company, to do the, module, I think, sell, even wafer. I think that tendency will continue to coming.
I think, you know, globally, I think, you know, after 2-3-years, I think, the Chinese maybe right now, the capacity is not only silicon, maybe wafer cell, all is oversupply right now. That's why it cost the module price right now from RMB 2 per watt down to right now RMB 1.4 per watt. That maybe is a good thing because it returns on product is higher, but that maybe stimulate, you know, the installation, but also a lot of installation continue going on the market demand and install, then go to the grids also have come, you know, have problem, especially in China. It's all trade-off, you know. You're thinking, you see the module price go down, maybe you will increase II on the product.
Meantime, you see the connects to the grid delay also will affect the returns on II. China right now, the market is so hot. We think, you know, the rooftop, the SOE, you see, I think it's all going on. I don't think any problem within two years, I think, you know, Europeans continue to go, I think, continue to growth. The only thing is all the labor force action in Europe is starting 2025 Q2. I think that give time to the Chinese producer to move the production outside of China. I think that's, you see, my, what I thinking, you know, to the whole market in the future. Remember, Daqo is the only one in China right now, no debt, produce a high-quality product, can compete with Wacker.
Especially, I think as the N-type silicon continue to growth, we already see the price difference between N-type and the P is around right now 8-10 RMB per kg. Our advantage is very clear. If you look at our Q2, I think the gross margin is almost more than 50%. I think we still can keep our gross margin, even let's say in Q3, Q4, still we're about, even Q4, still we're about 30%. I think 20% is our premium compared with other player, competitors, based on the quality, on the cost-effective, on the scale.
Philip Shen (Managing Director, Senior Research Analyst)
Great. Thank you, Longgen Zhang. That was a lot of color. You said something very interesting and just now about how Chinese producers could launch and ramp capacity outside of China to serve the U.S. and, and other, maybe even Europe. I was wondering if you could-
Longgen Zhang (Former CEO and Director)
Middle East.
Philip Shen (Managing Director, Senior Research Analyst)
kind of highlight. Right. Can you talk about, do you guys have plans to ramp up facilities outside of China? How many metric tons do you see? Are there announcements already of who could be ramping, and which countries, and what's the timing of when those things, when those facilities could ramp? Also, you talked about this price delta between Chinese and non-Chinese polysilicon pricing. Can you talk about what the magnitude of that premium is? You know, a couple of months ago, I think it was something around $10 delta. You know, what is the non-China poly price now? Do you expect that difference to maintain, or do you think that could get closer over time? Thanks.
Longgen Zhang (Former CEO and Director)
Basically, if you look at the, you know, figure today, outside of China silicon, majority is Wacker, OCI and Hemlock. I think add together, it's around 80,000 tons. That cannot meet, I think, even U.S. market, 50 GW, let's say. 50 GW, I think it need at least, I think 120,000 metric ton, all right? Of course, I think U.S. is not only just the, a polysilicon module, there may be also thin film, other stuff. We, we see basically, I think, you know, Europe, U.S. U.S. is a typical market, is not only besides you see the, I think, IA, stimulus, because also the political issue, you see, for example, the anti-dumping, the tariff, all those stuff, CVD, AD, plus, I think over-labor force reaction, action.
All these, I think, you know, you can see today, for example, like Trina, I think, they, they use the Wacker materials produced in Vietnam from wafer silicon module. This can easily to selling, I think, you know, the module to U.S. around $0.40 per watt. Also, I think Maxeon do the same things. I think the U.S. market right now, the market is can absorb high module price. It's already there, I think. As I think, the U.S. market continue asking for, from, I think, module to sell in a wafer. Step by step, require, you know, localization materials. I think that will push the capacity from, you know, module, cell and silicon. The same situation I think will happen in Europe, you know. Europe, I think, you know, from, you have to...
I think in the future, I think, I'm not remember that, maybe 85% or 65% you have localization. That's why I think, a lot of Chinese, I think, player will move to Europe. Today, you see, I think the production ecosystem, I think the environmental, I think Middle East, South, Southern Asia, maybe same as China, I think it can produce, I think, the lowest cost effective, you know, module, products. It's a lot of right now company right now, because I think go to the Middle East, like Saudi, UAE and, Oman, you know, Qatar, because they have 20, 30 virgin, you know, in the Middle East, and also the strong relationship right now, political relationship with China. We see a lot of trends. You see also a lot of news come out.
You can see TCL, the news with the virgin industry. All right? You can see that. Also U.S., you also can see, I think, LONGi, Jinko, the expansion in U.S. and Europe. A lot of right now, I think, not only module, but also I think the wafer capacity right now, is moving to Europe. I think this is happen. I think, you know, become global production, global products. That's a good thing, I think. That's also very easy. I think the market demand and supply and become more healthy.
Philip Shen (Managing Director, Senior Research Analyst)
Great. Just to pause there.
Longgen Zhang (Former CEO and Director)
I cannot tell you. Yeah.
Philip Shen (Managing Director, Senior Research Analyst)
Sorry to interrupt you. Just to kind of focus the conversation a little bit, I thought you were referring to, you know, Chinese polysilicon producers ramping facilities in the, you know, outside of China. Are you aware of any of those activities? Do you think you might ramp polysilicon production facilities outside of China? If so, where? Would that still be the Middle East and maybe Southeast Asia, or would that be some other locations? Thanks.
Longgen Zhang (Former CEO and Director)
I think it definitely is the, I think, a very, you know, the economic, stimulus, you know, to attract, Chinese producer to move outside of, China to produce the, the silicon. You should remember that silicon plant is a capital-intensive, also environmental, and also is a chemical, industry. The design, the permits, all these, I think, is very higher. Daqo also did a lot of research. For example, if we go to U.S., maybe taking five years to finish the construction, 10 times the total investment. It's impossible for us to, to set the plants in, any, any Chinese, I think, producer, to set the plants in U.S.
If you go to other place, like, you know, Middle East, you have to considering, if you set the plants in, in outside of China, what's the competitive edge, right? If the cost, the final product still used in the local, then there's no competitive edge. The only thing is, is traceability. The product can go to Europe, go to the U.S., then meaning something. Today, if you look at the PV InfoLink, I think, I didn't look. Last week, I think, Wacker, I think, international polysilicon is still $27-$35, whatever. China right now is around, like, $10-$11. The difference is there. I think, that will continue to exist. The reason because I just mentioned that outside of China, silicon only 80,000 tons.
There's no way, within two years, can increase. We also didn't see any existing player, for example, OCI, Wacker, Hemlock, their expansion. We also didn't see any Chinese, Chinese producer is going to planning to set the plants outside of China. At least right now, we didn't see any news. Daqo is a little different because we are now, I think, listing US, then also listing Asia. For a US company, we cannot compete a business with, I think, Asia company. The silicon, we only can do the Asia. That's why we, we be careful. I think, with the new chairman and the CEO, I think, Mr. Xu, I think he has the future planning, I think. Yes, we are looking, study anytime, if possible.
Philip Shen (Managing Director, Senior Research Analyst)
Okay, Longgen Zhang, that, that's really very good color. Thank you. One last question for me. You know, we recently wrote in that LONGi's detained product in the U.S. using Tongwei poly from, you know, maybe four or five months ago, that was detained, was denied entry into the U.S. I know you're ramping your Inner Mongolia facilities now. What is, what is your, what do you think your ability is to import your poly through Southeast Asia into the U.S. now? Are you a little bit more pessimistic given the LONGi situation, or are you still-
Longgen Zhang (Former CEO and Director)
Frankly speaking.
Philip Shen (Managing Director, Senior Research Analyst)
-optimistic because you, you have traceability to the quartz site? Thank you.
Longgen Zhang (Former CEO and Director)
Frankly speaking, you know, I'm very mystic. The reason is because Tongwei... Of course, Tongwei situation is maybe a little different. At least, you know, they are, I think, have different location. I think, the U.S. custom, I think detained LONGi. The reason is because as Tongwei, on the whole global, they maybe use, you know, Xinjiang, I think, silicon store. They cannot improve, you know, they didn't use, right? Yes, we have to see, because at this moment, because of political, I think, conflict, I think, what I want to say, it's difficult to clear any player right now, can be traceability. Any silicon produced in China can be, you know, pass the traceability to export to U.S.
If we can do, to show in Mongolia, starting from ore to industrial silicon, to silicon powder, to silicon producer, the whole value chain to show, I think, we don't know, all right? We have to try, all right? I can't tell you, but we will make our efforts.
Philip Shen (Managing Director, Senior Research Analyst)
Great, Longgen. Thank you for taking all the questions. I'll pass it on.
Ming Yang (CFO)
Great. Thank you, Phil.
Operator (participant)
Thank you. Our next question will be from Alan Lau, Jefferies. Please go ahead.
Alan Lau (Managing Director and Senior Equity Research Analyst)
Thanks a lot for management for taking my questions, and also, happy to hear Longgeng is moving on, and thanks for the 100% of the company as well in the past, in the past years. My first question is, what is the CapEx plan for the remaining of this year and next year?
Ming Yang (CFO)
Okay. If you look at the, the CapEx plan, I would say in the first half, right? I think for, from our financial statements, right, approximately $495.7 million was used in investing activities, and that's pretty much all used for CapEx, mostly related to our Inner Mongolia phase two, and some of it is for Inner Mongolia Phase 5A. For the second half, we're currently planning an additional $750 million in CapEx. In aggregate, this is mostly used for Inner Mongolia phase two, which is under construction right now. Less than $100 million will be in the, the final payments related to Inner Mongolia Phase 5A.
I think in aggregate for the full year, we were planning roughly $1.25 billion in CapEx. That's the current CapEx plan right now.
Alan Lau (Managing Director and Senior Equity Research Analyst)
Thank you. Another question is: Since the average selling price in Q2 is lower than the average market price in the market. I would like to ask: Is the company selling more in June instead of April? What, what is the space between the different months? Because the prices have been declining over the months.
Longgen Zhang (Former CEO and Director)
First of all, I don't know where you got the ASP, you know, market ASP, you can, you know, make a decision we are below the ASP. I can tell you is because we, you see, we are the company digest all the inventory. Basically, yes, we sliding our price is very competitive, compare our quality, I still think is, is challengeable. We still is very profitable. If you look at, you know, Tongwei, I think, their whole industry together, I think the, the profit, second quarter, almost cutting half, less than half. We still is half more than 50% increase, half, cut the half, more higher than the half. I don't think, you know, you, it's apple to apple, you know.
I still think, we, we're selling pretty good, I think, ASP, you know, to the good clients. Yeah.
Alan Lau (Managing Director and Senior Equity Research Analyst)
Because they, they are guiding that they are selling at around RMB 120 per kilogram. I saw our numbers around RMB 97 or RMB 98, including tax. That's why there's a question. Maybe there's some timing difference, I'm not sure.
Ming Yang (CFO)
Yeah, it's maybe not apple to apple, you know. really, you know, we, we, we're not a comment to other company, but that's a fact that we are the... I think the figure will tell you.
Alan Lau (Managing Director and Senior Equity Research Analyst)
Understand. How about the share buyback pace? Because since the buyback in Q2 was not very aggressive, so can I assume the company will accelerate the buyback in Q3 because there's more than $500 million left?
Ming Yang (CFO)
Yes, I think we still have $500 million, or more than $500 million, left on the company's, the parent company's balance sheet in the offshore account, which we will use for the share buyback program. The share buyback program continued to be in place and has not been changed. Certainly, we will look forward to support the share price, because especially now with the new Chairman and CEO on board, I think he has a lot of new, new plans for the company. Certainly, I think, you know, obvious subject to, for example, market conditions, our share price and other factors, things like that. Yeah, we will continue to execute on our share buyback program.
Longgen Zhang (Former CEO and Director)
We are sure that I think we're going to finish the $700 million purchase program, right. By the end of the year.
Ming Yang (CFO)
That, that's the current expectation, yeah.
Longgen Zhang (Former CEO and Director)
I need it, right?
Alan Lau (Managing Director and Senior Equity Research Analyst)
Thank you. Thank you. Yeah, that's quite positive. I, I think my last question is, what is the view on aggressive expansion in by others? Some of the peers are actually having concrete due diligence in Saudi. I wonder if we are also investigating the expansion plan in Saudi or other places we see more relevant or more feasible for us.
Ming Yang (CFO)
Okay. We did investigate in overseas expansion in the past, actually, quite, quite actively, and we did, actually even send our teams overseas to do diligence. We continue to think that there are a lot of challenges related to overseas expansions, particularly, for example, around the higher production cost and the sustainability of the price premium and as well as the market, market opportunities. We certainly are continuing to monitor the various opportunities, but I think as of now, the company has no plan to do overseas expansion right now.
Alan Lau (Managing Director and Senior Equity Research Analyst)
Understood. Understood. Thanks a lot, Ming. I'll pass on.
Ming Yang (CFO)
Great.
Alan Lau (Managing Director and Senior Equity Research Analyst)
Thanks a lot, and I'm gonna get a lot.
Ming Yang (CFO)
Okay. Thank you all.
Longgen Zhang (Former CEO and Director)
Thank you.
Alan Lau (Managing Director and Senior Equity Research Analyst)
Thank you.
Operator (participant)
Thank you. The next question will come from JiChao of Goldman Sachs. Please go ahead.
Ji Chao (Executive Director)
Hi, thank you for taking my question. Can I ask, what's the portion of the N-type poly for the first half this year, and how, what, what kind of a portion would you expect for the full year? And also, we know that the second quarter operating cash flow is actually negative. Can you also share why, why is that? Thank you.
Ming Yang (CFO)
Hello, JiChao. Thank you so much for your question. With regard to N-type, the percentage keeps improving. In Q1, it was roughly in the range of 10%-20%. Actually, for Q2, we've already increased it to the range of 20%-30%. I think based on the company's, both the market conditions and the market demand from the customers, and also the price premium, and that's afforded in the market. I think towards the end of Q2, now that price premium is in the RMB 10-15 per kilogram range for N-type rather to P-type. We are actually modifying our process and optimizing our process to produce more N-type.
I think in the second half, right now, our expectation is that N-type will constitute somewhere between 30%-50% of our production. Obviously, Xinjiang is a more mature process and, but the equipment has a little bit more limitation on the N-type percentage, but we think we can improve it further. While Inner Mongolia is in the process of improving its quality and ramping up, we're very optimistic that over time, the Inner Mongolia N-type percentage will increase meaningfully. We follow on the second question. Can you repeat your second question again?
Longgen Zhang (Former CEO and Director)
Operating cash flow.
Ming Yang (CFO)
I missed it.
Ji Chao (Executive Director)
Sure. The second quarter, operating cash flow seems to be negative. Can I ask why is that?
Ming Yang (CFO)
The negative, because for the sixth month, we had RMB 786 million. I think the-
Ji Chao (Executive Director)
Ah.
Ming Yang (CFO)
- operating cash flow.
Ji Chao (Executive Director)
... Right, right. It seems that the first quarter cash flow is like more than $800 million. It seems like the second quarter is slightly negative.
Longgen Zhang (Former CEO and Director)
Thank you, Noah.
Ming Yang (CFO)
It's probably related to our bank note balance. But let me follow up with you on that topic.
Ji Chao (Executive Director)
Oh, oh, sure, sure. Great. Thank you so much.
Ming Yang (CFO)
Okay. Thank you.
Ji Chao (Executive Director)
Thank you.
Rocky Wen (Analyst)
Thank you. Next question will be from Rocky Wen of AIM Investments. Please go ahead.
Hi. Thanks, thanks for the, thank you, investment, management team. My question is, so, we have attended in our management team, and, I want to ask, due to our changing our management, do, do we have plan to launch new business or do new investment?
Longgen Zhang (Former CEO and Director)
I think, you know, the I think, the change of the new management team, I think, Mr. Xu is the Chairman and CEO new. I think he also the biggest shareholder and the controller, and, the Asia controller. I think, yes, maybe, I think, you know, in the future, definitely we're looking to do some study. We still, I think, we're focused on our existing business. As we lay down 3-5-year strategy, you see, upstream, we're doing the industrial silicon metal, then also we were the pilot, I think 1,000 semiconductor products is will come out as trial production starting, I think, Q3. Our strategy didn't change. Of course, we're looking at other opportunities, maybe, overseas, you know, maybe downstream, you know, but, but not right now.
We will announce, as they are ready.
Rocky Wen (Analyst)
Okay. My, my next question is, do we consider to going private? Because we have a lot of cash, and this cash maybe somehow cover our market cap. Do we consider to go private?
Longgen Zhang (Former CEO and Director)
I think, privatization, whether going to privatization is not, you know, management team to make decision. We have to go through the whole shareholders. Definitely one thing is clear, I think the valuation between A-share and U.S. share is the difference is higher. Right now, we only have channel is going to through Asia to declare dividends to buy back the U.S. shares. It's anti-diluted, as you can see, right? I think, we think the price can continue, the valuation in U.S. market can continue to go up. I want to remind you, by the June 23rd, July 23rd next year, that mean after we IPO in Asia, after three years, the U.S. company holding 73% of A-share, we can sell it, starting to selling.
That mean we have another channel. We can sell the A-share to get the money, then back to U.S. market to buy back the U.S. shares. Basically, we think in the future, if the valuation is so different, you see, we can sell that to arbitrageur. Definitely, we will reduce the, you know, the circulating shares, you see, and that's, that's, I think, you know, to push the market, right? With the privatization, I don't think so, you know, for long term, because, you know, we also want the U.S. shareholders to get, you know, to share our benefits, you know.
Rocky Wen (Analyst)
Okay. Thank you. That's all my questions.
Thank you. Our next question will be from Leo Ho of Daiwa. Please go ahead.
Leo Ho (Analyst)
Thanks, management, for taking my question. This is Leo Ho from Daiwa Capital Markets. A couple of questions, I would like to ask one by one, if I may. The first question is regarding share buyback. I just would like to confirm that our current plan is that we are going to spend the entirety of the $700 million within this year. Am I correct? Thank you.
Ming Yang (CFO)
I would say, let me just say that I think the $700 million program is in place. I think there has been no changes to that. I think certainly, you know, the company and the management team will continue to monitor the market and repurchase the shares. You know, yeah, I think based on the share repurchase program. Yeah.
Leo Ho (Analyst)
My second question is regarding the second quarter production number. I noticed that we have produced 45,000 tons eventually, but according to your first quarters of guidance, we should be producing, you know, around 55,000 ton in second quarter. May I know what is the reason behind 10,000 ton discrepancy? Are we doing, like, any retrofit for our old or new capacity? What's the reason behind? And, you know, if we are doing retrofit, can you briefly tell us, you know, what capacity or which in which provinces that, that we are doing it? Thank you.
Ming Yang (CFO)
I think I'm just looking at our, our previous guidance. I think we guided to 44,000-46,000 tons of production for Q2, we actually produced more, pretty much in line with our previous guidance. Basically in line, and I think as we ramp up our Inner Mongolia as we expected. It's for the Q2 that we're expecting in, I think 55,000-57,000 metric tons. That's reflecting the full ramp-up of the Inner Mongolia facility.
Leo Ho (Analyst)
Are we doing any, like, re- retrofit in the, in the second quarter?
Longgen Zhang (Former CEO and Director)
I think if you look at the end of the Q1, we have inventory almost, I think, 27 tons. In Q2, we produced 45,000 tons. We're selling 51,000 tons, almost 52,000 tons. We still have some in, any inventory in Q2. It's a 10,450,000. It's a 10,550 tons. I think the figure is, is correct.
Leo Ho (Analyst)
Oh, okay, okay. Thank, thank you. Just a few more questions. I just want to know, do we have any forecast for the, for, like, N-type product within our total production mix for 2024? Also, I would like to know, at this point in time, aside from us, how many producers in the market do you see are capable of manufacturing N-type polysilicon at large scale?
Ming Yang (CFO)
I think for 2024, we expect N-type to be greater than 50%. I think, in fact, I think once we're fully ramped up in terms of our updates to our optimization of our process, we should have the N-type in the range of 70%-90% for the company, especially for next year. In terms of number of producers, I think right now we are one of the largest producer of N-type and supplier of N-type in the market. I think the other main producers include Wacker, and then some from Asia Silicon, and then some from Tongwei. I think these are the main ones.
Leo Ho (Analyst)
Thank you so much. My last question is on joint venture. I think, for amongst large, polysilicon producers in China, seems like we are the only one without any joint venture with downstream customers. Are we planning to form any joint venture in the future? You know, why we didn't form any of them in the past? Thank you.
Ming Yang (CFO)
I mean, we won't rule this possibility out. I think in the past, we want to be kind of a pure play and really the primary merchant supplier of polysilicon. I think that benefited us very well, especially last year, where I think some of our peers that had a JV partner or minority investors, you know, had to forever share a lot of their, their profit or income with these shareholders. Obviously, I think with the recent market trends, actually, a number of customers have approached us and indicated their interest in, you know, doing minority or JV investments. That is something that, that we are in discussion, but there's nothing concrete to report yet.
Leo Ho (Analyst)
Okay, thanks so much for taking my question. That's all for me. Thank you.
Ming Yang (CFO)
Great. Thank you.
Operator (participant)
Thank you. Again, if you have a question, please press star then one. Our next question comes from Frank Fang of Nomura. Please go ahead.
Frank Fang (Analyst)
Thanks very much for taking my question. My question actually was raised earlier. It's about the privatization plan, so no further question from me. Thank you.
Ming Yang (CFO)
Great. Great. Thank you. Thanks for joining our call.
Operator (participant)
Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Miss Anita Zhu for closing remarks.
Anita Zhu (Director of Investor Relations)
Yeah. Thank you everyone again for participating in today's conference call. Should you have any further questions, please do not hesitate to contact us. Thank you and have an awesome day. Goodbye.
Ming Yang (CFO)
Okay.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.