Daqo New Energy Corp. Q3 FY2023 Earnings Call

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 third quarter of 2023, which can be found on our website at www.dqsolar.com. Today, attending the conference call, we have our Chairman and CEO, Mr. Xiang Xu; CFO, Mr. Ming Yang; and myself. The call today will begin with an update from Mr. Xu on market conditions and company operations. And 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 risk is included in the reports or documents we have filed with the Securities and Exchange Commission. These statements only reflect our current and preliminary view as of today and may be subject to change. Our ability to achieve these projections is subject to risks and uncertainties. All information provided in today's call is as of today and we undertake no duty to update such information except as required under applicable law. Also during the call, we will occasionally refer to 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.

Thank you, everyone, for joining the conference call today. Anita will be my translator during the call. If you have any questions for the company or for me, please save them for the end of the call. On behalf of Mr. Xu, I will now share his remarks regarding current market conditions and the company's performance. During the third quarter, we optimized operations at our two polysilicon facilities, resulting in a total production volume of 57,664 metric tons, which is an increase of 12,358 metric tons or 27% compared to the previous quarter. Our Inner Mongolia 5A facility, which is now fully operational, accounted for about 40% of our total production volume. At the same time, our production costs decreased by 5.8% from the second quarter to US$6.52 per kilo, primarily due to improvements in manufacturing efficiency and lower raw material costs, especially for metallurgical-grade zircon. Compared to our first quarter average production cost of US$7.55 per kilo, costs have declined by more than US$1 per kilogram. Based on our latest production data, we expect our fourth quarter costs to continue to trend down from third quarter levels. We shipped 62,967 metric tons of polysilicon in the third quarter, an increase of 9,465 metric tons over the second quarter shipments, which is significantly higher than our production volume for the quarter. This led to a significant reduction in polysilicon product inventory across our two facilities, now down to less than one week of production volume. For the third quarter, the company generated US$70 million in EBITDA. Net cash provided by operating activities for the first nine months of the year totaled US$1.5 billion, with over US$711 million in the third quarter. The company maintains a strong balance sheet with no financial debt. At the end of the third quarter, we had a cash balance of US$3.3 billion and a combined cash and bank note receivable balance of US$3.6 billion. Our total annual polysilicon nameplate capacity has reached 205,000 metric tons across our two facilities. For the fourth quarter, we expect total poly production volume to be around 59,000 metric tons to 62,000 metric tons, showing an increase from our third quarter levels. Full year production is projected to be between 196,000 metric tons to 199,000 metric tons, reflecting a growth of 46% to 49% compared to 2022. With more than ten years of experience in poly production and a fully integrated, digitalized production system that optimizes operational efficiency, we are confident in strengthening our position as a leading polysilicon manufacturer in the industry. After poly prices reached their lowest point at the end of the second quarter, customers began to reorder and take delivery of products, which significantly reduced industry inventory levels. Polysilicon pricing gradually recovered during the third quarter. In July, module makers heightened competition, causing module prices to drop from RMB1.5 per watt in June to RMB1.3 per watt in July. Simultaneously, high demand in the module sector, along with lower utilization rates for poly due to power rationing and system maintenance, drove a slight recovery in polysilicon prices. According to industry data, mono-grade polysilicon prices rebounded from a low of under RMB60 per kilo in June to RMB63 to RMB68 per kilogram by the end of July, averaging RMB87 per kilogram by the end of September. Furthermore, the current price range is likely unprofitable for new entrants due to their cost structure, which has caused delays in production plans. Heading into the fourth quarter, production volumes in the poly sector are expected to see a slight increase as some new capacities come online. We observed an acceleration in the shift from P-type to N-type cell technology during the third quarter, driven by strong demand for N-type products, with their average selling price premium growing to RMB10 to RMB12 per kilo. We anticipate this transition to continue gaining momentum, boosting demand for N-type products. Regarding our US$700 million share buyback program announced in November 2022, by the end of September, we had acquired 8.1 million ADS for approximately US$328.8 million, with an average cost of about US$40.58 per ADS. Combined with the program completed in 2022, we have purchased roughly 10 million ADS for approximately US$448.8 million. With about 74 million basic weighted average ADS outstanding for the third quarter, total outstanding shares at the end of the third quarter were approximately 71.8 million shares, after accounting for our recent share repurchases. As we face the urgent need to tackle climate change, we are still in the early stages of transitioning from fossil fuels to renewable energy. As one of the most competitive forms of power generation, the ongoing cost reductions in solar PV products and the related decline in solar energy generation costs are expected to drive substantial additional green energy demand, likely surpassing many analysts' expectations. Solar PV is anticipated to become one of the most significant energy sources globally. Furthermore, as solar PV technology continues to evolve, the growing demand for high-purity polysilicon, such as our N-type polysilicon, will set us apart from most competitors. While many of our rivals may struggle in the current market landscape, Daqo New Energy boasts one of the strongest balance sheets in the industry, free from financial debt, and we believe we can successfully navigate near-term market volatility. We are optimistic that as the solar end market expands and our customers shift towards higher-efficiency N-type technology, we will benefit accordingly. Daqo will continue to focus on maintaining solid growth and capturing the long-term advantages presented by the growing global solar PV market. Looking ahead, we expect to produce between 59,000 metric tons to 62,000 metric tons of polysilicon during the fourth quarter of 2023, with total annual production for 2023 anticipated to be around 196,000 metric tons to 199,000 metric tons. Now, I will hand the call over to our CFO, Mr. Ming Yang, for a deeper dive into our financial performance. Ming, please proceed.

Thank you, Anita, and hello, everyone. Thank you for joining our third quarter earnings conference call today. Now, I will discuss the company's third-quarter financial performance. Revenues were US$484.8 million compared to US$636.7 million in the second quarter of 2023 and US$1.2 billion in the third quarter of 2022. The decrease in revenue compared to the second quarter of 2023 was primarily due to the decrease in average selling prices mitigated by an increase in sales volume. Gross profit was US$67.8 million compared to US$258.9 million in the second quarter of 2023 and US$978.6 million in the third quarter of 2022. Gross margin was 14% for the quarter compared to 40% in the second quarter of 2023 and 80% in the third quarter of 2022. The decrease in gross margin compared to the second quarter of 2023 was primarily due to lower average selling prices, which were partially mitigated by our lower production cost. Selling, general and administrative expenses were US$89.7 million compared to US$43.3 million in the second quarter of 2023 and US$280 million in the third quarter of 2022. I will give a little bit more detail about the increase in SG&A expenses for the quarter as compared to the previous quarter. This is primarily related to the resignation expenses and the recognition of the remaining share-based compensation expenses led to the company's recent management change. The recognition of the remaining non-cash share-based compensation expenses consists of approximately 330,000 shares, which will be vested based on the vesting schedule over the next two years. Based on the current share price, there's an approximately US$8 million in terms of expense. However, U.S. GAAP rules require that the company recognize the related expenses based on the share price at the time of grant, which would be approximately US$23 million. Furthermore, our SG&A expenses during the third quarter include a total of US$46.3 million in non-cash share-based compensation costs, which includes the above expense related to recent management changes. This compares to a total of US$27.5 million of share-based incentive expenses in the second quarter of 2023. For the fourth quarter, we expect our SG&A expenses to normalize and will be in the range of approximately US$35 million to US$38 million per quarter, inclusive of non-cash share-based compensation costs. Research and development costs were US$2.8 million compared to US$2.2 million in the same quarter of 2022 and US$2.5 million in the third quarter of 2022. R&D expenses vary from period to period to reflect R&D activities that take place during the quarter. Most of our R&D activities currently focus on increasing the percentage of N-type polysilicon for the company's product mix. Foreign exchange change was US$3.1 million for the quarter compared to a loss of US$19.7 million in the same quarter of 2022. This is attributed to the volatility and fluctuation in the U.S. dollar and RMB exchange rate during the quarter. As a result of the above-mentioned figures, income from operations was US$22.5 million compared to US$213 million in the second quarter of 2023 and US$693 million in the third quarter of 2022. Operating margin was 4.6% compared to 33.6% in the second quarter of 2023 and 56.8% in the third quarter of 2022. The net loss attributable to Daqo New Energy shareholders was US$6.3 million compared to net income of US$103.7 million in the second quarter of 2023 and US$323 million in the third quarter of 2022. Loss per basic ADS for the quarter was US$0.09 per share compared to earnings per basic ADS of US$1.35 in the second quarter of 2023 and US$4.28 in the third quarter of 2022. Adjusted net income, a non-GAAP figure, attributable to Daqo New Energy shareholders, excluding non-cash share-based compensation costs, was US$44 million compared to US$134.5 million in the second quarter of 2023, and US$590.4 million in the third quarter of 2022. Adjusted earnings per basic ADS was US$0.59 compared to US$1.75 in the second quarter of 2023 and US$7.81 in the third quarter of 2022. EBITDA was US$70.2 million compared to US$230 million in the second quarter of 2023 and US$720 million in the third quarter of 2022. EBITDA margin was 14.5% compared to 36.1% in the second quarter of 2023, and 59% in the third quarter of 2022. Now I would like to provide some additional insights related to our operations. From a pure operational perspective, this would exclude the impact of the one-time resignation costs and the non-cash share-based compensation costs. For our operating subsidiary Xinjiang Daqo, in the quarter, pre-tax earnings of RMB888 million or approximately US$121 million resulted in a net income of RMB689 million or approximately US$94 million. Daqo New Energy currently owns approximately 72.4% of Xinjiang Daqo and Daqo New Energy shareholders' allocation of the operating net income should be approximately US$32.4 million, excluding the previously mentioned GAAP accounting-related expenses. As of September 30, 2023, the company has US$3.28 billion in cash and cash equivalents and restricted cash compared to US$3.17 billion as of June 30, 2023, and US$3.05 billion as of September 30, 2022. As of September 30, 2023, the notes receivable balance for the company was US$276 million compared to US$799 million as of June 30, 2023, and US$1.57 billion as of September 30, 2022. Notes receivable balance represents bank notes with maturity within six months. Regarding cash flow for the nine months ended September 30, 2023, net cash provided by operating activities was US$1.49 billion compared to US$1.7 billion in the same period of 2022. For the nine months ended September 30, 2023, net cash used in investing activities was US$954 million compared to net cash used in investing activities of US$605 million in the same period of 2022. Net cash used in investing activities in the third quarter of 2023 was primarily related to capital expenditures on the company's polysilicon project in Baotou City, Inner Mongolia, inclusive of both Phase 1 and Phase 2. For the nine months ended September 30, 2023, net cash used in financing activities was US$602 million compared to net cash provided by financing activities of US$1.47 billion in the same period of 2022. Net cash used in financing activities for the first three quarters of 2023 was primarily related to US$322 million in share repurchases and US$303 million in dividend payments made by the company's Xinjiang Daqo subsidiary to its minority shareholders. The company continues to maintain a very strong balance sheet with significant cash balances and no financial debt as well as healthy operating cash flow. With that, I will turn to the Operator for the Q&A session.

Thank you. We'll now begin the question-and-answer session. The first question will come from Philip Shen at ROTH MKM. Please go ahead.

Hi, everyone. Mr. Xu, Ming, thanks for taking my questions. I wanted to explore your view on polysilicon pricing for Q4. You came in with about US$7.70 for Q3 per kilogram. And I wanted to see what your expectations are for Q4. And then, also for the beginning of next year, and then by year-end '24, do you see a recovery, or do you expect polysilicon pricing to remain at current levels? Thanks.

Okay. Mr. Xu will provide commentary first and then Anita will provide a translation.

Hi, Philip. Mr. Xu has mentioned that for the fourth quarter, the price should remain relatively stable. For P-type, it is expected to be around RMB70 per kilogram, while N-type will have a premium of RMB10, bringing it to approximately RMB80 per kilogram. In December, prices should stay consistent with current levels. Moving into the first quarter, due to demand, prices are likely to decrease to around RMB65 to RMB70 per kilogram. However, in the second quarter and beyond, prices should exceed RMB70.

Okay, great. So, the price to RMB65 to RMB70 kilograms lower in Q1, what is driving that? And is that price, are you talking about P-type? And so should we expect N-type to be RMB10 higher? And what will cause the price to go higher in Q2? And what does he think the year-end '24 price might be? Thanks.

The price for the first quarter is expected to be between RMB65 and RMB70, mainly influenced by seasonal factors such as Christmas and Chinese New Year that result in lower demand. This price is applicable for January and February, but we anticipate a recovery starting in March. For P-type products, this is the expected price, while for N-type products, there is an expected price premium of approximately RMB5 to RMB10 per kilogram.

Okay. Got it. Thank you. One more question for me and then I'll pass it on. As it relates to the industry structure and given these low prices, there are a lot of companies that might be having trouble with driving profit. So, just curious if you can talk about what he sees ahead? And can he talk through, does he expect certain companies to stop production or even accelerate the stoppage of production shutdown? What does he see for the evolution for the industry in the coming six months? Thanks.

In terms of the industry structure, we want to emphasize that we have a significant cost advantage in producing polysilicon. If prices drop to RMB65 to RMB70, approximately 50,000 to 60,000 in production volume would become unprofitable. New entrants face much higher costs, around RMB75,000 to RMB80,000. Since they lack sufficient cash and financing options are limited, they will likely face difficulties in the upcoming quarters.

So, we certainly see industry supply adjustments going forward in the coming months, as well as the industry rebalancing and normalization.

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

Great. Thank you, Phil.

Thank you. Next question will be from Alan Lau of Jefferies. Please go ahead.

Thanks a lot for taking my question. Thanks, Mr. Xu and also Ming for the prepared remarks. So, I would like to have more clarity on the share-based expense. This seems to be the item which has a major change quarter-over-quarter. So, I would like to know what is the breakdown on the US$89.7 million of SG&A, because in the prepared remarks, you have US$46.3 million of non-cash share-based compensation, but in your reconciliation, it's US$50 million. So, I would like to know how much is the original share-based compensation and how much is related to the resignation of Mr. Longgen Zhang?

Hi, Alan. This is Ming. I will discuss the increase in SG&A expenses. So, for the quarter, we had a total of US$46 million in non-cash share-based compensation expenses. Of that, approximately half or approximately US$23 million is related to the resignation of our previous CEO, Mr. Longgen Zhang. This is approximately 330,000 shares of his previous equity grant, which will vest over the next two years. Due to GAAP accounting rules, we are required to recognize this expense during the third quarter based on his resignation, and this would also be recognized in terms of the time of the grant, which was around US$17 per share or so. So that's how we incurred the additional US$23 million in share-based compensation costs. The remaining is primarily related to other resignation expenses as well. We do expect this to normalize for the next quarter. We expect next quarter's SG&A expense to be in the range of US$35 million to US$38 million.

Understood. Thanks a lot. So, because it seems that other than these expenses, because the increase in expenses quarter-over-quarter is like US$46 million, so probably this US$23 million is one-off. It seems there are also other increases in expenses. So, are those cash expenses?

Some of it is expenses related to, for example, shipping cost as we ship more volume for the quarter, but the remaining is primarily related to the resignation cost.

Understood. The next question pertains to our buyback plan. We have already repurchased a significant portion of our $700 million buyback plan, but we still have a considerable amount of funds available. Are we planning to issue dividends, or what is our strategy for utilizing the remaining funds for the buyback or dividends?

Regarding the US$700 million share buyback, we have US$380 million remaining. Our CEO just started in the role a quarter ago, and we've been discussing plans with our Board and management team. We've decided to continue with the share repurchase program, committing to buying back shares until we reach the upper limit based on our daily repurchase capabilities. Overall, we will aim to repurchase as much as possible in the last quarter.

Thank you. So, effectively it means US$380 million in the remaining two months?

Effectively, yes, as much as we could repurchase.

Okay. Thank you.

We believe the price is currently very low, so we are fully committed to repurchasing shares.

Understood. So, as communicated before, the company may also consider canceling those shares. So is this still a plan or when will the company cancel those shares?

Yes, Alan. It is the company's intention that I think by year-end, we would cancel the shares that we have repurchased. The company's intention is to cancel those repurchased shares.

Yes, that would definitely help a lot in increasing the EPS as well. So yeah, thanks a lot. So I think the last question here is, what is your view on next year? Like, what do you think will be your production plan? Is it full capacity based on the current capacity? And lastly, what is the progress on your semiconductor-grade polysilicon?

For next year's production volume, we anticipate around 280,000 metric tons to 300,000 metric tons, depending on the progress of our construction. For semiconductors, we will begin pilot production at the end of this year, so next year, the capacity will be limited to 1,000 metric tons.

So, Alan, on a high level, we will have full production in our Xinjiang facility, which is around 130,000 metric tons. Additionally, full production on our Inner Mongolia Phase 1, which is also an additional 100,000 metric tons. Finally, our Inner Mongolia Phase 2 to start production around mid-year next year. So, approximately based on the 100,000 metric ton capacity, around 50,000 metric ton production. That's why we think next year, the range is 280,000 to 300,000 metric tons. Obviously, this is a very preliminary estimate. It's not an official guidance. We will have more formal numbers based on when our Inner Mongolia Phase 2 is closer to completion and starting production. Okay, thank you.

Understood. It's very clear. Thanks a lot. I'll pass it along. Thank you.

Thank you. Our next question comes from an unidentified source. Please proceed.

Hello, sir. Just to clarify, I appreciate that the total shares will finally decrease with the repurchase. I have one more question. First, how much additional shares will be issued for management compensation plans in the next one or two years? Is it expected to be around US$40 million in share-based compensation? That's my first question. My second question pertains to the US$350 million repurchase from last quarter. You mentioned that it would be completed by the end of the year, so should we expect you to deploy most of this capital at an accelerated pace in Q4 compared to previous quarters? Up to now, you've repurchased around US$300 million over three quarters. Are you indicating that you will buy an additional US$200 million or even US$300 million of what remains in just the last quarter?

Regarding the share repurchase, yes, we can repurchase around US$220 million to US$250 million in the last quarter, and we will definitely accelerate and maintain that pace.

Okay. How many shares will be issued for share-based compensation in quarter four? I don't know the exact number, but if you have an estimate, that would help. This quarter, it was around US$45 million, but last quarter, in Q2, it was about US$120 million, which was a larger one-time amount. So, my question is, for Q4, how many shares will be issued for share-based compensation for management?

In total, around 350,000 shares will be issued.

Approximately 300,000 shares will be issued at today's price of about $24, resulting in less than $1 million in share-based compensation. I have two remaining questions. In your last earnings call, you mentioned in August that you would consider issuing shares in 2024 for the 75% ownership that Daqo New Energy holds in Shanghai-listed shares, and that you might use the proceeds to buy shares on the New York Stock Exchange. When will this option be available? Is it two years after the IPO or next year in a specific month?

Thank you for the suggestion. We will consider that proposal. In fact, I believe that by July next year, we will be able to sell the shares in Asia and then use that amount to potentially initiate another share repurchase plan for 2024.

Do you have any idea of the scale of the 2024 repurchase program or other dividend yields for investors in DQ on the New York Stock Exchange after you complete this year's share repurchase of $750 million? You have about $300 million or $350 million left. If you have any insights or comments on this, I would appreciate it. Thank you very much for your answers. It’s very nice of you.

Hello. Thanks for your question. It is still early to say or to estimate what the program size might be like. But starting in July of 2024, after the three-year lockout period for our Asia listing, the U.S. Daqo New Energy is able to start to sell down some of its shares from the Asia listing. So I'll just spell out some numbers, right? Assuming that we sell down even a minor 10% stake, based on the current valuation of the Asia listing, which is roughly RMB70 billion, we could potentially raise somewhere in the range of RMB7 billion or so in capital. I would expect that the majority of this could be used for share purchases in the U.S. NYSE listing. That's the current...

Very nice way how you stated it. So, Daqo New Energy, just for all shareholders and for me also to understand, we own 75% of the Shanghai listing, right? It's such a rudimentary question, but I just want to make it clear. It's the stupidest question ever, but yeah.

That's right. 72.4% to be exact, yeah, but that's right, yes.

The discount remains the same. Regarding the final question, what is the expected free cash flow for 2024? Also, could you provide the CapEx figures from the last quarter? I appreciated how management discussed these topics in the earnings call and would like to recap the last quarter's events. Specifically, Ming Yang mentioned in the previous call about the CapEx left for 2024. What will the outflow be, and how much CapEx is planned for 2024?

At the end of the third quarter, total CapEx remaining for the company's major projects, including Inner Mongolia Phase 1, Inner Mongolia Phase 2, and our semi-project is approximately RMB6.5 billion or approximately US$900 million. Of that, we expect for the third quarter, total planned CapEx is around RMB2.7 billion or roughly US$350 million. The remaining would be spent for the next year. So that's the total CapEx plan right now.

So, what is left in 2024 is US$900 million, right? Or that is minus the US$300...

US$600 million to US$700 million, yeah, approximately.

Okay. And in 2025, do you have any major plans yet? Or is there any CapEx in 2025 which is eccentric, like about US$500 million?

No plan right now currently.

Okay. So, for Mongolia Phase 2 or Phase 1, whatever, is the last thing. Okay. Thank you very much. You were very kind and very nice to hear you.

Thank you.

Thank you. Next question will be from an unidentified speaker. Please go ahead.

Hello. I want clarity about the cancellation of the shares. Just now you said that at the end of the year, there might be cancellation of the shares. We would like to know that will you cancel all of it by the end of the year, or at the end of the year, you will start to cancel it? So, what is the schedule of the cancellation of the shares in detail? Do you have plans?

Okay, most likely it will be one-time around the end of the year, and we would likely cancel almost all, if not all, the majority, if not all, of the shares that we've repurchased. I think most likely all of the shares that we've repurchased at that time will be canceled.

Thank you. We would also like to know if you are considering any dividend options for the company.

For this year, our priority will still be the share repurchase plan. We will continue to repurchase our shares as much as we can. For next year, we will consider whether to initiate another share repurchase program or issue dividends, but that will depend on board approval. We will need to explore that further and evaluate the plan. But as of now, our primary goal is to complete as much as we can regarding the share repurchase plan.

Okay. Thank you. That's all my questions.

Thank you. Our next question will be from Gordon Johnson, GLJ Research. Please go ahead.

Hey, guys. Can you hear me? Hello?

Yeah, hi, we're here.

Hey, thanks for taking the questions. A lot of my questions have been answered, but there seems to be some concern amongst some of our on-the-ground contacts in China that there could be grid issues with respect to the massive amount of solar that's been installed this year. I mean, I think over the first nine months, we're close to 130 gigawatts in China, suggesting we could get 172 gigawatts for the full year 2023. That's amazing. That's great for you guys. But what we're hearing is that could potentially cause issues with respect to grid connections next year, and thus you could get flat to down installs in China. Two questions. Number one, have you heard this? Number two, if you have, what are your thoughts? And then a follow-up. Thank you.

Okay, let me translate for Mr. Xu. Despite approximately 130 gigawatts already being installed this year, Mr. Xu remains very optimistic about the overall installation in China. He anticipates that next year could see about 200 gigawatts. This aligns with Chairman Xi Jinping's goal for China to significantly expand its renewable energy deployment. The National Energy Administration is actively enabling and requiring local grids to accept as much renewable energy as possible. Additionally, China is investing heavily in energy storage capacity, which could eventually account for up to 15% of the country’s total power generation. In the near future, China is also looking into various technologies, including not only battery storage but also hydrogen and water-based energy storage solutions. Considering all these factors, including Chairman Xi Jinping's mandate, we believe that renewable energy, especially in the solar market, will continue to grow next year.

Okay, that's helpful. Congratulations on your previous execution; you've performed really well in the poly market. We've heard that in September, there was approximately 60 gigawatts of output, but the market only absorbed 40 gigawatts. We're also hearing that there might be a cap on the market of 200 gigawatts in 2024. I wanted to know your thoughts on whether these numbers are accurate and if there’s a possibility that some of your competitors may shut down or idle capacity, which could improve the market as we move into the first half of 2024. Thanks again.

Some of the production has dropped by 50%. The average production rate is 78%, which is a strong figure. This season's demand comes not only from Europe and the U.S. but also from China. It's worth mentioning that the price of the core building materials is decreasing, and everyone remains optimistic. There are approximately 20 projects, with the core building involved in some of them. Demand from China is still present. The price of the oil sector is declining, and we are still focusing on the 20-gallon market. However, we should discuss the end of the year soon, as I believe there will be changes in China's market. Current statistics indicate 20 billion, but I expect it could reach 200 billion. Next year, I anticipate that China's market will surpass 200 billion, especially with new policies concerning desert and wind power, which represent significant growth. However, there are challenges with lemon juice and an overall shortage within China. The copper industry is struggling, particularly when compared to gold, where there is no competitive edge. This creates a problem, especially for certain companies that are facing difficulties. For this quarter, we've noticed some inventory of wafers due to seasonality. For example, our customers like Zhonghuan and TCL have seen their utilization rates drop to 50%, while the overall utilization rate for wafers remains around 78%. As module prices have consistently decreased, we expect to see around 20 gigawatts of inventory by the end of the year and into the start of next year, but there should be new developments ahead. We forecast that China could reach or even exceed 200 gigawatts next year due to new policies in Xinjiang, Gansu, Inner Mongolia, and others. In terms of competition, those lacking a competitive advantage will struggle in this low-price market.

I think shutdowns, including idling of some capacity, is actually a likely situation for non-competitive players within the industry.

For players in our industry, cost and quality are the two primary factors in gaining an edge in this competitive landscape. As a company, we have the lowest cost and high quality, so we believe that we can sustain our position in the market.

Thanks again, guys.

Great. Thank you. And we'll take our last question if there's one more.

Thank you. The next and final question will be from Frank Fan of Nomura. Please go ahead.

Thanks, Mr. Xu and Mr. Yang, for taking my question. I think this question has been addressed in the second quarter earnings. I just want to reconfirm that we do not consider any privatization plan in this year and also in the next year, right? And the second question is, are the voting rights of shares held by management equal to those voting rights held by minority common shareholders? Thank you.

Sorry, Frank, can you repeat the second question?

Yeah. My second question is about voting rights. Shares held by management, all the Board members, I wonder if the voting rights is similar at a one-to-one ratio to those shares held by minority public shareholders. Thank you.

We currently have no plans for privatization, but we will monitor market developments. As of now, there are no privatization plans for this year or in the years to come.

Okay. And regarding your second question regarding voting rights, so the majority of shareholders do not have super voting rights. They do have the same one-to-one voting right as the minority shareholders or the public shareholders. So, the voting rights are the same amongst shareholders.

Understood. Thank you, Mr. Xu, and thanks, Mr. Yang.

Okay, great. Thank you, Frank. Operator, I think that concludes the session.

Yes, that concludes the question-and-answer session. Now, I'll turn back to the management side for closing remarks.

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.

Thank you. This concludes the conference call today. Thank you for attending today's presentation. You may now disconnect.