Daqo New Energy Corp. (DQ) Q2 2026 Earnings Call Transcript

Welcome to the DACO New Energy 2nd Quarter 2026 Results Conference Call. At this time, all participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's prepared remarks, there will be an opportunity to ask questions. To ask a question, please press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Jessie Zhao, Investor Relations Director. Please go ahead.

Hello, everyone. I'm Jessie Zhao, the Investor Relations Director of Darko New Energy. Thank you for joining our conference call today. Darko New Energy just issued its financial results for the second quarter of 2026, 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, our deputy CEO, Ms. Anita Xu, our CFO, Mr. Ming Yang, and myself. Today's call will begin with an update from Mr. Xu on market conditions and company operations, followed by a translation from Ms. Xu to Mr. Xu, and then Mr. Yang will discuss the company's financial performance for the quarter. After that, we will open the floor to put an aid 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 1998, Five, this statement involves 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 this and other risks is included in the reports or documents we have filed with or furnished to the Securities and Exchange Commission. This statement only reflects 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 will occasionally reference monetary amounts in U.S. dollar terms. Please keep in mind that our functional currency is the Chinese RMB. We will offer these translations into U.S. dollars solely for the convenience of the audience. Now, I will turn the call to our chairman and CEO, Mr. Xu.

Mr. Xu, please go ahead. 请在请总统长 请在各位客制者 本业师晚上好 我是徐强 Thank you very much for joining us in the 20th century, and I will now translate our Chairman Mr. Zhu's remarks.

In the second quarter of 2026, much attention across the solar activity industry remained cautious amid weak domestic demand and elevated unemployment levels, which drove prices lower across the solar value chain. Despite these tightwings, we resumed sales in June, delivering a sequentially increase in revenue, and a narrowing of quarterly operating and net losses.

Throughout this period, we continued to maintain a robust and healthy balance sheet with zero debt.

As of June 30, 2026, we held a cash balance of $555.3 million, short-term investments of $250 million, bank-dose-to-seeing both of $71.7 million, health and maturity investment of $51 million, and fixed-term bank deposit balance of $194.8 million. Together, these These readily convertible assets totaled $1.9 billion, providing us with equal liquidity, confidence and strategic flexibility to navigate the current market downturn. On the operational front, we continue to take proactive measures to navigate challenging market conditions with our nameplate capacity utilization rate operating at approximately 57% during the period. Total production volume at our two policy facilities was 43,675 metric tons for the quarter, exceeding our guidance range of 35,000 metric tons to 40,000 metric tons. with policies on market prices remaining below production costs since the first quarter of 2026, with initially refraining from engaging in the below-cost sales in line with Chinese self-regulation guidelines and adopted a disciplined wait-and-see approach pending further implementation of the national anti-involution policy. However, after an extended period without clear policy updates, we adjusted our sales and pricing strategies toward a more market-oriented approach in June. As a result, our sales volume increased from 4,482 metric ton last quarter to 15,190 metric ton, with average selling price falling to 4.04 U.S. dollars per kilogram. Our policies and transactions and shipment volumes have continued to pick up in the third quarter, reflecting increased confidence in the quality and an ongoing preference for products from customers. On the cost side, total production costs remain sequentially at $5.95 USD per kilogram, with cash costs edging down by 0.4% to $4.57 USD per kilogram, and manufacturing costs in RMD terms is declining slightly. In light of the current market dynamics, we expect total pulse to come production volume third quarter 2026 to be approximately 40,000 metric tons to 45,000 metric tons. For the full year of 2026, we expect production volume to be in the range of 160,000 metric tons to 180,000 metric tons. Post-pocom market prices came under further downward pressure during the second quarter, with untied post-pocom prices falling from 35 to 37 RMB per kilogram at the end of the first quarter to 31 to 34 RMB per kilogram at the end of the second quarter. Amid subdued demand, depressed pricing, and accumulated industry-wide inventories, post-pocom producer operated at a low utilization rate with aggregate output of 5,308,000 mt. representing a 9.8% decrease. As we make our way through the third quarter, we continue rollouts of anti-involution measures and gaining momentum. In July, a a series of mandatory national standards were issued for energy consumption and product efficiency across the solar p value chain, including the final official version of the new standard setting energy consumption limits per unit of Palsicum output, which will take effect on January 1, 2027. Palsicum manufacturers whose unit energy consumption exceeds 6.3 kg cd per kg must complete corrective improvements by that day.

Thank you, Anita, and hello everyone. We're $62.7 million compared to $26.7 million in the first quarter. $39 million in the first quarter. It was negative 132%. Compared to negative 5, a negative 108%. It was $7 million compared to $98.9 million. SG&A expenses were only due to a higher-year decrease. R&D expenses were $1.6 million due to R&D of next generation. R&D expenses and R&D activities that take place. Loss fund operations was $98 million compared to $150.8 million in the first quarter and $15 million in the second quarter. Operating work margin was negative 156% compared to negative 560%. The total to DACA New Energy Corp shareholders was $81 million compared to $88 million in the first quarter. Low per basic ADS was $1 to $1.31 to dopper new energy shareholders, excluding non-cash share based compensation costs, was $81 million, compared to $88.4 million in the first quarter. Loss per basic ADS was compared to $1.31 in the quarter. Debuter was negative $29 million, compared to negative $83 million in the first quarter. Debuter margin was negative $40 million, compared to negative $300 million at negative $60 million. Now on the company, June 30th, 23 to 559.4 million, as a short-term investment was 288 million, as in 2026, no receivable balance was 71.7 million, no receivable balance, which represent bank notes with maturity within 30th, 2026, held to maturity investment was 51 million, the sixth month ended June 30th, 2026, net cash using operating activities with June 30, 2021 investing activities related to the purchase of finance activities and cash use in finance activities in 2020. And that concludes our prepared remarks. We will now open the call to Q&A from the audience. Operator, please begin.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Our first question comes from Philip Chen with Rock Capital Partners.

Please go ahead.

Hi, this is Oscar Chim for Phil. Can you hear me okay?

Yes, you're allowing clear.

Okay, I have two questions. First question is on government support on polypricing. You know, even with the recent 10% rebound in forward prices, quality ASP remained below industry production costs since late Q1. How would you characterize the central government stance on supply rationalization? Are you anticipating any incremental regulatory support that could help establish a sustainable price floor in the near term? And then I have a follow-up.

So we're going to translate your question and then.

Okay, I will translate for our CEO, Mr. Xi. Okay, on August 6th, led by the China's Photovoltaic Industry Association, there is a strong initiative for self-discipline, and based on the CPIA cost model, the industry average cost is estimated, production cost estimated to be around 50,000 RMB per ton, so about 50 RMB per kilogram. But due to the current market, the environment where demand activity is relatively low, and there's still approximately 500,000 to 600,000 tons of depository inventory in the industry. So we think the price recovery might take a little bit longer than anticipated, but there is strong consensus within the industry for self-discipline and also with the urging of the government and the related departments that the industry consensus is that it's no longer viable to sell below cost. And what we're seeing in the market is that the quotations for policy silicon pricing from different manufacturers have already exceeded about 40 RMB per kilogram. So we're optimistic about the current policy development and we're waiting to see how the policies may be enforced going forward.

We also have a reliable basis for the price of the price. The price is still a good look at the price of the price. I think that the price of the price of the price would be a fair amount of money. 也是应该会支持。 这当中就是我们需要在法律框架对合理、合法、合规的方面之下进行反律串的工作。 但是我想这个应该会有效果,因为近几年所有的中英国的光复企业都在窥行大量的行动。 I think this is a long-term issue. It's not a problem. I think this situation will not be too long.

In the first time, the first time of the 12th century, the first time of the 12th century, the first time of the 12th century, So let me translate for Mr. Shi, so right now the industry in terms of the value chain between the buyers and sellers of Polysilicon, So some of the buyers are still observing the market and the policy development, and they're taking a wait-and-see approach. But in terms of the Ponceman manufacturers are expecting a reasonable price where they they would not be selling at a loss or below their cost. So there's still some, you can call it a wait and see between the positive manufacturers and the downstream. But we do believe that the past industry practice of selling below cost, especially in the first six months of the share is likely to end and where the the government is very adamant about preventing a dumping of the products and selling and below cost so you know within the law framework for price law and for the anti-evolution and our expectation is that this is likely to move forward optimistically over the next several months and then we know that and you know over the past a few years the policy can manufacturers or the whole industry in general have seen significant losses and we do not think that this is long-term sustainable in In fact, this is very unsustainable, and this is likely to lead to the industry in trouble. So if we look at Deque, especially in December of last year, when the anti-evolution policy was more successful, right? And the EQ had no cash loss in Q4 of 2025. So we were able to achieve a positive operating cash flow during that period. So we think that that's a more sustainable timing or framework going forward.

Thank you for the color, Mr. Xi and Mr. Yan. My second question is on the self-discipline agreement signed in August. You know, previous rounds of cell regulation kind of struggled to maintain compliance once prices fluctuated, just wondering what makes this framework structurally distinct from past attempts, and then regarding the energy consumption requirements, what is your estimate of total industry capacity that could be phased out?

Question comes from Alan Liu with Jeffries.

Please go ahead.

Wait, we're still answering, you know, translating. Hold on, hold on. Okay. Let's give us a minute.

All right, we have Philip Chen back on the podium. My apologies.

And in this case, it's a way of thinking that this is a way of processing. At this point, it's a way of processing technology. And again, according to the company's own findings, For example, the company's own case, And just like the product of the company's own business, And the technology's own. But the reason for the reason is that the performance of the technology is not high, it is not high, but the quality of the technology is not high. So this is going to make it a lot of it. So this is what I want to say. If I want to say, I want to say that there are other types of products. So it would be a lot easier. Some of the companies have been working on the market.

Okay, now let me translate for Mr. Shi. Okay, so we believe that the current round of anti-involution policy and with the price law enforcement is likely to sustain. What we saw in the previous round was that, you know, And there was this proposal for the industry consolidation platform, right, to accelerate the excess capacity. But the state administration for market regulation stepped in because they were very worried about anti-monopoly practices between the manufacturers, the leading manufacturers. So they were worried that this would bring non-market activities or behaviors by the main manufacturers. But this time, the current effort is led by the state administration for market regulations and this is bringing self-discipline forward. And also, this is not, for example, there's no coordination between the manufacturers on pricing or allocation of sales volume, for example, right? So this time it's really based on each individual manufacturer's their own costs, production costs, right? And in terms of their manufacturing efficiencies and for them to sell products based on their ability to produce products at a lower cost okay so we think that this time it's actually a much more sustainable and is being supported by the government so we think that so through through these two efforts right so so one is by being one of the lowest cost producers within the industry as well as with the regulations on energy usage, we think that this time it will promote a more market-oriented approach to both capacity exits and to the selling of products at a reasonable price. And this is all under the current legal framework brought forward by the government.

That's all my question. Thank you, Yan. Thank you.

Our next question comes from Alan Liu with Jefferies. Please go ahead.

Thanks, management, for taking my question. So my first question is a follow-up on the overall initiative to avoid selling below So my understanding is that current inventory in the industry is at quite a high level. and the end demand is also quite weak at the same time. So when would you expect the quality price? For example, you mentioned there are price quotes at above for DRM per kilogram. But given that there are inventory at the wafer players and demand isn't that strong, when would you expect the first batch of transactions at a higher price to happen because in the past two weeks all the data has halted so we'd like to know when we expect the real transaction is coming out Let me translate for Mr. Shia Give us a minute Okay So today I'm in the market

and they told me I don't have that much success I don't have that much success I don't have that much success Because this is still a lot Even though information is less, it's less than enough. Even though many companies are 0.5 million in the financial sector, they don't have a lot of money. It is also a total of 10.8 million in the business. For the amount of money, which is the real world. It's a real world. I think it's not a real world. It's a real world. It's a real world. I think the world will be doing this. I think it's a real world. But now we've got the same situation. From the start of the beginning, we've got the same situation as well. We've got the same situation as well. I think this is the case. This is what we need to do. We need to trust our commitment. We need to trust our commitment to our commitment to our partners. We need to apply some kind of change in the country. I think this will be a little faster.

Okay. Let me translate for Mr. Shi. Okay. I think he's seeing in the market that there is some transactions happening at roughly 40,000 RMB per ton or about 40 RMB per kilogram. Although there's a very low volume of transactions right now, even though the overall demand is relatively weak but there are some wafer producers in the industry that have a very low to no inventory work where they are procuring to production and so right now so we are seeing some transactions though not a very high what we're seeing is some manufacturers are testing the market so although that the full cost model would stipulate around the RMB per kilogram you know some producers are right now testing the market and selling at approximately 40 RMB per kilogram right now and so it's been about two weeks since the announcement of the manufacturers and the guidance from the government so so we do think that the going forward we are likely to see more and more transactions happen at this new price range understood so strictly based on the production cost probably for it's written price behind

that but given that in this round of the anti evolution initiative um there is not um a acquisition plan uh afterwards so uh if prices goes up to 40 or maybe 45 or 50 rmb per kilogram um what do you think would happen because effectively um the this will reach to the cost level of more players so like who would be able to sell their products or what do you think the end game of this round of initiative or is there some capacities will be shut down because of the higher energy consumption requirement or like how do you see Let me translate for Mr. Schaefer, just a minute.

Okay.

Okay, let me translate for Mr. Shi, okay? He thinks that the recent energy quota policy from the government where there's different energy usage requirements for the industry, he thinks this is what will lead to a forced exit of a significant amount of capacity that have significant or higher energy usage. so we're likely to see that happen pretty soon and then also the industry self-discipline and there's a commitment from the various manufacturers that there should be a voluntary reduction for production and then also there's a commitment that in fact manufacturers should not be selling below production cost so we we think that both of these are likely to to bring the second half of this year and then there's also the issue that not that many producers actually have the capability to produce, especially now that the industry is running at a fairly low fertilization level. So a lot of manufacturers have let go significant number of people. So there's actually a lack of employees and also lack of training and time. So a lot of capacity that have been shut down is unlikely to restart. going forward. So even now, he thinks that, for example, the effective capacity is within the industry. Methyl close to 3 million tons have been built. The effective capacity is already less than 2 million tons right now. It's likely to go lower as well.

Thank you.

My last question is about the AIBC initiative as a second growth driver of the I wonder if there's all the backlog or progress to share on this new business? Thank you.

Okay, hold on. and the world has been expanding.

There are so many companies in the world. And for the entire world, we are doing business business business industry. So the company of China has been doing business business. We have a lot of open-開關. And now we have a lot of open-開關. And in the AI development, we have found that we have been seeing business business business. Because the company of China is the most important part. In terms of the market, the market is a big part of the market. So, through the market of the market, we think that we should do AI and ITC. We should do the best-to-熟悉 sector of the business sector. This is what we need to do. What is our business? What is our business? That's very amazing. On a year ago, we had our plan to cover our process. We didn't have to agree with the投資 team. We were in a way to find out that we have to find out the way we can find out the way we can find out what the program is being created. The whole generation is not yet another generation. So we are also creating this sector. So I think that is AIGC of this environment, including the trade sector, IT sector, the發電 sector, and we slightly appreciate it. This is what we are in their actual market, So I think that's what I think is In many cases, in the same way, Live in the same way, all over the years, all over the world. The U.S.S.C. is not a great deal. But overall, and I think that's a great deal. and the Chinese government's government's government. So, we'll translate for Mr. Shi.

So, we do see that the AIDC-related power infrastructure and increment market is actually a very viable significant growth driver for the company and it's the second sector that the company is entering into so I think most investors are probably aware that we do think that the growth for the policy market going forward is likely to be relatively low in terms of volume demand as well as of the solar so then this the company is actively looking for other areas of growth and because a docker group has more than 40 experience 40 years of experience in the power equipment sector and being one of the leading manufacturer and supplier of high and low voltage, for example, power equipment such as a transformer and circuit breakers. So Daco Group is seeing a very strong demand, especially in AI data center related power equipment demand. So we do think this is a very significant and real opportunity for the company. And Daco Group brings many years of experience and advantage in manufacturing in R&D and technology capability so in terms of products as well so you know with the growing power demand and especially for the next generation power infrastructure for IDC, where in the led by NVIDIA, there's this future development of a new next generation of equipment under the 800-volt DC infrastructure. So we're targeting initially in the solid-state transformer and solid-state circuit breaker market. So the industry is starting in 2027 next year. And then we expect to see very significant growth from 2028 to 2030 with power demand from these new AI data centers based on a new 800 volt DC technology. So with DACO Group, it brings significant experience and vintage. And at the same time, matching with a DACO New Energy strong balance sheet and capital position to capture this growth driver. So now we have built an R&D team in Shanghai. and we expect to have an initial product ready by year-end and then with prototypes and achieving sales starting in 2027 and then capturing the growth opportunity in 2028 to 2030 and our goal to come an industry leader within this IDC power equipment sector by being a chair one, both in terms of product and the team. So that's our current goal right now.

Yeah, thanks a lot for management due to explanation.

Great, great. Thank you, Alan.

Our next question comes from Mona Wang with Goldman Sachs. Please go ahead.

Thanks, management, for taking that question. I have two questions. One is related to the poly business, another to the AIDC business. So first, in terms of the poly business, I think you just mentioned, like, currently the industry, upstream and downstream employers, they've kind of wait and see. And given the downstream inventory is at a relatively higher level, I'm not sure what the outcome do you expect for after the wait and see period? And particularly, we had this kind of self-discipline in the first half, like we uphold our pricing and then we record the lower shipment. So I'm wondering, like, do you have any shipment guidance towards the end of the year? What's our priority going forward? Will we uphold the pricing to the higher level, like $50,000 per ton? or we kind of want to reach the balance between price or shipments. So I want to hear more about the Poli business operations strategy.

Okay, thank you, Moen. So let me translate your question for Mr. Xi, and then he will respond.

Okay, just a minute. What do you want to see?

In fact, we are talking about the product of the product. It's not only the product of the product. The product of the product is the product of the product. It's the product of the product that we have to deliver to the product. which is the best part of our business. And from this point, we will be able to deal with it. So we will keep our business together. We will be able to deal with this and then we will be able to deal with it. But today is what is what we're doing? Because every company has been able to deal with it. Many companies will be able to deal with it. But for the future, there will be some high-level levels of performance. In the cases we have high-level performance, the number of performance is not high. The number of performance is not high. It will be less than a strong performance.

This is a good idea.

I think that the government has a good quality of the business and the value of the business. And the value of the business and the value of the business, and the value of the business. We will have to look at the value of the business. I'm not sure if I can't really talk about it. The price for the price for the price is higher. It's not just the price for us. No just the price for us. It's the price for us. Because the price now is on the price of this price. It's not exactly right. It's not exactly right. It's not exactly right. I think this is a little bit.

Let me translate it to Mr. Shi. So in the second half, of what we believe is that because of that community we have a superior quality of product in the market so you know selling and shipping of our product is really and not an issue I think the question is really price so so in the first half because we adhere to self discipline so we did not sell as much products as our normal market share so because you know our competitors were engaged in below-cost sales practices but we look at our market share in the past we believe that we can achieve approximately 15% market share within the industry and we continue to expect that going forward so our target is to sell at a appropriate price or a reasonable price you know so be fully compliant with the government guidance and the price law so what we expect is that say in the next six to 18 months we're likely to see a forced exit or a market-based exit of manufacturers with high production costs or manufacturers with poor cash positions or poor cash flow so so so companies with not a good balance sheet is likely to struggle, continue to struggle going forward. While, you know, Dr. New Energy with our cash position and our strong balance sheet and also our high product quality and low cost, we expect that we're likely to do better and to do well in the market. So especially in 2027, where we expect to see a much improved and better market environment. And then we expect to continue to lower our inventory going forward to relatively low inventory levels. That's our target.

Okay, thank you. So can I conclude that we will hold up the price in your turn and we will wait for the rest of the marginal players to exit and then at the time we will see fast inventory depletion and the recovery of the shipment is likely to occur in the next 6 to 18 months.

I think in terms of pricing, right, so I mean we cannot sell below cost, right, so we're going to adhere to that and then at the same time we'll look for opportunities to sell at a reasonable price, and then for the market to have additional capacity exits.

Okay, that's super clear. And my second question about AIDC, I think we have put out announcements like we have 6 billion RMB total investment, 2 billion in the first place. And you just mentioned we will have sales volume recorded in next year. So just wondering, can you share a bit more about the plan for the ADC business, specifically our capex timeline and the source of capital for this 6 billion or 2 billion investments and what's our expected payback duration for the first phase of the production base and what the normalized probability from this business do we expect we'll achieve and also for other like operating metrics will we have more other sources allocated for this new business development, or we can use some of the synergies from our DAICO group, the Aligno company. So a lot of details, but can you share a bit more regarding to this mathematics? Thank you so much.

Okay, okay.

Let me translate your question first quickly. Okay, hold on.

Thank you very much. we may see our sales. The sales and sales are in our market.

We have a lot of sales.

We have a lot of sales. In addition to the new market, we can put our product in our market. We need to set our product up to the market. I think it's going to be a big deal. In the S&P, I think it's going to be a new market. It's not a new market. I think we will be able to do this. I think we will be able to get more of a new and new year. I believe we will be able to get more of a new market. We will be able to get more of a new market. This is a very effective market. In the previous administration, the government, our customers, our global network partners, and the AIBC, the government, is full of trust and trust.

Okay, let me translate for Mr. Xi. First of all, let me just clarify on the investments involved. So even though the total project anticipated investment is $6 billion RMB, We're only committing the first phase right now, which is about $2 billion RMB, which will cover all of solid-state transformers, solid-state ticket breaker, and also our e-house total solution for AI infrastructure, and also some related to energy storage. And so the remaining $4 billion is not committed as of today and will be planned sometime in the future. And then in terms of our strategy, so we're focusing on AIDC-related power infrastructure or equipment. And then we expect to have three primary products. So one is a total solution or a package solution, which is going to be a plug-and-play kind of solution for AI power infrastructure, which has all the related power equipment. And then also solid-state transformers and solid-state circuit breakers, as well as include the related software and control. and there is very significant synergy with DACA Group because of DACA Group's experience and know-how and also their position within the market and we think that actually we can receive significant orders from customers and so we're now in the phase of doing R&D and also the building of related manufacturing facilities and the R&D team is now in place and we continue to expect to have our prototype ready by year-end and getting these products so in terms of 2026 and 2027 is really a preparation period and introduction of the product into the market and we think that the market will see a high growth phase from 2028 to 2030 and where we do expect a significant ramp-up of revenue during this period for these related products and business. All right, thank you, Moonwin. For the $2 billion committed investment we will expand in 2026. that uh over the next two years this year is only about uh i think two yeah uh there's only maybe 30 to 40 million us dollars this year and then the remaining will be over the next two years sure that's all from me thank you okay thank you and then our co will make additional comment Thank you very much. And Mr. Hsu will provide an update on our semiconductor policy and business, where the company has spent a total investment, including land and related equipment facilities, about 1.2 billion RMB into the business. And, you know, we've been doing product trial production and also in terms of qualification with our customers. And the qualification cycle has been much longer than we anticipated, but we're continuing to do this. And he's very optimistic that he's looking at very significant market demand. where the demand for semiconductor poly is roughly 75,000 tons per year, while right now the current industrial production for semiconductor poly is only about 57,000 ton per year. So it's anticipating a very significant growth for this product, this market sector. So we're going to wrap up and reinvigorate our activities for this.

This concludes our question and answer session. I would like to turn the conference back over to Jessie Zhao for any closing remarks.

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

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