Daqo New Energy Shares Plunge, Roth Capital Downgrades On New Chinese Solar Policy

Chinese solar stocks were under heavy selling pressure Monday in reaction to the government's decision to suspend the construction of new solar farms and cut subsidies to solar companies. One of the most impacted companies is Daqo New Energy Corp DQ, according to Roth Capital Partners.

The Analyst

Analyst Philip Shen downgraded Daqo New Energy from Buy to Neutral with a price target lowered from $75 to $48.

The Thesis

China's revised solar policy over the weekend came in "much worse than expected" and should create a "massive" net oversupply of cell capacity, Shen said in the downgrade note. The end result could be a net oversupply of more than 30GW of cell capacity, which implies the outlook for polysilicon prices and producers like Daqo has "suddenly deteriorated" for 2018 and 2019, the analyst said. 

Daqo still boasts an attractive cash generation potential, which implies investors could consider taking advantage of "more attractive entry points," Shen said. In the meantime, the stock's large decline Monday is expected and justified, he said. 

The analyst's revised $48 price target is based on a 3.5x multiple on 2019 EBITDA estimates of $195 million.

Price Action

Daqo shares were down 20.7 percent at $41.80 at the close Monday. 

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