Why Polysilicon Company Daqo New Energy's Shares Are Diving Monday

Daqo New Energy Corp. DQ shares are trading lower after the company missed first-quarter FY24 EPS and sales estimates.

Revenue of $415.3 million versus $709.8 million a year ago, missed the consensus of $491.9 million. Polysilicon average selling price (ASP) was $7.66/kg in first-quarter, vs. $7.97/kg in fourth-quarter of 2023. 

Total production volume stood at 62,278 MT, which was above expectations and represented an increase of 1,264 MT versthe previous quarter. The company’s Inner Mongolia 5A facility contributed 46% of the total production volume for the first quarter.

Gross profit declined substantially to $72.1 million from $506.7 million a year ago, with margins contracting to 17.4% (vs 71.4% prior year).

The company’s average production cost declined by 2% Q/Q to $6.37/kg in the quarter. As of March-end, the company had $2.7 billion in cash and equivalents.

Adjusted EBITDA stood at $76.9 million, significantly lower than $490.2 million the prior year. Adjusted EPS per ADS of $0.55 missed the consensus of $0.56.

Outlook: Daqo Energy expects Polysilicon production volume of around 60,000 MT – 63,000 MT in the second quarter and maintained forecast of 280,000 MT – 300,000 MT (+40% to +50% Y/Y) in FY24. 

Daqo Energy expects to finish construction and begin initial pilot production at its new Inner Mongolia Phase 5B facility in the second quarter of 2024 and it plans to ramp up to full production level by the end of the third quarter of 2024. 

Xiang Xu, Chairman and CEO, said, “During the first quarter, the solar market initially showed signs of strength as we headed into the Chinese New Year holiday in February. Despite production cuts and down time, as usual, during the holidays, polysilicon demand had been strong pre-holiday as wafer manufacturers kept utilization rate unchanged or even higher, in anticipation of higher demand and better product pricing post-holidays.”

“And as demand growth resumes after excess inventories are depleted in the short-run and on the backdrop of positive policies pushing renewable installations in the long-run, the solar PV industry will return to normal profitability and achieve better margins. We believe that at the end of the quarter, we had one of the industry’s lowest levels of finished goods inventory, with approximately two weeks of production.”

Investors can gain exposure to the stock via Invesco Solar ETF TAN and ProShares S&P Kensho Cleantech ETF CTEX.

Price Action: DQ shares are down 8.13% at $21.81 on the last check Monday.

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