Daqo New Energy Reports Widening Losses, Hints at Better Second Half in 2013

Although there is nothing encouraging in the current results, the company is expecting better times ahead

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The Chinese polysilicon manufacturer Daqo New Energy Corp. (NYSE: DQ) has announced its fourth-quarter and full-year 2012 results. The business posted a significant drop in revenues from continuing operations both sequentially and year-over-year as its quarterly losses ballooned to $75M on the back of massive impairment charges of its wafer facilities. As a result, the company’s shares dropped 6.20% by midday on 1^st April.

During the quarter, the company’s revenues slipped to just $6.2M from $21.1M in Q3-2012, and $27.3M in Q4-2011. Daqo’s quarterly polysilicon and wafer shipments stood at 592MT and 4.8MW, respectively. Polysilicon ingot and block shipments were 33MT.

The business’s net loss increased by 388% sequentially and 92% YoY to $75.6M. This also includes $42.8M in impairment charges and $19.9 million as allowance for deferred tax assets.  The company did not incur any impairment costs in Q3-2012, while such losses stood at $34.6M in Q4-2011. On the other hand, Daqo reported tax benefits of $5.45M and $11.13M in Q3-2012 and Q4-2011, as opposed to the allowance recorded in Q4-2012. The business’s loss per ADS was $10.76 per share, increasing from a loss per share of $2.21 in the previous quarter and $5.61 in the same quarter a year ago.

For the full year, Daqo’s wafer shipments jumped by 152.98% from 16.8MW in 2011 to 42.5MW in 2012, but polysilicon shipments decreased by 9.17% from 3,947MT to 3,585MT; therefore, its revenues slumped by 62.6% to $86.9M. Although the business increased the sales of wafer by $2.8M, the $145.5M decline in sales of polysilicon, its primary product, was enough to completely offset the marginal gains made in wafer. As a result, Daqo swung from a net income of $33.3M in 2011 to a net loss of $111.9M, or $15.92 per share, in 2012.  

Although there is nothing encouraging in the current results, the company is expecting better times ahead. During the conference call with shareholders, Dr. Gongda Yao, the business’s CEO, said, “We do see the demand for polysilicon is picking up. The average selling price is increasing and the payment terms are improving. We believe the worst days have passed and the industry needs some time to recover through capacity rationalization, merger and acquisition, and a further technical improvement.”

Last September, Daqo started pilot production from its Xinjiang facility and has so far produced 617MT of polysilicon from there. The plant touched its initial cost effectiveness target by producing polysilicon below $20/kilo level in February, and the company believes that it can push the costs down further. The plant is expected to start generating positive cash flows from the current quarter.

Daqo’s debt ratio of 58% is still above the industry average, but its working capital is negative $164M. However, the business has the financial backing of the larger Daqo Group.

In Q1-2013, Daqo is aiming to ship 720MT of polysilicon, 3.6MW of wafer and 150MT of polysilicon ingots and blocks. A total of 200MT of polysilicon will be used internally for wafer manufacturing.