The Chinese polysilicon manufacturer Daqo New Energy Corp (NYSE:DQ) has announced its Q3 preliminary financial results for the current year. The company’s revenues have fallen by 23.6% from the previous quarter and by 65.5% from the same quarter last year to $21.1M on the back of lower polysilicon shipments and the fall in average selling prices (ASP).
Daqo’s polysilicon shipments fell by 2.6% sequentially and 2.1% year-on-year to 1,001 MT, which it sold for $19.4M. Meanwhile, it earned just $0.7M from wafer shipments, down almost 75% sequentially and year-on-year. A total of 3.1MW of wafer shipments were recognized during this quarter, but due to the higher credit risk associated with the sale of wafer, the business has now adopted a more conservative approach under which the sale will be recorded only when the payment has been received. Therefore, shipments of up to 10MW, which would otherwise have been recorded under the previous accounting policy, were not recognized in Q3.
Daqo’s gross loss has almost doubled from the previous quarter to $10.8M, while its gross margin widened from a negative 20.7% in the previous quarter to a negative 51.1% in Q3. This massive decrease can be attributed to the fall in ASPs and an inventory write down of $5M. The business also made a $2.1M provision for bad debts in the quarter, which increased its expenses from $3.6M in Q2-2012 and $3.7M in Q3-2011 to $5.1M in Q3-2012. Excluding the value of provision, the expenses fell to $3M, which is more than 16% lower as compared to both Q2-2012 and Q3-2011.
The business has finished the development of Xinjiang Phase II polysilicon plant in Q3 and production has already started. By 20th November, the new facility had produced 285MT of polysilicon. This capital expenditure also caused a 40% decline in cash reserves from $90.2M in Q2 to $53.8M in Q3.
As a result, Daqo went from recording a net loss of $7.1M in the previous quarter and a profit of $12.1M in the same quarter last year to a net loss of $15.5M in Q3-2012. The results also includes a tax benefit of $5.5M it received in this quarter, up from a benefit of $2.6M in Q2-2012.
The company has spun off its module subsidiary Nanjing Daqo to Daqo Group for $10.53M, as it wants to focus only on polysilicon and wafer. In Q4, Daqo has given a polysilicon and wafer shipment guidance of 550-600MT and 10MW respectively. The company’s director and CEO Gongda Yao has admitted that the “solar PV market remains weak” in Q3, but an expected increase in demand from China “will partially offset the uncertainty from the international market” as his company “sees the market recovering in the second half of 2013.”
Daqo’s share price is currently less than $1. The business received a delisting warning from NYSE on 22nd August. Similarly, its peer Suntech Power Holdings Co., Ltd. (ADR) (NYSE) and more recently, LDK Solar Co., Ltd (ADR) (NYSE), were also warned by the stock exchange.
