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12 hours ago, SCSolar said:

Those are reasonable estimates depending on ramps and cost reductions. I would expect them to maintain a minimum of $1.50 price spread between cost to manufacture and ASP. With a gradual ramp I can see gross over the next several quarters as $10M, $12M, $14M.  Depending on Opex increases from the new ramp and the interests, they will run between $6-$8M per quarter. This would put earnings around $0.22/ $0.36/$0.52.

I'm fine with your gross numbers but I think OPEX&NI will be higher.  Over the last 2 quarters they had around $11M in OPEX&NI taking out one-timers.  That would lower your EPS estimates to -$0.07/ $0.07/$0.22 and assuming a spread of $2.00 it would lower EPS to $0.17/ $0.37/$0.57.  Continuing your calcs I end up with a fair market price of $8.

I see further downside with OPEX&NI expanding beyond the current $11M.  Shipment and production ramp will increase OPEX but I see a particular hidden risk in NI.  Reason is they have to dish out nearly  $500M in Capex for 4A and their operating cash has already been squeezed to a minimum. Also there might be some additional payments left for 3B.  If they take on let's say $300M in debt that would increase NI by nearly $4M per quarter at 5% interest rate.  And who knows if interest rates go higher after 5/31.

What is your take on debt and interest payments going forward?

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48 minutes ago, Klothilde said:

I'm fine with your gross numbers but I think OPEX&NI will be higher.  Over the last 2 quarters they had around $11M in OPEX&NI taking out one-timers.  That would lower your EPS estimates to -$0.07/ $0.07/$0.22 and assuming a spread of $2.00 it would lower EPS to $0.17/ $0.37/$0.57.  Continuing your calcs I end up with a fair market price of $8.

I see further downside with OPEX&NI expanding beyond the current $11M.  Shipment and production ramp will increase OPEX but I see a particular hidden risk in NI.  Reason is they have to dish out nearly  $500M in Capex for 4A and their operating cash has already been squeezed to a minimum. Also there might be some additional payments left for 3B.  If they take on let's say $300M in debt that would increase NI by nearly $4M per quarter at 5% interest rate.  And who knows if interest rates go higher after 5/31.

What is your take on debt and interest payments going forward?

This year there was a significant bump in Opex as of Q2. The increase was indicated as non cash based compensation and was indicated to be going forward for Q3 and Q4. This was a 3.5Million per Q jump in Opex.  I might expect that to drop  in  2019.

 

https://seekingalpha.com/article/4195800-daqo-new-energys-dq-ceo-longgen-zhang-q2-2018-results-earnings-call-transcript?part=single

The increase in SG&A expenses was primarily due to the increase of noncash share-based compensation costs, which related to the company’s 2018 share incentive plan, which, in aggregate, increased our noncash share-based compensation expense by approximately $3.5 million for the second quarter compared to the first quarter. We expect to be at similar levels of share-based compensation expense for Q3 and Q4.

 

As for Interest, yes if they take on $300M in debt that could cause $16M in interest at 5%. That would be when the plant is fully operational and IF they accumulate that amount of debt. While in construction the loans are typically short term and carry lower interest. The interest payment is also capitalized into the cost to build. That would not show up as debt payments until atleast 2020 when phase 4A completes I also do not believe the costs to add capacity would not  be at $10/KG as your debt would suggest.  That was a price range from 5 years ago(2014) when ReneSola was adding capacity.

 

On a side note earnings goes up when they add  35K MT of ultra low cost Si to the production volumes. At  $2/KG per KG profit, they add $70M in gross income. Given your bearish scenario of $16M interest(doubtful) and a doubling of Opex from the non sharebase compensation of $16M per year(worst case), the Opex and NI would be $32M. That leaves $38M before taxes or $30M after taxes. That is  $2.50 a share in EPS added. Even at a $1.50 spread they still roughly $1 in EPS from the new capacity. And I will note I do not expect $300M in debt rather $150M if they do not do an equity offering. I also do not expect Opex to run $16M a year for the 35KMT but closer to $10M a year.

 

 

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1 hour ago, SCSolar said:

This year there was a significant bump in Opex as of Q2. The increase was indicated as non cash based compensation and was indicated to be going forward for Q3 and Q4. This was a 3.5Million per Q jump in Opex.  I might expect that to drop  in  2019.

 

https://seekingalpha.com/article/4195800-daqo-new-energys-dq-ceo-longgen-zhang-q2-2018-results-earnings-call-transcript?part=single

The increase in SG&A expenses was primarily due to the increase of noncash share-based compensation costs, which related to the company’s 2018 share incentive plan, which, in aggregate, increased our noncash share-based compensation expense by approximately $3.5 million for the second quarter compared to the first quarter. We expect to be at similar levels of share-based compensation expense for Q3 and Q4.

 

As for Interest, yes if they take on $300M in debt that could cause $16M in interest at 5%. That would be when the plant is fully operational and IF they accumulate that amount of debt. While in construction the loans are typically short term and carry lower interest. The interest payment is also capitalized into the cost to build. That would not show up as debt payments until atleast 2020 when phase 4A completes I also do not believe the costs to add capacity would not  be at $10/KG as your debt would suggest.  That was a price range from 5 years ago(2014) when ReneSola was adding capacity.

 

On a side note earnings goes up when they add  35K MT of ultra low cost Si to the production volumes. At  $2/KG per KG profit, they add $70M in gross income. Given your bearish scenario of $16M interest(doubtful) and a doubling of Opex from the non sharebase compensation of $16M per year(worst case), the Opex and NI would be $32M. That leaves $38M before taxes or $30M after taxes. That is  $2.50 a share in EPS added. Even at a $1.50 spread they still roughly $1 in EPS from the new capacity. And I will note I do not expect $300M in debt rather $150M if they do not do an equity offering. I also do not expect Opex to run $16M a year for the 35KMT but closer to $10M a year.

Fair point with the stock-based compensation.  I would counter that OPEX&NI was already around $9M before that bump and will probably increase once 3B shipments are ramped.

Also fair point with the capitalization of interest.  As to the magnitude of debt I keep thinking we could end up north of $300M.  They indicated that total 4A CAPEX is RMB3.2B:
"To answer your question, I think 4A total investment is around RMB 3.2 billion, equivalent to USD 500 million."
https://seekingalpha.com/article/4173971-daqo-new-energys-dq-ceo-longgen-zhang-q1-2018-results-earnings-call-transcript?part=single

At today's exchange rate it's more like $475M.  Currently they have around $110M in cash.  Adding your midrange earnings of $47M and an estimated $36M in depreciation gives a total of $193M in cash available for CAPEX.  Leaves a financing gap of $282M.  Throw in some working capital requirements and you're easily above $300M.

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