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Daqo (DQ)

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3 hours ago, solarpete said:

It's your dirty mind.

They just MADE $1/share in earnings, when you confidently predicted your calculations showed they would be losing money.

Your calculations were correct, by the way--just for the wrong stock.  It's your beloved FSLR that couldn't stay above breakeven during this period.

Of the two stocks, I know which one I'm more comfortable holding.  It's just a shame the market doesn't reward results equally, otherwise we both know which stock would lead the other by $20 share price.

I suspect that gap will now narrow, if not close.

You're making things up.  I never predicted they would lose money in Q2.  I said that at current prices they don't make money.  It's all there, go back and review.

Did someone listen to the con call by any chance?  Any news on 4A?

 

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17 minutes ago, Klothilde said:

I said that at current prices they don't make money.

OK, so now you're predicting losses for Q3.

We shall see.

I'm waiting on a transcript for the call, to see if they gave guidance on margins for Q3.

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3 hours ago, solarpete said:

OK, so now you're predicting losses for Q3.

Not exactly.  My current estimate for Q3 is $0.30 - $0.50 per ADS.

However they are benefiting from shifting Q2 revenue into Q3.  Without that shift they would indeed be slightly negative on my books.

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7 hours ago, SCSolar said:

Based on the current high end ASP of $12.90...

The transcript is out and I think the CEO was quite candid on prices (see quote).  In June they stopped all sales because prices were irrational.  They started selling inventory when mono-grade recovered to $11.7/kg and multi-grade to $10.4.  And he says that currently mono-grade sells for $12.1 and multi-grade for $10.8.  DQ's mix (70% mono) would currently have a blended price of $11.7 at the market prices he mentions.

"I think the pricing fluctuation in June really, I think, cannot represent any meaning because we didn’t have any trading there. So basically, we also have inventory because lowest prices go to – renminbi is going to like multisilicate go to $70; mono, even lower, go to $80 revenue per KG. So actually, we didn’t sell – ship or sell any contract in June, so that’s why we have the inventory. By the end of the quarter, we have 2,115 tons there.

Then I think the price – the market digested and I think of the policy, then come back early July. So basically, we’re starting selling early July, the price go to monosilicon around like $93 and multi- is around $82, $83. So we’re starting to selling inventory. So basically, we sold old inventory today. And the price of a monosilicon is around $95, $96, and multi- is around $85 to $86 per KG."

7 hours ago, SCSolar said:

The earnings likely will bottom around Q418 or Q119. This earnings should climb come Q2 or 2019 when the 30K is fully ramped. If the ASP maintains around $12/Kg, then earnings should push $1.50 per quarter.

What EPS do you get at $9/kg?

I'm asking because the DQ CEO sees 300kt of CN capacity below $9/kg cost by end of next year.

"...By – I think, end of next year, definitely, I think the lower-cost Chinese producers should be around 300,000 tons...

...What I’d say is lower cost, it should be below $9 per KG..."

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Different question you guys.  I noticed crunching the numbers that they are currently forced to sell their wafers below cost.  They even had an inventory write-down which corroborates that they are selling them bitches below cost.

Now they confirmed they will restructure the unit and will have an announcement on that.

My question to you is how high could a potential write-down or write-off of related assets be?  They have around 500MW of wafer capacity I guess, so could they be hit by a blow of $25M - $75M for instance?  That would knock off a few quarters of earnings.  Is this possible or am I just spreading fear here?

Here's what he said you guys:

"...Okay. I think that’s a good question, also a challenging question. I think current market situation is very challenging for our wafer business. Basically, I think we are going to have a strategic review of our wafer business. Basically, the shipments, you can see that, we’ll just go ahead and clean our inventory. The ingots we produce, we’re going to cut into the wafer to sell it. So we were – after we, I think, actually, we will announce that separated, about the restructuring planning..."

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I think these guys have lost it.  They think the global market could expand to 160GW in 2020.

That's funny right?  But also scary because it shows they've lost touch with reality.

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2 minutes ago, Klothilde said:

I think these guys have lost it.  They think the global market could expand to 160GW in 2020.

That's funny right?  But also scary because it shows they've lost touch with reality.

That would only be funny if you believed that China would not reach profitability with $0.04 as the average cost/KWhr without subsidies.  I see a >8% return on cash invested with a 20% down for the project development cost. This is based on a $0.60 build cost per KWhr with 80% financed at 5%.  I believe they could hit $0.50 install costs. They could be installing 100GW with those returns.

 

All it takes is an  ASP heading into 2020 at the $0.20-$0.25 range which are targets to be met with ultra low Poly usage from new Tech and higher efficiencies. Think 22-25% efficiency from modules from new tech that is ramped. Then look at wafer processing at $0.04/W Cell at $0.05, module at $0.07 and  poly running $0.03 and you have a cost at $0.19. That supports 20% margins at $0.23-$0.25 for module makers.

 

I know I know you do not believe those numbers but wait and see.

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55 minutes ago, Klothilde said:

The transcript is out and I think the CEO was quite candid on prices (see quote).  In June they stopped all sales because prices were irrational.  They started selling inventory when mono-grade recovered to $11.7/kg and multi-grade to $10.4.  And he says that currently mono-grade sells for $12.1 and multi-grade for $10.8.  DQ's mix (70% mono) would currently have a blended price of $11.3 at the market prices he mentions.

Time to listen to the con call. Q2 ASP for DQ was near the high range of May 30 PVInsigths posted on this board. PVInsights is now around $12.90 high end range.

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3 hours ago, Klothilde said:

 They started selling inventory when mono-grade recovered to $11.7/kg and multi-grade to $10.4.  And he says that currently mono-grade sells for $12.1 and multi-grade for $10.8.  DQ's mix (70% mono) would currently have a blended price of $11.7 at the market prices he mentions.

 Then I think the price – the market digested and I think of the policy, then come back early July. So basically, we’re starting selling early July, the price go to monosilicon around like $93 and multi- is around $82, $83. So we’re starting to selling inventory. So basically, we sold old inventory today. And the price of a monosilicon is around $95, $96, and multi- is around $85 to $86 per KG."

What EPS do you get at $9/kg?

I'm asking because the DQ CEO sees 300kt of CN capacity below $9/kg cost by end of next year.

"...By – I think, end of next year, definitely, I think the lower-cost Chinese producers should be around 300,000 tons...

...What I’d say is lower cost, it should be below $9 per KG..."

OK read the con call. It is reasonably sound. They are selling today at around $12.24 for Mono. They expect the poly to rise by year end to  $12.75 for mono. 

 

This places gross based on $9/kg production cost at $3.24-$3.75/Kg.

 

For Q3 - Use an average of $3- $3.50 gross. 6000MT is $18M to  $21M gross. Less $9M for Opex and interest you have $9-$12. Afer tax you have $0.61 to $0.82 in EPS before 1 timers such as shuttering the wafer or writing off the equipment which is hinted at.

 

For Q4, they could be looking at 6500MT production. with a $3.50-$4.00 gross. That would push $0.85 to $0.95 for EPS before adjustments and 1 timers.

 

What I find interesting in the conference call

 

1: The suggestion of 50GW or  potentially more potential from China in 2019.

 

2: The suggestion that rooftop solar in some parts is being installed at $0.525/Watt which will go down with lower ASP

 

3: 2/3rds of current Poly plants will be shut down due to high production costs. The remaining capacities will be $9/KG or lower and as we know from comments that much of that new capacity is going to be at around $6 or less/Kg loaded costs.

 

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5 hours ago, SCSolar said:

For Q3 - Use an average of $3- $3.50 gross. 6000MT is $18M to  $21M gross. Less $9M for Opex and interest you have $9-$12. Afer tax you have $0.61 to $0.82 in EPS before 1 timers such as shuttering the wafer or writing off the equipment which is hinted at.

I'm raising my Q3 estimate slightly after fine-tuning.  I factor in lower cost (RMB depreciation), some losses on wafers, and flat OPEX as guided:

Poly volume 6000t, ASP $12-$12.5/kg, cost $8.6/kg
Wafer volume 7.5M, ASP $0.31/u, cost $0.48/u
Gross poly: $20.4 - $23.4M
Gross wafer: -$1.2M
Total gross: $19.2 - $22.2M
OPEX & NI: $11.0M
E p ADS: $0.51 - $0.70

For Q4 and Q1 I see a risk of ASPs deteriorating due to companies restarting poly plants currently under maintenance as well as Tongwei and GCL ramping up their low-cost poly plants.  

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Good discussion all around.

I'm gratified to hear they stopped selling during that irrational period in June.  Good to know they have the financial strength to weather weak periods and follow that old adage, "when you find yourself in a hole, the first thing you need to do is STOP DIGGING."

DQ seems to be one of the better managed solars.  They have consistently made decisions that allowed them to, if not prosper, then at least do better than merely survive in very challenging situations.

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On 8/8/2018 at 2:15 AM, Klothilde said:

I'm raising my Q3 estimate slightly after fine-tuning.  I factor in lower cost (RMB depreciation), some losses on wafers, and flat OPEX as guided:

Poly volume 6000t, ASP $12-$12.5/kg, cost $8.6/kg
Wafer volume 7.5M, ASP $0.31/u, cost $0.48/u
Gross poly: $20.4 - $23.4M
Gross wafer: -$1.2M
Total gross: $19.2 - $22.2M
OPEX & NI: $11.0M
E p ADS: $0.51 - $0.70

For Q4 and Q1 I see a risk of ASPs deteriorating due to companies restarting poly plants currently under maintenance as well as Tongwei and GCL ramping up their low-cost poly plants.  

Did you notice PVInsights has the high end poly price increasing 3.39% to $13.30. That bodes well for DQ going forward and confirms the suggestion they made in the con call of Poly rising again.

http://pvinsights.com/ from August 8.

PV Grade PolySilicon (9N/9N+)    13.30    10.00    11.280    Positive Change Sign0.37    Positive Change Sign 3.39%

 

 

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I think it's too early to make strong predictions on prices.

As already mentioned I see the risk of a big supply boost that may put pressure on prices over the next months.

Poly supply in China is currently restricted to the tune of 45% by 11 companies that are shut down for maintenance (131.5kt out of 294kt).  As long as their cash cost is below current market prices these companies will start producing again in a matter of weeks 

Add to that the 90kt of new capa of Tongwei and GCL and you have 131+90=221kt of potential capacity that will come online over the next several months vs. the 163kt of capacity currently online.

It will be fun to see how things unfold.

http://guangfu.bjx.com.cn/news/20180810/919948.shtml

https://www.digitimes.com/news/a20180508PD217.html

 

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4 hours ago, Klothilde said:

Add to that the 90kt of new capa of Tongwei and GCL and you have 131+90=221kt of potential capacity that will come online over the next several months vs. the 163kt of capacity currently online.

 

Lets be accurate. GCL is adding 40KMT in 2018 and relocating/upgrading 20KMT of current capacity. The existing capacity was 65-70KMT. That places their total capacity in the range of 115KMT. 

http://taiyangnews.info/business/gcl-goes-big-time-mono-2/

 

Current loaded capacity runs at over $10/KG.  With $6 production costs for new capacity, at best this places their production costs at around $8/Kg blended. I believe they may have indicated around $9/KG when completed. I could be wrong.

 

Tongwei is adding 50KMT to their existing 70KMT facility.

https://www.pv-magazine.com/2018/06/26/ambitious-pv-expansion-plans-for-chinas-tongwei-longi-and-sunport-still-on-track/

Presuming similar costs to GCL their production costs look to be at best $9/KG blended.

 

This total capacity  of the 2  at 235KMT is looking at around $8.50/KG blended. This capacity will supply around 50-60GW of wafers. In 2019 the CN demand will be in the range of 100GW+ of production. 

Since Tongwei and GCL need profits of $3 or more per KG, this would suggest an ASP of $11-$12/KG at a minimum or basically others cash costs.

 

DQ poly capacity will be at 32-35KMT with a blended  cost of  $7.50. That is  appx $1 below their estimated competitors. I think they will do just fine at $4-$4.50 in gross per Kg. That is a minimum of $120M gross for a company running at <$40M per year in interest and Opex today.

 

By the way, DQ capacity will only supply around 8-9GW. Add that to the other 2 companies and there is still  room for another 150KMT of low cost production (blended $9 or less)  to supply 2019 Chinese demand needs. 

 

It is interesting  that those blended number for companies are suggesting $9 or less production costs. That is exactly the range of cost that DQ suggested will be left. 

 

Do you see another 100KMT of  low cost capacity coming on line from others that would blend down to $9 or less?

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On 8/10/2018 at 12:40 PM, SCSolar said:

Lets be accurate. GCL is adding 40KMT in 2018 and relocating/upgrading 20KMT of current capacity. The existing capacity was 65-70KMT. That places their total capacity in the range of 115KMT. 

http://taiyangnews.info/business/gcl-goes-big-time-mono-2/

 

Current loaded capacity runs at over $10/KG.  With $6 production costs for new capacity, at best this places their production costs at around $8/Kg blended. I believe they may have indicated around $9/KG when completed. I could be wrong.

 

Tongwei is adding 50KMT to their existing 70KMT facility.

https://www.pv-magazine.com/2018/06/26/ambitious-pv-expansion-plans-for-chinas-tongwei-longi-and-sunport-still-on-track/

Presuming similar costs to GCL their production costs look to be at best $9/KG blended.

 

This total capacity  of the 2  at 235KMT is looking at around $8.50/KG blended. This capacity will supply around 50-60GW of wafers. In 2019 the CN demand will be in the range of 100GW+ of production. 

 

I think PV-magazine misrepresented Tongwei's expansion schedule.  My understanding is that they are currently at 20kt and expanding to 70kt by the end of this year.  The 120kt stage is still further in the future.
https://www.pv-tech.org/news/tongwei-signs-major-55000mt-polysilicon-supply-deal-with-longi

In terms of Tongwei costs this article (apparently based on a Tongwei stock exchange filing) has them going from 58800 yuan/ton to 40000 yuan/ton with the new capacities (i.e. $8.6/kg to $5.9/kg).  I suspect the 40000 refers to the new capacities and not the average cost:
http://guangfu.bjx.com.cn/news/20180801/917512.shtml

On 8/10/2018 at 12:40 PM, SCSolar said:

Since Tongwei and GCL need profits of $3 or more per KG, this would suggest an ASP of $11-$12/KG at a minimum or basically others cash costs.

They would need $3 per kg to make investors happy, however that's not how prices are set in a commodity market.

Prices are set by the cash cost of the marginal producer on the cost curve.

The DQ guy said that by end 2019 he expects 300kt of capacity below $9/kg production cost.  Let's say that capacity is enough for 75GW.  If total demand is coincidentally 75GW then the polysilicon price will match the cash cost of the most expensive producer.  That would be $9 - $1.5 (depreciation) = $7.5/kg at the most.

If demand is in the order of 100GW then the price will go beyond $7.5/kg.  How much depends on the slope of the curve beyond the 75GW point.

 

On 8/10/2018 at 12:40 PM, SCSolar said:

Do you see another 100KMT of  low cost capacity coming on line from others that would blend down to $9 or less?

The other company cited every so often that is currently expanding big time is east hope.  PV-Mag has them expanding 30kt this year and 80kt afterwards.  However their plans and status is quite intransparent.
https://www.pv-magazine.com/2018/04/28/the-weekend-read-greener-horizons-for-china/

Also TBEA Xinte has 30kt of capacity that is already low cost.

Also wasn't there a Chinese article recently reviewing the poly industry in detail, i.e. looking at energy consumption, etc.?  Most probably you can derive a cost picture from that as well since cash costs are essentially silicon metal and electricity. 

 

 

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On 8/11/2018 at 8:47 AM, Klothilde said:

I think PV-magazine misrepresented Tongwei's expansion schedule.  My understanding is that they are currently at 20kt and expanding to 70kt by the end of this year.  The 120kt stage is still further in the future.
https://www.pv-tech.org/news/tongwei-signs-major-55000mt-polysilicon-supply-deal-with-longi

In terms of Tongwei costs this article (apparently based on a Tongwei stock exchange filing) has them going from 58800 yuan/ton to 40000 yuan/ton with the new capacities (i.e. $8.6/kg to $5.9/kg).  I suspect the 40000 refers to the new capacities and not the average cost:
http://guangfu.bjx.com.cn/news/20180801/917512.shtml

 

Thanks for the data. After further reading on Tongwei the 50KMT is coming online 1/2 in September and half by the end of the year.  That $5.9 is most likely when they have all 120KMT on line. In order for DQ to reach $7.50/KG they must be producing around $5 to $5.50 in the new facility.

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18 hours ago, Klothilde said:

Terrific piece on the poly market, including a very thorough discussion on CN supply. Bottom line:  Unless demand increases prices are heading down.  Think bungee.
http://m.solarzoom.com/index.php/article/113733

Prices all across the solar chain are heading down all the time.  That's been true for decades.  Tell us something we don't know.  (I can't access the article from this computer, so I don't know if it has any worthwhile specifics in it.  But the observation that prices will decrease in the future is not exactly an earth-shattering revelation.)

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I'm in the gym but check out the DQ transcripts. They think 12USD is the bottom of the industry cycle and that from there on prices increase.

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