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Daqo (DQ)

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There is hardly any increase in shipping cost and this was asked and answered in the conf call.

 

Amy - Goldman Sachs

Okay, thanks. If I can one last question is the transportation costs from Xinjiang to Jaingsu Province where a lot of [silicon] manufacturing is located. So what is the incremental costs on a per kilogram basis or perhaps it’s even too minor to calculate – can you tell us?

Gongda Yao

That’s not significant at all.

Bing Sun

Yeah, I think what I can tell you is that surprisingly enough the cost of shipment from Xinjiang to Jiangsu Province is about the same as a shipment from Chongqing to Jiangsu Province. The reason is that in Xinjiang they have a high demand for production, a producing jobs area moving to Xinjiang so when you arrange the transportation there’s a round way; and in Chongqing in most cases it’s one way only, so that’s overall the transportation costs are higher for a transporting company. So there’s no significant difference and that is what was actually surprising to me at the beginning.

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Guest joshchang

There is hardly any increase in shipping cost and this was asked and answered in the conf call.

Thanks for the info. That surprises me as well. Anyway, their equity went from 320M to 144m in one quarter to move that plant and cost advantage is still yet to see. I won't be happy about cutting book value by more than half if I were a investor. As for the cost advantage, GCL is able to match it now and will be even lower when 20k-25k ton FBR plants are converted in 2014.

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I think the book value was too high and needed to be cut anyway (problem was there was not much room to do it), but it seems they mainly cut book value of disposed fixed assets (literally to the ground) not moved so of the assets they'll retain they might not have cut that much book value, which makes the new cost target a bit more impressive again.

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The stock has been on a tear for a few weeks. A multi-year high is not that far-fetched, I believe.

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We know DQ said that their fully loaded poly cost would suddenly be $14 instead $23. Say what? Obviously investors priced their stock up on this, since the impact of this on its profit outlook is significant.

 

What we missed is that the $158m impairment somewhat magically deleted the huge non-controlling interest as it went down from 136m or 42.5% of equity to negative 8.8m.

 

So suddenly like a miracle DQ's future gross profits at a $20 ASP will be $6 per kg instead of negative $3 and also magically there is no longer a non-controlling interest with a 42.5% on that.

 

(I'm simplifying a bit by assuming equity division between share holders and non-controlling interest will reflect profit division).

 

Not many bother to read what DQ has to report. If we had we might have had seen this tear coming. But I have to say they still don't look like a good case to me. They won't lose tons anymore at ASP $20, instead they'll breakeven there, but to make nice profits to defend this stock appreciation they need ASP move to $25.

 

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The two phase construction will finish in 2015 and full year capacity will include 25,000 tons of polysilicon and 250 MW wafer.

 

I think there was a typo at one place in the original news. Poly capacity should be 25 KMT - 12 KMT by the end of 2014 through upgrading and expansion of the existing 6.2 KMT and another 13 KMT new capacity in 2015.

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I think there was a mistake in the original news. Poly capacity should be 25 KMT 

Do they say who is paying for it?

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The article later said Daquan Group president Xu Xiang was saying the capacity would be 30 KMT by 2015 and the plant should be producing the best quality poly at the lowest cost in the world.

 

so some inconsistency but total capacity should be at least 25 KMT.

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Wow, this is good reason for shares to come up. 

 

Obviously, the news was leaked and someone bought in big time today.

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I hope this is not the beginning of going to overcapacity again like in 2010. This news worries me more than anything!!

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There have been a lot of discussions about  poly price and capacity. Here are a few things we need to keep in mind:

 

(1) The world's annual installations of new solar PV capacity is projected  to more than double by 2020, growing from 35.9GW in 2013 to 73.4GW in 2020. This is a lot of growth.

 

(2) Only the poly makers with the top quality and low production cost may be profitable under the current pricing environment. Those mothballed inferior capacities will not likely re- enter the market unless poly price increase substantially due to shortage. Furthermore, China's new policy prohibits such capacities from entering as well.

 

(3) In any case, cheap poly helps the module producers and benefits downstream installers.

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Guest Rommel

It can't be a bad news for SOL especially if they can bring the poly production to $18 sub? That will value their poly plant to somewhere for 1.5B RMB?

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