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Daqo (DQ)

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1 hour ago, SCSolar said:
2 hours ago, Klothilde said:

Any news? This is not normal.

Dang I missed that they had fallen to $20. I would have taken a small position there.

No news, but just average volume.  And other solars are up on the same lack of news as well.  CSIQ absolutely plunged early, only to now be solidly green.

Seems like the usual pattern for all solars--down hard every day for an extended period of time, then a little bit of a retracement, then back to the downward slide.

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DQ continues a solid recovery, an overall red market notwithstanding.  Still no news.  But perhaps something has leaked that their situation is not as dire as some predict?

Then again, this stock is so thinly traded, maybe it's just more of their usual volatility.

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Daqo reporting tomorrow you guys.  I predict Philip Shen will slash his price target after having raised it from $40 to $55 on Aug.8.  Also I predict he will come up with a very lame excuse for it and won't acknowledge his stupidity.

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5 hours ago, Klothilde said:

Daqo reporting tomorrow you guys.  I predict Philip Shen will slash his price target after having raised it from $40 to $55 on Aug.8.  Also I predict he will come up with a very lame excuse for it and won't acknowledge his stupidity.

I am looking at Q3 as a loss with their adjustments and write downs they announced. Q4 guidance should be interesting as I am expecting the production cost to ASP spread to be $2-$2.50/KG. That $2 spread is around $0.30 in EPS. The $250 spread would be around $0.50 in EPS. With 2019 production looking to be around 30-35KMT and a $2-$3 ASP to cost spread. the earnings looks to be between $2 to $4 for 2019. I see downside risk to those earnings with little upside. That puts a target in the $15-$32 range. That is far below Shens $55. Since the share price is mid $20's today, I would not be a buyer unless the fundamentals on production level, ASP to cost spread shows more bullish.. I might however be interested  under $20.

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4 hours ago, SCSolar said:

I am looking at Q3 as a loss with their adjustments and write downs they announced.

With the writedown on their exiting the wafer business, yes.  I'm more interested in the results excluding such one-time items--were they still profitable in their core poly business as selling prices declined?  And, of course, guidance going forward is key--but that's true of any company in any business.

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14 minutes ago, solarpete said:

With the writedown on their exiting the wafer business, yes.  I'm more interested in the results excluding such one-time items--were they still profitable in their core poly business as selling prices declined?  And, of course, guidance going forward is key--but that's true of any company in any business.

I expect the Q3 numbers to be fairly solid as the ASP should be higher than current. I am expecting ASP declines to $10 or less over the next few quarters.

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2 hours ago, SCSolar said:

I expect the Q3 numbers to be fairly solid as the ASP should be higher than current. I am expecting ASP declines to $10 or less over the next few quarters.

Well here's some food for thought (or indigestion):

PVInfolink mono-grade polysilicon price averages (per kg):

Q2 (April+May): RMB 130.7 ($17.7)
Q3: RMB 93.4 ($11.8)
Q4TD: RMB 85.2 ($10.6)
Currently: RMB 83 ($10.3)

Interestingly DQ's Q2 ASP of $16.2 came in below the PVInfolink mono-grade average for April+May.  I'm comparing prices for those two months because DQ said they didn't sell anything in June because of the 531 price Armageddon.

The above has me thinking that PVInfolink may possibly be a good proxy for DQ's ASP.  If so, Q3 would result in $0-$0.5 EPS (without the write-off) and Q4 would be around $0.  We'll see tomorrow.

Q1 and beyond will be horrible imho because you have demand softening and a chit load of new poly being dumped left and right.  I see the ASP-cost spread narrowing significantly from the approx. $2 we have currently.

 

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ASP decline worse than expected. Just glimpsed at the PR cuz I'm at the nursery. Could someone post some highlights of the con call? Doesn't look rosy to say the least.

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29 minutes ago, Klothilde said:

ASP decline worse than expected. Just glimpsed at the PR cuz I'm at the nursery. Could someone post some highlights of the con call? Doesn't look rosy to say the least.

It looks pretty good to me.

DQ had almost a $2 spread per KG.

They are expecting 6800-7000MT for shipments and production of 7000-7100MT.

That puts the new capacity on line at around 40% utilization in the first full quarter of production as the ramp to 100% for Q219.

Production was down in Q3 by nearly 15% which is inline with most poly doing upgrades and maintenance.

As a result of lower production, the depreciation had increased 15%/KG or  $0.20/KG.

Ramped production should lower the cost in Q4 by  $0.20 or more as the run full capacity.

The new capacity ramp should likely lower it another $0.20-$0.40/KG.

Overall production should be lowered by a minimum of $0.40 to mid $8.50 or lower in Q4. 

The production cost declines should keep the $2 spread for Q4 and depending on ASP delcines may increase that spread.

The increased volume would suggest $12-$16M in gross for Q4 and likely profitable at $0.15 to $0.50 depending on adjustments and 1 timers

 

https://finance.yahoo.com/news/daqo-energy-announces-unaudited-third-110000067.html

 

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I'm with you on cost decline in Q4, however the indices are also pointing to an ASP decline of roughly 1usd/kg qoq. That would result in a narrower spread of 1.5 or less. I hate being Debbie Downer but I cannot ignore facts. Also me thinks the poly from the new plant won't be 100% on spec from the beginning and may sell for less than the premium stuff.

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My Q4 speculations as of today:

Volume sold: 6850T
ASP: $9.9/kg
cost: $8.3/kg
Gross: $11.0M
OPEX&NI: $10.9M
EPS: $0.0 before adjustments

Q1 speculation: going red.

Beware people cuz 2019 EPS consensus is still $4.34 and it's only a question of time til it gets adjusted downward significantly imho.

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Just read the transcript.  They claim poly prices will recover over the next few quarters:

"...So basically what I think is for Q4 to Q1 next year, the price should be around $11 to $12. Unless the new policy maybe stimulates the production in China, then the price definitely will be back to 13.  For the whole year of next year, I think the price should be second half of next year, should be around $12 to $13..."

This is at odds with some expert views out there (Bernreuter etc.) who see prices softening even further once the low-cost capacities of Tongwei and GCL come online.

My dirty mind has me thinking they have to talk profits and keep the valuation high because they are considering another secondary to fund the 4A expansion (2.9BN RMB or $420M).

They originally planned to finance about 55% of the expansion with cash & operating cash and the other 45% with debt (see Q1 transcript).  Now after 531 with the reduced cash flow the split may have shifted to approx. 20%/80%.  They may be thinking of doing a secondary in order to limit extra leverage.  $340M in debt would result in ~$4M of additional quarterly interest expense which would be a significant drag on profits.

Is this a credible explanation or am I just talking crap?  Do you guys have an idea how they will finance $420M in Capex?

But raising $340M with $280M in market cap would dilute the hell out of shareholders, won't it?

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OCI's polysilicon EBITDA collapsing into the red zone in Q3:
http://www.oci.co.kr/eng/sub/investment/ir_view.asp?idx=629&pageNo=1

In other words, all three remaining non-CN poly gorillas (Wacker, REC, OCI) produced at cash cost or below in Q3 (at around $10/kg).  Means to me that at current poly prices all of these guys are effectively wiped out...

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1 hour ago, Klothilde said:

OMG they've reached full capacity outilization on 3B and now Q1 cost is expected to drop to 7.5 USD/kg you guys! Can someone translate to EPS please?

Well, Credit Suisse loves them some DQ (and SPWR?!)... so don't worry about your stinkin' math, just be happy?  

https://247wallst.com/energy-business/2018/12/18/credit-suisse-has-6-top-solar-stock-picks-for-2019/

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Good god they have a PT of 58 USD and my glass ball has them in the single digits. I should revisit my assumptions when I have some time. Can I be so off?

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A better question is, when will this general market slide finally end?  It's taking down every solar stock.  CSIQ, JKS, RUN, and ENPH had recovered somewhat from the summer selloff--now everything's heading right back into the toilet, although the market conditions for those companies haven't changed.

Between Trump and his dysfunctional Congress (tariffs, shutdowns, etc.), this good economy is being completely wasted for investors.  We should be up nicely for the year based on economic conditions.  Instead, because the Prez can't keep his mouth shut and Congress can't do their job, every day it's down another 1-2%.

Sigh....

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What's in store for Daqo this year?  Who thinks the current price targets are justified?

Daqo said in august they expected rising poly prices until the end of the year.  But prices have been falling steadily instead.  So did they mislead intentionally or were they just over-confident?

?w=550&h=332&c=p&id=463&state=english

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Current poly market update on guangfu:
http://guangfu.bjx.com.cn/news/20190103/953801.shtml

Same old boring story of soft demand and increasing supply driving prices downward.  This trend is expected to continue in Q1 according to the author.

The interesting question is why analcysts are keeping DQ EPS and P targets where they are.  Any thoughts?

Also interesting is the question if the price trend will force them into the red zone in Q1 despite having 3B at full utilization and record low cost.  The article talks about mono-grade poly having dropped to RMB73.7/kg at the low end already, which translates to $9.2/kg ex VAT.  At that price level they would already be approaching 0 EPS in Q1.  

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1 hour ago, Klothilde said:

This article has poly bottoming out around RMB60/kg in Feb-March.  That would be $7.5/kg ex VAT, just sayn...
http://m.solarzoom.com/article-119512-1.html

I'm thinking of getting me some DQ when we hit the bottom... 

You only have 100% FSLR which is a very polysilicon price exposed stock (opposite to c-Si panel makers). Why not get another even more polysilicon price exposed stock.

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On 1/4/2019 at 11:03 AM, explo said:

You only have 100% FSLR which is a very polysilicon price exposed stock (opposite to c-Si panel makers). Why not get another even more polysilicon price exposed stock.

I feel like gambling a little bit with DQ, ideally I want to pick it up in the single digits and then dump it some months later in the 30s or so.  I think the poly glut will peak in Q2 when all new capa is online and in the second half of the year the increased demand should lift up prices somehow.  DQ has proven to be quite resilient, so I would expect a solid rebound once poly prices improve a little bit.  That is my thinking at least.

As far as FSLR is concerned it is obviously poly price exposed but the exposure is limited.  I expect poly to bottom at $7.5 or so from the current $9.  That would decrease module prices by 0.6 cts/W roughly.  That downside is relatively small compared to the cost cutting potential and is not immediate since they got prices largely fixed for the next two years.

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2 hours ago, Klothilde said:

I feel like gambling a little bit with DQ, ideally I want to pick it up in the single digits and then dump it some months later in the 30s or so.  I think the poly glut will peak in Q2 when all new capa is online and in the second half of the year the increased demand should lift up prices somehow.  DQ has proven to be quite resilient, so I would expect a solid rebound once poly prices improve a little bit.  That is my thinking at least.

As far as FSLR is concerned it is obviously poly price exposed but the exposure is limited.  I expect poly to bottom at $7.5 or so from the current $9.  That would decrease module prices by 0.6 cts/W roughly.  That downside is relatively small compared to the cost cutting potential and is not immediate since they got prices largely fixed for the next two years.

Ok. Good luck with the insightful gamble.

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Hi all, I have lurked here for a while but since the demise of the Contrarian Investor this seems to be the place where thoughtful comments are found so I joined but not posted yet.  

Currently I own DQ and JKS buying them last week.  (also own, HUYA, MOMO, ACRGF, ROKU, KSHB.  Had MU and CGC but got stopped out).    Regarding DQ:     

--The Phase 3 ramp exceeded expectations.  Originally DQ felt they would reach full capacity at the end of Q1 2019.   They performed much better than their guidance. 

--The current ASP for poly is still challenging due to China domestic market.   The expectation is for the market to start to recover in late Q1 or early Q2 as China markets start to recover.  

--Global markets will grow very fast in 2019 due to the significant cost reduction achieved in 2018.

--Phase 4 will double capacity over Phase 3.  

Short term I think China will rebound some once they get the tariff issues smoothed out.  Stabilization will be good.  Solar should start to look attractive again.  So I am mildly optimistic at this point but not expecting the participation that we saw last year when it was up in the 60s.    First stop may be in the 30s but constructive buying will be important.   I think both DQ and JKS can do well this year.  JMHO of course, lots of good opinions on this.     

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Is your DQ a trading position or do you intend to hold for a long while?  Because then I don't understand why to enter now when polysilicon prices are still falling.  As written above I also intend to enter but first I'm waiting for the market to bottom out when the new low-cost capacities are online.  I think analysts and the market as a whole are still overestimating 2019 EPS big time (current consensus $4.23 😳) and they need to adjust expectations first. 

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Hi Klothilde, virtually all of my positions end up being a trading position because you never know what is around the corner.   Last year at this time we had a robust market move up and then in February it cratered.   I am quick to pull the trigger so what I hoped was a long term position became short term.   We could see the same pattern this year with a February retest of the 4Q lows but in the meantime I think DQ and JKS are constructive.   DQ maybe to the low/mid 30s and then comes back in if there is weakness of some kind later this quarter. 

The analysts that have a rating are either a hold or an accumulate.   Often the trend line of a recovering stock starts to move up before its industry bottoms.   The market discounts the bottoming process as a known event and focuses on the future.  

Anyway, Philip Shen is the analyst who is most wired in to DQ and I listen to all of the DQ CCs.   Shen has the 4Q EPS at 0.12 and revenue at 72 million.   Shen is often the only published analyst so his estimates become the street estimate.  He is always conservative so I would post an EPS of about 0.20 on the Estimize site of which I belong.    The 3Q CC was rather morose with depressed spirits.   At the end of the year and now into 2019 the DQ IR team is much more optimistic.   Phase 3B went great and they see a turnaround in Chinese solar manufacturing requiring DQ poly.   They are still the low cost manufacturer so their umbrella is the biggest one. 

The consensus of $4.23 for 2019 is old data.  Right now Shen, who is about the only one who projects out a year at a time, has the 4Q 2018 number at 0.12, 1Q at 0.60, 2Q at 0.75, and 3Q at 0.93.    If this is accurate that is a trailing EPS of $2.40.  The 1Q number of .60 may be a bit high but DQ does have some pricing power over competitors because they are the low cost manufacturer and the most likely to survive any catastrophe.    Buyers of poly will pay up to secure commodity from a reliable source which is the least likely to disappear.   Nothing puts a going concern in jeopardy more than an interrupted supply chain of critical commodity. 

Beyond that it gets cloudy in a positive way since Phase 4 is a current work in progress by then.   Add to that the possibility of a stronger world market for Chinese solar products, a stronger Chinese domestic market, and the continuation of the import restrictions on poly into China which were implemented prior to the tariff issues and most likely will survive post tariff resolutions.  A wild card that you point out are the new low cost  capacities that would be on line in 2019 but again, DQ is the low cost manufacturer so in a price war, they can drag everyone in to un-profitability, take market share if they have the inventory and still make money.   Then the better future is just moved out to the right, and if some of these poly competitors go belly up, the future may even look brighter.  

Regarding JKS, Shen has the 4Q at 0.40 EPS and 1,285 million for revenue.   Last year JKS made a stealth move like this nearly doubling if my memory is correct so I took a trading position in it to along with the other stuff I posted above.  (edit:  Looking at the charts I think the stealth move was in 2017)  

Edited by Arrowhd
correct date

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5 hours ago, Arrowhd said:

Anyway, Philip Shen is the analyst who is most wired in to DQ and I listen to all of the DQ CCs.   Shen has the 4Q EPS at 0.12 and revenue at 72 million.  

The consensus of $4.23 for 2019 is old data.  Right now Shen, who is about the only one who projects out a year at a time, has the 4Q 2018 number at 0.12, 1Q at 0.60, 2Q at 0.75, and 3Q at 0.93.    If this is accurate that is a trailing EPS of $2.40.  The 1Q number of .60 may be a bit high but DQ does have some pricing power over competitors because they are the low cost manufacturer and the most likely to survive any catastrophe.   

 

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 see an upside currently to the spread of $1.50  $0.50 based on the average selling price in China from Energy trends which is upper $9 range for Mono Poly. That is about 10% above outside China prices of $9 that Klothilde has suggested. This increase could push earnings to $0.96/$1.77/$1.38.

 

The mid range between the 2 would be $0.60/$0.77/$0.95. That mid range from the $1.50 spread to the $2 spread falls within reason to Shen's estimates. I would  not say that his estimates are overly conservative nor exaggerated.

 

Slapping a PE of 6 at the low end  of a $1.60 EPS puts downside risk (unlikely ) at $10. The upside potential(also unlikely) of $5.30 in EPS and a PE of 8 could push the price to $42. Thus a fair midrange would suggest $3.50 in EPS and a rPE of 8 gives a fair market price of  $26.

 

I do expect that legacy capacity will be written down at some point for all Chinese solars once the new capacity is ramped. Daqo tried to sell off  the legacy Poly capacity that has the higher $9+/Kg capacity. This is the downside concern I see for their initial plant as it is in a higher cost electricity region. Of course local provinces to keep jobs could always drop the electricity rates significantly thus making that capacity a little more cost competitive. It seems that China is experiencing shifting solar manufacturing bases to lower cost areas similar to the auto industry and the Chip sector moving from higher norther US and west coast areas to the Southern states back in the 80'2 and early 90's.

 

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