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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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Wacker preliminary 2018 numbers.  Poly division revenue for FY18 was €830M and EBITDA €70M.
https://www.wacker.com/cms/en/press_media/press-releases/pressinformation-detail_99009.jsp

Extracting out the first three quarters you get €190M in revenue and -€21M for the fourth quarter.

Means they are selling 10% below production cash cost roughly.

Could you guys imagine the former poly gorillas (Wacker, Hemlock, OCI, REC) all abandoning the business in 2019?  Heavy chit, isn't it?

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13 hours ago, Klothilde said:

Should we start taking shots at Q4 EPS or is it still too early?

OMG I just noticed that I already had a Q4 estimate back in November.  Here's my update.  I've just posted in on estimize.  OMG I'm the only one forecasting a loss.  It's so exciting to be competing against WS names like Philip Shen.  Wish me luck you guys!

Volume sold: 7200T
ASP: $9.8/kg
cost: $8.7/kg
Gross: $8.3M
OPEX&NI: $11.2M
EPS: -$0.18 before adjustments

P.D. anybody else have an estimate?

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7 hours ago, Klothilde said:

OMG I just noticed that I already had a Q4 estimate back in November.  Here's my update.  I've just posted in on estimize.  OMG I'm the only one forecasting a loss.  It's so exciting to be competing against WS names like Philip Shen.  Wish me luck you guys!

Volume sold: 7200T
ASP: $9.8/kg
cost: $8.7/kg
Gross: $8.3M
OPEX&NI: $11.2M
EPS: -$0.18 before adjustments

P.D. anybody else have an estimate?

I think they have positive earnings of a couple pennies before 1 timers

I expect a $1.85 spread on cost to ASP.

I am using a lower cost and volume than yours

Gross comes in around $12.6M

My Opex and Int are slightly higher at $12.2M 

 

Q4 though is not relevant. 2019 costs and guidance are.

I expect Q1 to be the low for the year in earnings in the low double digits and increasing from there.

I expect Q1 costs to be around $7.50

I expect costs to decline slightly from there with production ramps and optimization

The second half of 2019 should be stronger as that is were the forecast in volume increases over the first half. This should lead to a slight rise in ASP int he second half even with the new capacity.

From this I reasonably expect a full year profit of North of $2 a share.

 

Disclosure: I do not own DQ.

 

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My estimize numbers are 0.16 and 75.   Though it is highly possible that DQ uses the lousy 2018 4Q to clean up all the loose ends and write down the kitchen sink.   If there is value in that inventory, etc. they just sell it and reconcile on the positive side for 1Q.  So Klothhilde could be the winner here with a negative 4Q number.   I agree with a turn up in the 2Q and continuous improvements throughout the year.  

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DQ earnings out. Interesting numbers. It looks like they made an $0.86 profit. What it took for that appears to be some $12.5M of government subsidies. This subsidy which was not reported all year is more than their net income. They had an cost to produce spread of $1.75/Kg which was $0.10 less than I had estimated above.

https://finance.yahoo.com/news/daqo-energy-announces-unaudited-fourth-103000016.html

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On 3/6/2019 at 2:17 PM, SCSolar said:

I think they have positive earnings of a couple pennies before 1 timers

I expect a $1.85 spread on cost to ASP.

I am using a lower cost and volume than yours

Gross comes in around $12.6M

My Opex and Int are slightly higher at $12.2M 

 

Q4 though is not relevant. 2019 costs and guidance are.

I expect Q1 to be the low for the year in earnings in the low double digits and increasing from there.

I expect Q1 costs to be around $7.50

I expect costs to decline slightly from there with production ramps and optimization

The second half of 2019 should be stronger as that is were the forecast in volume increases over the first half. This should lead to a slight rise in ASP int he second half even with the new capacity.

From this I reasonably expect a full year profit of North of $2 a share.

 

Disclosure: I do not own DQ.

 

Kudus to you, you were quite accurate both on gross profit and spread!

Most of the profit came from a $12.5M subsidy payment from local gov.

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40 minutes ago, Klothilde said:

Kudus to you, you were quite accurate both on gross profit and spread!

Most of the profit came from a $12.5M subsidy payment from local gov.

What confuses me is they had added an additional revenue  of around $6M based on poly asp and volumes. I am not certain where this comes from? Written off wafers? This other income amounted to around $4.5M profits or 60% gross margins. This is looking at revenues and gross profits less the revenue generated from Poly sales of 7030 and their claimed costs.

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Well the transcript is out and Philip Shen got us the answers to our questions.  The extra revenue was from Chonqing inventory sell-off of non-poly crap like ingots  and poly-blocks.  They seemed to have sold off everything so 2019 will be clean.  And the subsidies are basically tax returns which will continue to varying degrees over the next years always in Q4.

They also give some good info on production mix and prices which will help to pinpoint EPS over the next quarters I think:
https://seekingalpha.com/article/4248446-daqo-new-energy-corp-dq-ceo-longgen-zhang-q4-2018-results-earnings-call-transcript?part=single

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1 hour ago, Klothilde said:

Well the transcript is out and Philip Shen got us the answers to our questions.  The extra revenue was from Chonqing inventory sell-off of non-poly crap like ingots  and poly-blocks.  They seemed to have sold off everything so 2019 will be clean.  And the subsidies are basically tax returns which will continue to varying degrees over the next years always in Q4.

They also give some good info on production mix and prices which will help to pinpoint EPS over the next quarters I think:
https://seekingalpha.com/article/4248446-daqo-new-energy-corp-dq-ceo-longgen-zhang-q4-2018-results-earnings-call-transcript?part=single

So they wrote off the inventory last couple Q's and now they sell it and claim revenue with great margins. What a scam. I thought that would be put under other income and not revenues.

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3 hours ago, Klothilde said:

Tongwei issuing a convertible to bring capacity up to 140kT.  Jus sayn.
http://guangfu.bjx.com.cn/news/20190318/969427.shtml

That is wonderful news as they are suggesting production costs will be below $6 per Kg in the near future. That is over a 40% cost reduction from the $10.50 costs they have for Poly today.

 

"the company's high-purity crystalline silicon production costs will be further reduced to less than 40,000 yuan / ton. Compared with the production cost of more than 70,000 yuan/ton at home and abroad,"

 

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Yes but how is this helping DQ maintain a spread of $2?  Sometimes I get the impression that the CNs also compete among themselves, that it's not only about crushing foreign competition.

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54 minutes ago, Klothilde said:

Yes but how is this helping DQ maintain a spread of $2?  Sometimes I get the impression that the CNs also compete among themselves, that it's not only about crushing foreign competition.

You are reading the tea leaves wrong. They do not need a $2 spread in 2020. They needed a $2 spread at past 6KMT production levels.

For 2019 they are guiding 37-40KMT.  They will earn $1 a share on a $1.50 spread before subsidy payments and taxes.

In October Nov they will have the Phase 4A starting trial production.

They should be ramped 70KMT come January 2020(9 months for now).  That 70KMT will produce around 80-90KMT of poly. At a $1 spread that is $80-$90M gross.

 

SGNA is $8.2M today and might go to say $12M. Interest is $2M a Q. That is $56M expenses when 70KMT is ramped.  

 

They will earn $24-$34M before taxes adjustments and subsidies in 2020 based on a $1 spread. That is $2-$3 in earnings.

 

For every $0.025 above that $1 spread they will gross an added $20M that goes straight to the bottom line. A $0.50 spread could add  $3-$4 a share potential upside to $5-$7 a share in 2020.

 

That and think what happens to FSLR with Poly cost and the rest of the CN costs dropping 30-40% over the next 2-4 years. That is what you should be worried about.

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I'm missing the financing cost for 4A in your post.  Total investment is around 2.9B RMB ($432M) and since their operating cash flow right now is quite reduced ($10-15M per quarter) they will have to pile on a lot of debt and crank up interest expense.  

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6 hours ago, Klothilde said:

I'm missing the financing cost for 4A in your post.  Total investment is around 2.9B RMB ($432M) and since their operating cash flow right now is quite reduced ($10-15M per quarter) they will have to pile on a lot of debt and crank up interest expense.  

fine, you can knock down about $20M off the gross. That  potential upside to the equivalent of a $1.25 spread or  $3.25-$5.25 EPS . A PE of 8 places a stock price of 26-42. Not the dire consequences of losses over losses over losses you want to imply.

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1 hour ago, Klothilde said:

Maybe sad for Wacker, but not so for DQ.  The article specifically mentions DQ as the leader in China's drive to lower poly production costs, and also forecasts "a strong rebound in demand in 2019."  What's that phrase you're so fond of?  "Me likey!"

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What IS it with you and DQ??  You just posted an article saying DQ is the low-cost leader heading into a period of strong demand growth.  There is no need to "spin" anything.  Poly prices are dropping.  So are poly costs.  As long as costs drop as much as prices, DQ will be fine.  For the past few quarters, all of which you've forecast DQ to lose money in, they have been just that--fine, with profits instead of losses, EVERY SINGLE QUARTER.

I get you don't like DQ.  I also appreciate the occasional word of warning, lest I get too exuberant about any stock.  But your posts are getting old.  Give it a rest, PLEASE!!

Solarpete

 

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You are getting me wrong, I like DQ a lot and I was hoping I could buy some.  But the price needs to drop, it's too expensive right now, out of sync with fundamentals imho.

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