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Any thoughts on Phase 4 financing?   I think we have discussed this before when debating whether DQ will have another secondary and raise money by selling more stock.   I think DQ has addressed this by discussing various loan opportunities, etc. as a way of discouraging the idea of a secondary but with the stock now in the 40s any more of a push up towards the 50s could tease them into re-evaluating the stock issue option.   What do you guys think?  Thanks in advance.  

 

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16 hours ago, Arrowhd said:

Any thoughts on Phase 4 financing?   I think we have discussed this before when debating whether DQ will have another secondary and raise money by selling more stock.   I think DQ has addressed this by discussing various loan opportunities, etc. as a way of discouraging the idea of a secondary but with the stock now in the 40s any more of a push up towards the 50s could tease them into re-evaluating the stock issue option.   What do you guys think?  Thanks in advance.  

 

Debt  and secondary offerings will be needed to finish off the ~$450M phase 4A. From the Q4 con call the way I read it is that Phase 4A is 2.9Billion RMB or roughly $450M. There is no way cash flows pay for this or a secondary. If they do debt on say $400M, then they have upwards of $20M in interest initially. Earnings would be impacted significantly with that level of debt payments. Thus they need a combination of a secondary, operational cash flow and debt.

 

just my opinion.

 

Then there is the 4B expansion that was not discussed in details in the Q4 call.

 

https://seekingalpha.com/article/4248446-daqo-new-energy-corp-dq-ceo-longgen-zhang-q4-2018-results-earnings-call-transcript?part=single

Longgen Zhang

Well, for Phase A, I think it basically right now because Chongqing right now is in battle with that. So, our construction right now almost finished 18% and for the old design approval all finished. I think for the equipment, I think procurement, the contracts that we have signed, total today, we have signed around RMB2.6 billion. The total project cost – total cost is around below RMB2.9 billion. So basically our schedule starting to trial production is October 15. Up to to-date we are still thinking we are on the schedule and ramping production in the Q1 2020. And for the 4B we need to tell on the market see what’s going on and also to see our future cash flow. So basically we are not determining when or whether we will go to starting 4B.

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Very nice analysis, I think I would have to agree with this.  The question then becomes, when do they pull the trigger on a secondary to raise cash through a stock sale?   

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1 hour ago, Arrowhd said:

Very nice analysis, I think I would have to agree with this.  The question then becomes, when do they pull the trigger on a secondary to raise cash through a stock sale?   

By the time their first debt payment comes due. I would expect like most CN offerings a 10-15% dilution or appx 1.5- 2 million shares. That would generate cash for about 15-20% of the debt.  The added capacity should be good for around $40M in added gross profit anually.

Just some rough numbers off the top of my head, I would speculate that would be good for about $2 a share in added  earnings with the debt service payments. That would look to be a  second half 2020 boon in earnings in which they could be looking at $6+ a share($1.5/Q) in earnings if the cost to ASP spread maintains around $1.75.

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That makes sense too.   So with Phase 4 underway with a target of completion by the end of the year,  any current borrowing of any kind is going to have some repayment obligations during this year.   Maybe they use some of their cash first, then debt, then go to the markets for more cash.   They have options so when is very hard to figure out.     Thanks again for your thoughts.   

 

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That's one interpretation.  Another is good news for DQ, because this shows increased demand (the report cites increased sales volumes).

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They increased their margin through cost reduction and not through "higher demand".  In fact prices have been dropping continuously as shown in the report.

 

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5 hours ago, Klothilde said:

They increased their margin through cost reduction and not through "higher demand".  In fact prices have been dropping continuously as shown in the report. 

 

I'm not talking about margin--I'm talking about sales VOLUME.  Which increased.  Which only happens with increased demand.

Add higher margins on top of that (and DQ has been very successful in their own cost reduction efforts), and things start to look pretty good for efficient producers.

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Well I disagree with you.  They increased volume not because market demand was great but simply because they ramped a  cost efficient line ahead of schedule.  In commodies If you produce for a lower cost than your competitors you can sell your whole production volume regardless of market demand .  That simple.

Apart from that we've had overwhelming evidence that Q2 has been soft in terms of demand.  DQ, JKS, and CSIQ are all guiding low margins for the quarter.  All price indexes have shown declining prices.  Kind of funny that you are apparently unaware of this.

So do you truly believe Q2 was good in terms of demand and are you optimistic about DQ Q2 earnings or were you just pulling my leg?

 

 

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6 hours ago, Klothilde said:

In commodies If you produce for a lower cost than your competitors you can sell your whole production volume regardless of market demand .  That simple.

And DQ is a low-cost leader.

OK, let me amend my statement--demand for THEIR (OCI's) product went up.  But even if that was only due to being able to sell at a lower price due to cost reduction (instead of an increase in demand for everyone's products), that's good news for DQ, because DQ should be able to do the same thing.

 

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6 hours ago, Klothilde said:

So do you truly believe Q2 was good in terms of demand and are you optimistic about DQ Q2 earnings or were you just pulling my leg?

I had heard the same things you quote about Q2 demand being soft for everyone, so I was pleasantly surprised at the OCI news.

Given those news, I am reasonably optimistic about DQ Q2 earnings.

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32 minutes ago, solarpete said:

And DQ is a low-cost leader.

OK, let me amend my statement--demand for THEIR (OCI's) product went up.  But even if that was only due to being able to sell at a lower price due to cost reduction (instead of an increase in demand for everyone's products), that's good news for DQ, because DQ should be able to do the same thing.

 

As a cost leader DQ has always been able to sell its whole production (and will be able to do so for the foreseable future).

This however doesn't tell us what profits are going to be and whether the stock is over- or underpriced.

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That is true.  What I'm saying is that what you perceive to be negative news for DQ, I perceive as (at least potentially) positive.

And that's what makes a market.  Which is a good thing to have, as it leads to price volatility--which I've used to good effect to make small but consistent profits trading the ups and downs of DQ all year long, so far.  I'm not looking for a home run any more on any one solar stock.  I don't need DQ to go to $100.  I just need them to not go broke--and I don't think that will happen.

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Well be careful cuz I feel something is odd about Daqo analyst estimates for this year and next.  I smell a rat, e.g. Roth hyping this in hope of a juicy secondary underwriting commission.  As it becomes clear these estimates are a hallucination the share price may adjust downwards.  Just sayn.

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No worries.  I've learned (the hard way) to always be prepared for any given solar stock to go down at any time, and I keep my portfolio diversified accordingly.

Speaking of diversification--aren't you concerned about potential negative developments for FSLR?  They're certainly a leader in the solar space, and more stable in terms of share price than their Chinese counterparts, but putting your entire solar portfolio into any one stock, even a leader, seems quite risky to me.  Just wondering about your thoughts on risk management.

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I fully understand the logic and merits of diversification.  Problem is I don't see any valuable candidates. The only one worth considering imho is DQ but it got prohibitively expensive.  JKS and CSIQ are out of the question because they are junk in my eyes and before I diversify into junk I prefer putting my eggs in one valuable basket.

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Yes, I have to admit there's not much action in trading CSIQ and JKS right now.  It's all in DQ and ENPH these days.  Perhaps that will change by the end of the year, if Q4 turns out to be as good as predicted.

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Since I'll be on my beach vacation next week and won't be able to do much analysis here are my estimates for DQ in Q2.  Feel free to comment or add your own estimates so I can finetune this for estimize.

Rev $65.9M
GP $6.5M
OPEX & Net Int $10.9M
EBT -$4.4M
Tax -$0.9M
NI -$3.6M
#shares 13.75M
EPS -$0.26

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That is huge news but I am always somewhat suspicious when huge news is announced a week before an earnings release and a CC.   If the release misses the target the Longi deal gives them something positive to talk about and direct everyone to look forward to. 

My Estimize numbers are better than what you posted but you may end up closer to the real numbers this week than anyone.    Good luck and have a great vacation.

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Price action today (nice upward move on a strong market down day) doesn't seem to indicate a miss is expected, although volume was weak.  And in the past, they've done better on earnings than many of us expected.  Still, it feels like a 50-50 shot as to whether they did at least well enough vs. lousy this past quarter.  I've lightened up on my trading shares in advance of the announcement (today's bounce allowed me to do so with one final round of solid profits), so either way, I'll be ready to enter new trading positions once the direction is clear.

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What's the commentary here you guys? They keep repeating poly prices will go up but they never do. Cash is down, debt is up. Also what's up with Roth being the only analyst on the call? Their in-house banker is the only one asking questions, that's kind of dangerous imo. Greetings from a rainy beach.

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Last quarter could have been better, but it certainly was not as bad as some feared.  And the outlook for the next quarter is great!!

I'm happy.  I'll be buying (and trading) any dips.  Executed the first one yesterday and today already.

 

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On 8/15/2019 at 4:22 PM, solarpete said:

...And the outlook for the next quarter is great!!...

Why two exclamation points?  If I crunch the numbers I get only peanuts in EPS.  And so does Investing Hobo in his article.

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As I recall, the press release quoted increasing volumes (to record levels) and maintaining margins.  That's the recipe for increasing profits.  You don't need to earn it all in one quarter (aren't you the one who keeps reminding me the market is forward-looking?)--just maintain that trend for several quarters in a row.  Q3 sounds like they'll be off to a great start.

That trend also means I can buy any dips with confidence, as their underlying fundamentals are improving.  That confidence is a key part of my frequent-trading strategy.

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You both might be right at some point.  I think the article was a bit too short term oriented but it supports Klothhilde and she did win first place for the 2Q Estimize revenue estimate.  But Solar's frequent trading strategy is a great way to layer in a big position and I think over the next 18 months DQ could work its way up to new all time highs.  I do this too and it is one of the best ways to make money.   Institutional money likes this kind of a set-up also though DQ doesn't trade the volumes for easy liquidity.  They may wait until the 4th quarter for some of the tariff uncertainty to clear up and to get a clearer picture of phase 4 financing. 

My concern is still the phase 4 financing.   As explained above, some of us think that there could be a secondary to fill in the financing delta.   Anytime from now through the middle of October depending upon markets and DQ's stock price could be a good time for them to pull the trigger.   Then the 3Q earnings CC and the 4Q, 2020 outlook which should be free of any warts assuming the Poly ASP doesn't crater for some reason.   Then the stock runs back up based upon 2020 and 2021 outlooks.  Just a few ideas to think about.

 

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1 hour ago, Arrowhd said:

I think over the next 18 months DQ could work its way up to new all time highs.

Exactly.  It doesn't have to happen in the next 3-6 months, and the more (little) ups and downs along the way, the better (for me, anyway).  Heck, I make money if the stock price stays the same, as long as it continues these daily swings of +/- 1-dollar-plus.  Just as long as it doesn't crater at some point.

Good point about possibly needing more financing soon, though.  I'll be sure to keep some powder dry if there's a significant pullback because of that.

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21 hours ago, Arrowhd said:

...and I think over the next 18 months DQ could work its way up to new all time highs...

Could happen.  Or the opposite could happen.

Based on current valuation and a PE of 10 the market seems to anticipate a yearly EPS of roughly $4 going forward.

That is in line with an APS/cost spread of approx. $1.5/kg:
(75kt * $1.5/kg = $112.5M - $50M(OPEX&NI) = $62.5M * 0.8(tax) = $50M / 14M(#shares) = $3.6

A spread of $1.5 is roughly in line with current conditions (Q3, i.e. ASP=$9, cost=$7.5M)

Thus the market seems to anticipate that the current spread or margin will remain stable going forward.

Imo there's a risk that the polysilicon glut could intensify in 2020 and that the spread could deteriorate further, possibly falling under $1/kg.  At that level EPS would drop to roughly $1.4 and the current price would no longer be justified.

The above shows that margins have shrunk already so much that a very small change in ASP will have a huge impact on EPS.

Why could the poly glut intensify?  Poly supply expanding faster than poly demand.  Poly demand possibly flat or decreasing slightly due to low PV market growth coupled with a significant reduction in g/W consumption due to further migration from multi to mono.

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