Jump to content
Sign in to follow this  
dydo

Daqo (DQ)

Recommended Posts

1 hour ago, Klothilde said:

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.

Within 2 years DQ will shutter their legacy  capacity and be only producing in the low cost regions. In the meantime, their cost structure and ability to fall becomes less as their mass of scale increases. It is going to take the shuttering of the legacy plants in order to drop costs  to $6.50 loaded costs.

Share this post


Link to post
Share on other sites
2 hours ago, Klothilde said:

Imo there's a risk that the polysilicon glut could intensify in 2020

I'll quote your own words back to you:

"Could happen.  Or the opposite could happen."

 

Share this post


Link to post
Share on other sites
1 hour ago, solarpete said:

OK, anybody got any idea what's going on with DQ today?  Not that I'm complaining, mind you (grin)....

I was wondering the same... typical DQ low float nonsense move I guess.  I was lucky enough to trade a few of those over the last year, but swore off the stock for that very same reason.  Trading solars is wild enough, but DQ can give me intraday ulcers.  However, its strength has me scaling back into CSIQ at a bit higher price than I expected.

Share this post


Link to post
Share on other sites
3 hours ago, Mark said:

typical DQ low float nonsense move I guess.

Hmm... I don't know.  While the volume is certainly small compared to other names, it's nearly twice their daily average.  But still no news I can see anywhere.  Apparently just a (relatively) large position being established.

Hey, one man's junk is another man's treasure--that volatility that gives you ulcers "puts bread in my jar," as Billy Joel would say (chuckle)!  But I think I'll be careful about establishing too many new trading positions until I know if this new level will hold, or if we back off into the high 40s again.

Share this post


Link to post
Share on other sites

Xinte TBEA, one of Chinas top 4 polysilicon producers, announcing H1 2019 results:
http://fastsfc.com/document/7876336

H1 metrics: 18200 tons produced at an ASP of $8.7/kg and cost of $7.3/kg

Current capacity of 36kT/year to be expanded to 80kT/year by Q3.  Both quality and cost position set to improve.

Takeaways:
- Lower cost position than DQ.  Myth of DQ being the lowest cost producer busted.  

- New capacity of Xinte will expand total polysilicon supply in China by 10% approximately.  Together with a similar supply expansion by DQ (4A) we are looking at 20% supply expansion just by these two players over Q3 and Q4.  Very likely to screw up supply/demand balance further and lead to further price erosion in 2020.

-->  Careful with your 2020 ASP and EPS estimates for DQ you guys cuz it sure looks bloody

Share this post


Link to post
Share on other sites
48 minutes ago, Klothilde said:

Xinte TBEA, one of Chinas top 4 polysilicon producers, announcing H1 2019 results:
http://fastsfc.com/document/7876336

H1 metrics: 18200 tons produced at an ASP of $8.7/kg and cost of $7.3/kg

Current capacity of 36kT/year to be expanded to 80kT/year by Q3.  Both quality and cost position set to improve.

Takeaways:
- Lower cost position than DQ.  Myth of DQ being the lowest cost producer busted.  

- New capacity of Xinte will expand total polysilicon supply in China by 10% approximately.  Together with a similar supply expansion by DQ (4A) we are looking at 20% supply expansion just by these two players over Q3 and Q4.  Very likely to screw up supply/demand balance further and lead to further price erosion in 2020.

-->  Careful with your 2020 ASP and EPS estimates for DQ you guys cuz it sure looks bloody

As the new low cost capacity comes online, the legacy capacities of companies that have loaded costs of $10-$12/KG will start being retired. This will offset some of the over production you are suggesting.

China still imports lots of Poly. In 2018 they imported 152,000 tons mostly from OCI and Wacker. This was downs from the previous year for the first time. The imports of poly was mostly high grade for Mono wafers. You can expect that as new capacity is added  while the market demand for high grade poly continues to grow ,  those importers will have their business get crushed.

 

https://www.globenewswire.com/news-release/2019/05/24/1843135/0/en/Global-and-China-Polysilicon-Industry-Report-2019-2023.html

Share this post


Link to post
Share on other sites
52 minutes ago, SCSolar said:

China still imports lots of Poly. In 2018 they imported 152,000 tons mostly from OCI and Wacker. This was downs from the previous year for the first time. The imports of poly was mostly high grade for Mono wafers. You can expect that as new capacity is added  while the market demand for high grade poly continues to grow ,  those importers will have their business get crushed.

I agree that Wacker and OCI will have their business crushed.

Just to illustrate: the new capacities of Xinte and Daqo (36+35kt) are enough to replace one of the foreign players.

That also implies market prices falling further below the cash cost or even production cash cost level of Wacker & OCI for a sustained period of time so that they make the strategic decision of shutting down their plants and withdrawing from the industry.

For this to happen prices need to fall 10-20% from current levels imho.

At what price do you think the non-Chinese poly players will throw the towel?  And what will DQ EPS be at that price?

Share this post


Link to post
Share on other sites
4 hours ago, Klothilde said:

I agree that Wacker and OCI will have their business crushed.

Just to illustrate: the new capacities of Xinte and Daqo (36+35kt) are enough to replace one of the foreign players.

That also implies market prices falling further below the cash cost or even production cash cost level of Wacker & OCI for a sustained period of time so that they make the strategic decision of shutting down their plants and withdrawing from the industry.

For this to happen prices need to fall 10-20% from current levels imho.

At what price do you think the non-Chinese poly players will throw the towel?  And what will DQ EPS be at that price?

I expect DQ and others to shut down legaccy capacity as their  new capacity grows  and the shift in price moves below cash cost. To me that is sustained in the $9+/- range.

Share this post


Link to post
Share on other sites
43 minutes ago, SCSolar said:

... To me that is sustained in the $9+/- range.

I take it you don't see polysilicon prices falling further then because right now mono-grade poly is selling for $9.

I personally don't think current prices are low enough to force Wacker and OCI out of business.  They both reported positive EBITDA in Q2, which suggests operating cash flow is positive under current prices.  I think mono-grade polysilicon needs to fall below $8.0 for them to die.

Share this post


Link to post
Share on other sites

Good news:

https://finance.yahoo.com/news/daqo-energy-begins-pilot-production-080000451.html

Some relevant quotes:

"In addition, with greater economies of scale, higher manufacturing efficiency, and cutting-edge equipment and process, we expect the total cost of polysilicon production at our Xinjiang facilities to decrease to approximately US$6.80/kg in the first quarter of 2020."

"We have seen that mono-crystalline solar technology is rapidly expanding market share and accounting for an increasingly significant portion of capacity expansion projects of our solar wafer customers. We believe that mono technology will account for over 80% of the global PV market by the end of 2020. The supply of ultra-high-quality mono-grade polysilicon still lags behind the growing demand. As a result, mono-grade polysilicon is being sold at a significant premium over multi-grade polysilicon."

Share this post


Link to post
Share on other sites
2 hours ago, Klothilde said:

As we all know, Zack's focuses on momentum plays, and they're usually late to the party.  DQ's stock has stalled recently, so they're now no longer a momentum play, so Zack's downgrades them.  The next time the stock spikes, Zack's will upgrade them again--after most of the move has already taken place.

And speaking of the stock's next upward move, see my next post....

Solarpete

Share this post


Link to post
Share on other sites

That guy is kinda misinformed.  The 23GW of approved projects he's talking about have a hard deadline of June 2020 and not year-end 2019.  They only have to be commissioned by year-end 2019 to get the full FIT, otherwise the FIT drops slightly each quarter the grid-connection is delayed:

"...The average submitted tariff was RMB 0.3281 ($0.0478)/kWh, and the official deadline of the approved 22.78 GW is set for December 31, 2019. If the grid connection takes place in 2020, the approved tariffs will be reduced by RMB 0.01 ($0.001)/kWh each quarter up to the second quarter of 2020. If solar PV projects are connected after June 30, 2020, the approved feed-in-tariff will be revoked, and the projects would stand canceled..."
https://mercomindia.com/china-fit-solar-projects-22-gw/

Thus connecting your project in June 2020 instead of now would give you a FIT of RMB 0.3081 instead of 0.3281, i.e. 6% lower.  That difference is so small that many developers will probably take a gamble and wait for falling module prices in 2020.  Same old story all over again: postpone your projects as long as possible to benefit as much as possible from falling module prices.  Boring.

 

Share this post


Link to post
Share on other sites
1 hour ago, Klothilde said:

That guy is kinda misinformed.

I think you missed his point, which is not about a 6-month difference in project timing but about the fact that GCL has a material stake in keeping expectations low for now.  I'm not saying who's right or wrong here--we'll know in 6 months--but I AM saying I take GCL's prognosis with the same grain of salt you're recommending for JKS's and DQ's forecasts.

Share this post


Link to post
Share on other sites
2 hours ago, solarpete said:

...but about the fact that GCL has a material stake in keeping expectations low for now...

That is not a fact but a theory of the author (a rather far-fetched one imo).  You could equally argue that GCL poly, having liquidity issues, is interested in hyping the PV and polysilicon market to attract more debt and equity.

However I think that as DQ is concerned it is not too relevant whether we'll have a rallye or not in Q4 but what the polysilicon market prospects are over the next two years, wouldn't you agree?  Or are you just interested in a rallye in Q4 so you can have a nice string of trades?

Looking beyond Q4 it does not look very rosy to me.  By ramping their new plant (4A) they will increase total polysilicon output in China by over 10% over a few months.  Plus there are other players bringing additional capacity online as well.  If a rallye takes place in Q4 the blow won't be that hard, but once we're into Q1 and demand slows down again the poly glut could become really nasty and prices could drop well below where they are right now.

Share this post


Link to post
Share on other sites

Well, the author's theory makes sense to me.  Even the idea that GCL MIGHT have an interest in lower demand was news to me, and puts those comments into a new perspective.

But you're right, the question is the long-term outlook.  And here I hate to beat a dead horse, but that's just a revisit of our two different viewpoints:  you forecast doom and gloom every single quarter, foreseeing price declines so sudden as to drive producers into financial jeopardy.  I agree that prices will continue to fall until global grid parity (which has already arrived for some regions, and is getting closer every quarter for the rest), but think they will do so gradually, allowing producers to lower their costs at the same pace, thereby avoiding financial disaster until we all arrive in the promised land when prices stabilize, demand explodes, and profits rain on everybody (chuckle).  Only time will tell who will ultimately be proven right, but so far, CSIQ, JKS, and DQ appear to be booked out every quarter, and so far, no one's filing for bankruptcy.

In the meantime, though, yes, short rallies are good time periods for rapid strings of profitable trades, so I'll take those as part of the long-term plan.

Share this post


Link to post
Share on other sites
9 hours ago, solarpete said:

...you forecast doom and gloom every single quarter, foreseeing price declines so sudden as to drive producers into financial jeopardy...

I think you are exaggerating.  Never did I say DQ was going bankrupt.  I said margins and EPS would go down, which happened.  And now I say margins could take another blow with the current expansion in supply going on.

 

Share this post


Link to post
Share on other sites

Your past posts have been pretty explicit about your concerns for the financials of all the Chinese solars, not just DQ.  Your clear implication was potential bankruptcies and defaults.  "Oh no, guys, whatever are we gonnna do?  This doesn't look good!"  Well, throughout it all, those companies have somehow managed to survive.  My bet is they'll continue to do just that, next quarter included, and eventually thrive.

Share this post


Link to post
Share on other sites
18 hours ago, solarpete said:

...Your clear implication was potential bankruptcies and defaults...

I take into consideration both the good and bad for each company, that's why I'm doing quite well on estimize compared to fellow estimizers.  The thing with you is you just remember the bad things I say and forget the good. For instance I've said countless times that I 'd love to get myself a slice of Daqo if it weren't so horribly expensive.

18 hours ago, solarpete said:

...Well, throughout it all, those companies have somehow managed to survive.  My bet is they'll continue to do just that, next quarter included, and eventually thrive.

That's the same thinking that got some folks here to lose their shirt with former PV "leaders" like Suntech, LDK, Yingli, a.o. who all went up in smoke. 

You forget that despite their current prominence the CN companies you are talking about are all in a very vulnerable position in terms of leverage, profitability, and competitive setting a.o.  Have a look at where these companies stand in terms of Altman's z-score:
https://en.wikipedia.org/wiki/Altman_Z-score

JinkoSolar Holding Co has a Z-score of 0.87, indicating it is in Distress Zones. This implies bankrupcy possibility in the next two years.

Daqo New Energy has a Z-score of 1.02, indicating it is in Distress Zones. This implies bankrupcy possibility in the next two years.

Canadian Solar has a Z-score of 1.25, indicating it is in Distress Zones. This implies bankrupcy possibility in the next two years.

First Solar has a Z-score of 3.38, indicating it is in Safe Zones. This implies the Z-Score is strong.

https://www.gurufocus.com/term/zscore/jks/Altman+Z-Score

I personally don't see a risk of these companies going bust over the next two years (with the exception of a JKS bankruptcy triggered by a  surprise Jinko Power default) but I just wanted to let you see that from a western financial perspective the companies are in a very vulnerable position.

Share this post


Link to post
Share on other sites
8 hours ago, Klothilde said:

I take into consideration both the good and bad for each company, that's why I'm doing quite well on estimize compared to fellow estimizers.  The thing with you is you just remember the bad things I say and forget the good. For instance I've said countless times that I 'd love to get myself a slice of Daqo if it weren't so horribly expensive.

That's the same thinking that got some folks here to lose their shirt with former PV "leaders" like Suntech, LDK, Yingli, a.o. who all went up in smoke. 

You forget that despite their current prominence the CN companies you are talking about are all in a very vulnerable position in terms of leverage, profitability, and competitive setting a.o.  Have a look at where these companies stand in terms of Altman's z-score:
https://en.wikipedia.org/wiki/Altman_Z-score

JinkoSolar Holding Co has a Z-score of 0.87, indicating it is in Distress Zones. This implies bankrupcy possibility in the next two years.

Daqo New Energy has a Z-score of 1.02, indicating it is in Distress Zones. This implies bankrupcy possibility in the next two years.

Canadian Solar has a Z-score of 1.25, indicating it is in Distress Zones. This implies bankrupcy possibility in the next two years.

First Solar has a Z-score of 3.38, indicating it is in Safe Zones. This implies the Z-Score is strong.

https://www.gurufocus.com/term/zscore/jks/Altman+Z-Score

I personally don't see a risk of these companies going bust over the next two years (with the exception of a JKS bankruptcy triggered by a  surprise Jinko Power default) but I just wanted to let you see that from a western financial perspective the companies are in a very vulnerable position.

That is interesting. The one thing I will note is those companies that went bankrupt  did so because they could not pay their foreign debts. The companies you mention operated, while getting massive losses until, China stopped turning their debts and their cash flow stopped giving them money to pay the debts. 

 

 The CN listed companies that you sight STP LDK YGE all had their hard assets in China out of the reach of American shareholders and bond holders. Companies like Yingli did not die but delisted in the U.S. and rid themselves of the foreign debt in the U.S. and has operated for many more years in the China as they tried to unwind the Chinese debt.  The same goes for Suntech and LDK, they went bankrupt in the U.S. but their assets in China have continued to operate for many years.

That is the risk of investing in any company. Jinko's debt is basically CN debts. CSIQ debts are international debts.  Sunpower is also in a fickle spot. The bottom line is either could default as can any company if the conditions change. 

 

The problem with  your zscore is not 100% functional is the difference in CN subsidiaries and debt vs a company with assets and operations in the U.S. or any other capitalistic society. Sure U.S. shareholders will get screwed in a bankruptcy as they always do no matter which company, but those companies will continue to thrive in China as part of a greater company who gets them for debt swap. That is similar to U.S. bankruptcy as well.

 

So what was the Zscore from say 4 years ago? I would presume that FSLR was higher than were it is today as they are now in a cash burn phase. I would imagine that CSIQ and JKS are close to the same as they were from 4 years ago indicating little change. If I am correct in my assumptions, the the fundamentals of FSLR are eroding while the others are maintained.

Share this post


Link to post
Share on other sites

Yes, I'm aware that the assets live on and thrive under a bankruptcy.  But I'm sure Solarpete was referring to the legal entities and to the shareholder equity when he was talking about surviving and thriving.

Let's not be so harsh on FSLR.  They are past the weak quarters of the year and should be making a ton of money again right now.  Can't wait to see their Q3 numbers.

Share this post


Link to post
Share on other sites

LDK certainly taught me the lesson that even large solar manufacturers CAN go under (in the sense of wiping out current US shareholders, as Klothilde correctly surmised).  But DQ, JKS, and CSIQ, simply by dint of having survived the waves that crashed LDK, are different today than they were back then.  Is there still a risk?  Of course.  Is that risk much smaller today than it was years ago?  IMO, yes, because we've had more ups and downs since then, and throughout them all, these companies continued to execute their business plans.  That tells me management made any needed adjustments.  Now I don't have the time to try to figure out the details of the financials the way Klothilde does, and I do appreciate her and others on this board doing just that and sharing their results.  I could just do with a few less editorial comments along the way.  Crying wolf every quarter, only to have the companies in question continue to chug along just fine, only serves to undermine confidence in what may otherwise be quite valid observations.

Share this post


Link to post
Share on other sites
3 hours ago, solarpete said:

LDK certainly taught me the lesson that even large solar manufacturers CAN go under (in the sense of wiping out current US shareholders, as Klothilde correctly surmised).  But DQ, JKS, and CSIQ, simply by dint of having survived the waves that crashed LDK, are different today than they were back then.  Is there still a risk?  Of course.  Is that risk much smaller today than it was years ago?  IMO, yes, because we've had more ups and downs since then, and throughout them all, these companies continued to execute their business plans.  That tells me management made any needed adjustments.  Now I don't have the time to try to figure out the details of the financials the way Klothilde does, and I do appreciate her and others on this board doing just that and sharing their results.  I could just do with a few less editorial comments along the way.  Crying wolf every quarter, only to have the companies in question continue to chug along just fine, only serves to undermine confidence in what may otherwise be quite valid observations.

Think Tesla, 15 years and $5Billion in losses. They are still chugging along with little to no profits. They ill continue to chug along until the financial sector decides enough  is enough and cuts off the faucette.  That is the dilema facing the US investments in the CN companies. If the financial markets dry up, then say good bye. They just burn way to much cash in increasing capacities and there is going to be another big capex cycle in a few years.

Share this post


Link to post
Share on other sites
18 hours ago, SCSolar said:

If the financial markets dry up, then say good bye.

And why would the financial markets do that?  The outlook for future demand is incredible.  Solar will only continue to grow.  If these companies were actually generating losses quarter after quarter, as some on this board prophesy every 3 months, then yes, I can see where eventually markets stop throwing good money after bad.  But they're not.  Some quarters they do quite well, others they just get by.  And in the meantime, total global demand continues to increase year after year, and we get ever closer to global grid parity.

I get that anything can happen (and I've adjusted my investment philosophy for solars accordingly), but just because there is a nonzero chance that something CAN happen, doesn't mean there's a high probability it WILL.

Share this post


Link to post
Share on other sites
5 hours ago, solarpete said:

And why would the financial markets do that?  The outlook for future demand is incredible.  Solar will only continue to grow.  If these companies were actually generating losses quarter after quarter, as some on this board prophesy every 3 months, then yes, I can see where eventually markets stop throwing good money after bad.  But they're not.  Some quarters they do quite well, others they just get by.  And in the meantime, total global demand continues to increase year after year, and we get ever closer to global grid parity.

I get that anything can happen (and I've adjusted my investment philosophy for solars accordingly), but just because there is a nonzero chance that something CAN happen, doesn't mean there's a high probability it WILL.

You missed my comments on capacity roll over. This industry is getting 4 years at best for use on Technology before it becomes non competitive. Right now in China Capex is around $100M per GW if you believe the data given in con calls. If you look at JKS expansion over the past 2 years it looks to be closer to $0.20 per watt

.To do capacity expansions they need to spend in the range of $300-$500M annually.  Right now they generate roughyl $100M  a year cash from depreciation. Most companies are not pulling down another $200M+ in profits per year. Thus they are in a negative cash burn as they have been since the inception. That means  they have to either dillute or take on debt or both. The both comment is in fact the case.

Just look at  JKS debt. They spun off the power unit in late 2016. In January 2017 they had 892M in debt.

http://ir.jinkosolar.com/static-files/e557889b-2f96-4647-8383-683393c23d98

 

They now have added 5GW of Capacity and $1Billion in debt as of Q2.

http://ir.jinkosolar.com/static-files/8b714b64-4236-4e82-904a-eb19a183faa0

 

Cash on hand  in the same period grew from $400M to $700M. That places $700M net debt.

.

JKS also has done secondaries  to the tune of a couple hundred million. They also have received a couple hundred million in cash generation from asset depreciations and another hundres + million in reported net profit.

 

This basically points to taking on $1B in debt to pay for 5GW or capacity or $0.20  a Watt Capex.

 

So while you say they are profitable, during what has been considered good times, they have burned $500M a year in cash to get to where they are.

 

They are still going to burn cash as they have to constantly expand  and expire capacity. As a result they will need to keep accessing the debt and equities markets. If this ever dries up, then they will be in trouble.

 

The reasons STP LDK and YGE have gone under was their access to capital in China dried up and their ability to service the debt in China stopped.

 

 

  • Thanks 1
  • Upvote 1

Share this post


Link to post
Share on other sites

Yes, those are some ugly statistics, no doubt.  Good to know.

Given my current investment philosophy of "trade 'em like you stole 'em," then, my concern will be "what is the probability the Chinese government will end their backstop support of JKS, CSIQ, or DQ in the next quarter?"

I still think that's pretty low.  If you disagree, may I ask why?

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • Donate

    Please donate to support this community. We appreciate all donations!

    Donate Sidebar by DevFuse
  • Upcoming Events

    No upcoming events found
  • Forum Statistics

    • Total Topics
      32
    • Total Posts
      92,705
  • Who's Online (See full list)



×
×
  • Create New...