Daqo New Energy Update | Solar PV polysilicon manufacturer

Hi everyone,

Long time no see. Just finished my exams and ready to bring you a lot more analysis on stocks. The market is in a correction phase. It’s very important that keep your mind stable and do not freak out. I’m averaging down where I can and build out positions in my favourite companies. Today I’ll do an update on Daqo New Energy. Since my last video the stock dropped around 44% percent. Does that mean something happened to the stock? Did the fundamentals change? Did they miss earnings expectations? What did I do with my position in Daqo in the mean time? Let’s find out answers on these questions!

So first question, what happened with the company from 7 september till now. On 6 December, Daqo announced that they finished the construction of their new production facility ahead of schedule and begun piloting production. This new facility adds 35 thousand metric tonnes in polysilicon production each year. This news is extremely good. Since polysilicon prices are at all-time highs, any production increase is welcome and will bring a lot of money on the table.

The CEO goes on in saying that with the rising prices of fossil fuels, solar photovoltaic is becoming more competitive and its economic value is being increasingly recognized by the market, as reflected by the increased prices of solar products this year. So what he is saying is that with the energy shortage polysilicon prices get pushed up and people start to see the value in solar energy.

By the end of 2024 we can expect Daqo’s capacity to grow from 80 thousand metric tonnes, which they did in the last trailing twelve months, to 270 thousand metric tonnes. That’s an increase of more than 3 times. If the polysilicon prices stay stable or even increase till 2024, this company will be making a lot of money.

On the 20th of December Daqo’s subsidiary Xinjiang Daqo announced a strategic cooperation framework agreement with Baotou City for its future projects. First thing to notice is Daqo moving out of Xinjiang. Xinjiang has been in the news for forced labor. So Daqo moving a part of the business out of Xinjiang can be a very positive catalyst.

Xinjiang Daqo plans to build polysilicon projects in Baotou city for the solar industry with a total annual production of 200 thousand metric tons, polysilicon projects for the semiconductor industry with a total annual capacity of 21 thousand metric tonnes, silicon metal projects with a total annual capacity of 300 thousand metric tonnes and silicone projects with a total annual capacity of 200 thousand metric tonnes.

This will give the company a polysilicon production increase of 100 thousand metric tonnes by first half of 2023. Ramping up production to a total 200 thousand Metric tonnes, which is double the amount they make now. To afford this expansion Daqo released the 24th of January that it will do a private offering in ordinary shares in China. These will be offered to qualified institutional buyers.

From the article we can see that Daqo will be expanding its exposure and is moving into the semiconductor industry. Where is also a big shortage rampaging.

But this is not everything, Daqo will be granted favorable electricity rate and other preferential treatment. Daqo will be granted the highest priority for the use of green energy within Baotou city. This means production costs will be lower and with the energy shortage they will be granted priority to the green energy produced in Baotou city.

Just by reading these articles my excitement of being a shareholder of Daqo increases. Daqo is decreasing risks of overexposure in terms of geographic concentration and is exploring new growth industries. So far it is not getting rewarded by the market…

Maybe the stock went down because of the earnings, let’s check that out. Daqo released earnings on the 28 of October. Daqo increased revenues 32 percent from Q2 to Q3. That looks pretty good if you ask me. Daqo has gross margins of at least 74 percent. Which is crazy high.

If we look at the balance sheet. Daqo added 440 million dollars, almost half a billion to its balance sheet from Q2 to Q3. Half a billion dollars! This company is at the moment only 3 billion dollar worth. Let that sink in. At the same time total liabilities are going down when more pre orders from clients are coming in which are temporarily seen as liabilities.

These good earnings come from a rise in production and rising average selling price of polysilicon. So some analysts have been saying Daqo share price could slide alongside declining prices of polysilicon. This Japanese investing firm is also saying that Daqo’s own expansion falls behind its peers. Which is not really true. The only company that is expanding faster is Tongwei which is also 9 times the size of Daqo in terms of market cap.

Next to that polysilicon prices are rising again in January after a slight drop in December. Production capacity will be higher next quarters so we will definitely see revenue growth ahead. The price target slash is unnecessary in my opinion and creates unneeded downward pressure on the stock.

Not to mention that Daqo’s subsidiary is still a top 4 polysilicon producer in terms of capacity in the world and will be a major player in helping the world go to green solar energy.

What did I do with my position in Daqo knowing all this information and the falling share price? I bought more of the stock! I added to my position on a regular basis, lowering my average price which now stands at 55.31. Since last video I’m still extremely bullish on this stock, if not even more bullish.

Daqo is currently trading at a pe of only 4.5 and a forward pe of only 3, at these valuations I will keep expanding my position over time. Sooner or later value will get rewarded. The market is very volatile at the moment so don’t get freaked out if the stock plummets more in the short term.

Want to know more check out my video: This Solar Stock is Too Cheap To Ignore | Daqo New Energy Analysis - YouTube
My YouTube channel: https://www.youtube.com/channel/UC74ascgDjOZzQXXCZGisQtw

If you want me to research one of your favorite stocks, let me know with a comment down below or a private message!

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Thanks for the explanation. I’ll give it a try, I like to try new stocks and see what’s going on. Especially in the renewable energy market.

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Nice job @Frisoke go on!

I think every one should watch your videos, It’s amazing and if people watch your videos. 2 things

LIKE AND SUBSCRIBE!

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So far so good. +72% all time here :slight_smile:

Thanks for your suggestion and tip. Hopefully this stock growth will continue :pray: @Frisoke

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Congratz, that’s awesome! My position is now +35% ish, since I’ve been averaging down earlier when the stock price was at a higher price.

Last Friday I’ve submitted an article about Daqo to Seeking Alpha. Will share it here when it gets approved! So far high hopes for another great quarter.

Goodluck!

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