Daqo New Energy Navigates Challenges with Strong Financials

Daqo New Energy ((DQ)) has held its Q1 earnings call. Read on for the main highlights of the call.

Daqo New Energy Corp.’s recent earnings call painted a picture of resilience amidst adversity. The company showcased a robust financial standing with no debt and stable polysilicon prices, yet it faced substantial hurdles such as decreased revenue, increased costs, and operational losses. While the long-term outlook for the solar PV industry remains promising, short-term challenges are proving to be significant obstacles for the company’s performance.

Strong Financial Position and Liquidity

Daqo New Energy Corp. demonstrated a strong financial position despite quarterly operating and net losses. The company maintained a solid balance sheet with no financial debt and total quick assets amounting to $2.15 billion, ensuring ample liquidity to navigate current challenges.

Exceeding Sales Volume Expectations

The company reported a sales volume of 28,008 metric tons, surpassing its production levels and effectively reducing inventory to healthier levels. This achievement highlights Daqo’s ability to manage its supply chain efficiently amidst market fluctuations.

Stable Polysilicon Prices

Throughout the quarter, polysilicon prices remained stable, ranging from 37 to 42 RMB per kilogram. This stability is expected to persist, supported by recent policy changes, providing a cushion for the company against volatile market conditions.

Positive Long-term Solar PV Industry Outlook

China’s new solar PV installations reached 59.71 gigawatts in the first quarter, marking a robust 30.5% year-over-year growth. This growth underscores the promising long-term prospects for the solar PV industry, offering a beacon of hope for companies like Daqo.

Revenue and Margin Decline

Daqo experienced a significant decline in revenues, dropping to $123.9 million from $195.4 million in the previous quarter and $415 million in the same quarter last year. The gross margin was notably negative at 66%, primarily due to lower average selling prices and higher production costs.

Operating and Net Losses

The company reported a net loss attributable to shareholders of $71.8 million, a stark contrast to the net income of $15.5 million recorded in the first quarter of the previous year. This resulted in a loss per basic ADS of $1.07.

Increased Production Costs

Polysilicon unit production costs rose by 11% sequentially to an average of $11.57 per kilogram, with cash costs increasing by 5% to $5.31 per kilogram. These increases were attributed to maintenance and facilities-related expenses.

Reduced Utilization Rates

Due to challenging market conditions and weak selling prices, Daqo operated at a reduced utilization rate of approximately 33% of its nameplate capacity, reflecting the difficulties faced in the current market environment.

Forward-looking Guidance

Looking ahead, Daqo New Energy Corp. remains optimistic about its long-term growth prospects despite current market downturns. The company expects a production volume of 25,000 to 28,000 metric tons for the second quarter and anticipates full-year production between 110,000 and 140,000 metric tons. This optimism is bolstered by the significant increase in China’s solar installations, which grew by 30.5% year-over-year in the first quarter.

In summary, Daqo New Energy Corp.’s earnings call reflected a company navigating through a challenging landscape with a strong financial foundation. While short-term challenges persist, the long-term outlook remains positive, driven by robust growth in the solar PV industry. Investors and stakeholders will be keenly watching how Daqo leverages its financial strength to overcome current hurdles and capitalize on future opportunities.