Daqo New Energy (NYSE:DQ) has released its Q3 2023 financial results, reporting a 27% increase in polysilicon production volume compared to the previous quarter. The company also announced a decrease in production costs, primarily due to improved manufacturing efficiency and reduced raw material costs. Despite market volatility, Daqo remains confident in its position as one of the dominant polysilicon manufacturers in the industry.
Key takeaways from the call include:
- Daqo's production volume for Q3 2023 was 57,664 metric tons of polysilicon, marking a 27% increase from the previous quarter.
- The company's production costs decreased by 5.8% to $6.52 per kilo.
- Daqo shipped a total of 62,967 metric tons of polysilicon in Q3 and generated $70 million in EBITDA.
- The company's total annual polysilicon nameplate capacity reached 205,000 metric tons.
- Daqo expects to produce approximately 59,000 to 62,000 metric tons of polysilicon in Q4 2023 and approximately 196,000 to 199,000 metric tons for the full year.
- The company has also purchased approximately 10 million ADS for $448.8 million as part of its share buyback program.
During the earnings call, Daqo reported an increase in SG&A expenses primarily due to resignation expenses and the recognition of remaining share-based compensation expenses related to recent management changes. The company expects SG&A expenses to normalize in the fourth quarter, ranging from $35 million to $38 million per quarter.
The company reported income from operations of $22.5 million, with an operating margin of 4.6%. Net loss attributable to Daqo New Energy shareholders was $6.3 million, and adjusted net income, excluding non-cash share-based compensation costs, was $44 million. EBITDA was $70.2 million, and the company had a strong financial position with $3.28 billion in cash and cash equivalents as of September 30, 2023.
Daqo also discussed polysilicon pricing, stating that prices are expected to remain similar to the current levels in the fourth quarter, lower in the first quarter due to seasonality, and then recover in the second quarter and beyond. The company expects industry supply adjustments and consolidation in the coming months.
The company plans to continue its share repurchase program, with $380 million remaining to be repurchased. Alan Lau of Jefferies asked about the share-based expenses and the breakdown of SG&A costs. Ming Yang, a representative from the company, explained that the increase in expenses was primarily due to non-cash share-based compensation related to the resignation of the previous CEO. They expect the SG&A expenses to normalize in the next quarter.
Regarding next year's production plan, they forecast a production volume of 280,000 to 300,000 metric tons. They also mentioned that they will start pilot production of semiconductor-grade polysilicon at the end of this year.
Daqo clarified that they own 72.4% of the Shanghai listing and provided information about their capital expenditures (CapEx) and free cash flow plans. The company also mentioned the possibility of canceling a majority, if not all, of the repurchased shares by the end of the year. Regarding dividends, the company prioritizes share repurchases this year, and next year they will consider either another share repurchase program or issuing dividends, subject to board approval.
The company expressed optimism about the overall growth of the solar market in China, expecting approximately 200 gigawatts of installations next year. They also mentioned the possibility of non-competitive players shutting down or idling capacity due to low prices. The company confirmed that they have no plans for privatization at the moment and stated that the voting rights of management and minority shareholders are the same.
InvestingPro Insights
In light of Daqo's recent financial results and future plans, a few key insights from InvestingPro can illuminate the company's current position and potential growth trajectory.
InvestingPro Tips suggests that Daqo has been making strategic moves to strengthen its financial health and market standing. Management's aggressive share buyback strategy, as evidenced by the recent purchase of approximately 10 million ADS for $448.8 million, aligns with InvestingPro's observation of aggressive share buybacks (InvestingPro Tip 0). This strategy can enhance shareholder value and reflect management's confidence in the company's future performance.
Furthermore, Daqo's impressive gross profit margins, with a gross profit of $2413.14M USD and a gross profit margin of 70.34% in the last twelve months as of Q2 2023, are also highlighted in InvestingPro's tips (InvestingPro Tip 4). These strong margins can be attributed to the company's efficient operations and cost-reduction efforts, such as decreased production costs due to improved manufacturing efficiency and reduced raw material costs.
InvestingPro Data shows that Daqo's market cap stands at $1800M USD. The company's P/E ratio is 2.11, and the adjusted P/E ratio for the last twelve months as of Q2 2023 is 1.81. These figures suggest that Daqo's shares may be undervalued, offering potential investment opportunities.
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