Daqo New Energy Corp. Q3 FY2024 earnings call

Market Conditions

• China's solar industry faced challenges with oversupply, causing selling prices to be below production costs, but Daqo's losses narrowed from the second quarter.

Balance Sheet

• Strong balance sheet with no financial debt. Cash balance was $53 million, short-term investments $245 million, bank note receivables $83 million, fixed term bank deposit $1.2 billion, and quick assets totaling $2.4 billion.

Operational Highlights

• Started facility maintenance, adjusted production utilization to 50% due to weak demand. N-type product mix reached 75% during the quarter. Phase 5B is ramping up with 70% N-type product mix.

Industry Outlook

• Believes current market downturn will lead to market consolidation, with less efficient players exiting, eventually reducing overcapacity and improving margins. CPIA's actions to promote self-discipline are seen as positive for market stability.

In the third quarter, Daqo New Energy's polysilicon segment had a production volume of 43,592 metric tons. The N-type product mix reached 75%. Revenue for the quarter was $198.5 million. Gross loss was $60.6 million, down from $159.2 million in the second quarter. Cash cost per kilogram decreased to $5.34, but unit production cost increased to $6.61 due to lower utilization rates leading to facility idle costs. SME grade polysilicon started initial production and is on track for commercial delivery early next year.

Production Guidance

• Anticipates Q4 2024 polysilicon production volume to be approximately 31,000 to 34,000 metric tons. Full-year 2024 production volume is expected to be in the range of 200,000 to 210,000 metric tons.

Market Expectations

• Believes the current market downturn will eventually lead to a healthier market as unprofitable players exit, reducing overcapacity and restoring profitability.

Market Risks

• Continued oversupply in the solar industry, leading to selling prices below production costs.

Policy Risks

• Uncertainty around government policies related to energy intensity and capacity reduction, which could impact production and market dynamics.

Timing Risks

• Uncertainty in the timing of policy implementation and its impact on pricing and market rebalancing.

Q: What's the timing outlook for government policies on capacity reduction based on energy intensity?

A: Government agencies are studying policies, which may take 1-2 months to formulate, possibly by end of November or December. Pricing impact is uncertain, but industry believes pricing has bottomed and may rise with policy implementation.

Q: What are the plans regarding share buybacks to close the gap between Shanghai and New York shares?

A: Considered selling A-shares to repurchase ADRs, but regulatory difficulties and stock price conditions need to be considered. Management is waiting for a favorable cycle and structural market reforms to act on share repurchases.

Q: How much is the inventory impairment embedded in COGS and what's the breakdown?

A: Inventory impairment was $80 million in Q3. Approximately two-thirds is in finished goods and one-third in raw materials. The rebound in production cost is due to lower utilization rates increasing unit depreciation. Cash costs decreased, but total production cost increased because of idle facility costs.