Daqo New Energy Shares Plunge Following Disappointing Quarterly Results

Chinese polysilicon producer Daqo New Energy Corp. delivered a severe disappointment to investors with its second-quarter financial performance. The company reported a significant revenue shortfall and a substantial net loss, triggering a pre-market stock decline exceeding 15%. This dramatic sell-off reflects deeper challenges within the solar energy supply chain.

Severe Market Headwinds and Operational Challenges

Daqo’s operational metrics reveal the intensity of the pressure it faces. The global solar industry continues to grapple with substantial oversupply and bloated inventory levels. Polysilicon prices have been driven down so aggressively that they now trade below cash production costs. In response, Daqo was forced to implement drastic measures, slashing its production utilization rate to a mere 34%.

The financial impact was immediate and severe:
– Sales volume collapsed, falling from 28,008 metric tons (MT) in Q1 to just 18,126 MT.
– The average selling price (ASP) continued its descent, dropping from $4.37 to $4.19 per kilogram.
– A gross margin of -108.3% starkly illustrates the unsustainable pricing environment.

Despite achieving a slight improvement in production costs, which fell to $7.26 per kilogram, the company is operating deeply in the red.

Should investors sell immediately? Or is it worth buying Daqo New Energy?

Management Response: Buyback and Revised Guidance

In a move to counter the plunging share price, the company’s board of directors authorized a new $100 million stock repurchase program on Tuesday. This is a typical maneuver signaling management’s belief that the equity is undervalued.

Concurrently, Daqo revised its full-year outlook downward. The company now anticipates total production for the year will land between 110,000 and 130,000 MT. For the current quarter, management provided guidance of 27,000-30,000 MT, indicating operations will remain at a significantly reduced capacity.

Divergent Views from Wall Street

The investment community is sharply divided on Daqo’s future trajectory. In the wake of the earnings report, HSBC downgraded the stock to a “Hold” rating, assigning a price target of $14.00. In contrast, analysts at GLJ Research and Citigroup maintained their “Buy” stances, with bullish price targets of $30.51 and $27.00, respectively. This extreme disparity in price targets underscores the high degree of uncertainty among market participants regarding whether Daqo is poised for a recovery or faces further deterioration.

The central question remains whether a polysilicon market recovery can materialize before sustained losses critically weaken the company’s financial position. The coming quarters will be decisive for Daqo New Energy.