Daqo New Energy Corporation

Daqo New Energy Corp. (NYSE: DQ) is a polysilicon manufacturer. The Company utilizes the chemical vapor deposition process, or the modified Siemens process, to produce polysilicon. The Company's segments include Polysilicon and Wafer. The Company manufactures and sells polysilicon to photovoltaic product manufacturers, whereby the polysilicon is processed into ingots, wafers, cells, and modules for solar power solutions.

Recent Financial and Business Updates:

• Daqo New Energy Corp. (NYSE: DQ) Announces Progress on USD 700 Million Share Repurchase Program: Daqo New Energy Corp. (NYSE: DQ), a prominent manufacturer of high-purity polysilicon catering to the global solar PV industry, issued an update on its approved USD 700 million share repurchase program, effective from November 7, 2022, to December 31, 2023. As of the conclusion of 2023, the Company successfully repurchased 14.55 million American Depositary Shares (ADSs), equivalent to 72.75 million ordinary shares, at an average price of USD 33.71 per ADS. The total expenditure for these repurchases amounted to approximately USD 491 million, constituting around 70.1% of the maximum amount allocated for the share repurchase initiative. Following the completed share repurchases, the Company's total ordinary shares outstanding stood at approximately 328.8 million at the end of 2023, in contrast to 391.0 million at the close of 2022.
• Pinnacle of Production and Sales Expansion: In the dynamic landscape of Q3 2023, Daqo New Energy Corp. achieved a remarkable surge in polysilicon production, reaching 57,664 MT, a significant increase from the preceding quarter's 45,306 MT. The growth momentum extended to polysilicon sales, escalating to an impressive 63,263 MT in Q3 2023, marking a substantial rise from the 51,550 MT reported in Q2 2023, indicating sustained growth trends.
• Navigating Efficiency Amidst Financial Challenges: Operational efficiency took center stage as the company achieved a commendable reduction in the average total production cost to USD 6.52/kg in Q3 2023, down from USD 6.92/kg in Q2 2023. However, despite these operational improvements, financial challenges emerged, with revenue contracting to USD 484.8 million in Q3 2023. The gross profit also witnessed a decline, reaching USD 67.8 million, resulting in a gross margin of 14.0%, marking a substantial drop from Q2 2023.
• Adjustments and Earnings Dynamics: In the realm of adjusted financial metrics, a nuanced scenario unfolded, reflecting a decrease in adjusted net income to USD 44.0 million in Q3 2023 from USD 134.5 million in Q2 2023. Similarly, adjusted earnings per basic ADS experienced a dip to USD 0.59 in Q3 2023, down from USD 1.75 in the preceding quarter. The EBITDA for Q3 2023 amounted to USD 70.2 million, featuring an EBITDA margin of 14.5%, marking a decline from USD 230.0 million and a 36.1% margin in Q2 2023.
• Operational Insights and Market Resilience: Xiang Xu, the visionary Chairman and CEO, shared illuminating insights into operational optimization efforts that fueled an upswing in production volume and a simultaneous decrease in production costs. Despite grappling with a Q3 loss, the company demonstrated resilience by generating USD 70 million in EBITDA, maintaining a robust balance sheet boasting USD 3.3 billion in cash. Xu's unwavering confidence shines through as he articulates the strategy to navigate market volatility.
• Outlook and Financial Strength: Gazing into the future, Daqo New Energy Corp. envisions a prolific Q4 2023 with the anticipated production of 59,000 to 62,000 MT of polysilicon. The overarching goal for 2023 is set ambitiously, targeting a full-year production range of 196,000 to 199,000 MT. Financially fortified, the company's coffers boasted USD 3,280.8 million in cash and restricted cash as of September 30, 2023. The fiscal landscape for the initial nine months of 2023 revealed a net cash inflow from operating activities of USD 1,497.4 million, with a judicious analysis exposing a net cash outflow in investing activities of USD 954.3 million and a net cash outflow in financing activities of USD 602.0 million. In summation, this comprehensive update unveils Daqo New Energy Corp.'s performance, illuminates industry dynamics, and elucidates its strategic positioning with clarity and foresight.

Technical Observation (on the daily chart)

The Relative Strength Index (RSI), calculated over a 14-day span, stands at 29.83, currently in the oversold zone, signifying the likelihood of either more consolidation or a brief surge soon. Adding to this, the stock presently finds itself positioned below both the 21-day and 50-day Simple Moving Averages (SMA), which could function as a dynamic short-term resistance levels. Now, the stock's price hovers around a crucial support range of USD 17.00 to USD 19.00, with an anticipation of an impending upward shift originating in case of a support from these support levels as the price is also showing expectations of a bullish divergence on the daily time frame.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘Buy’ rating has been given to Daqo New Energy Corp. (NYSE: DQ) at the current market price of USD 18.58, as of January 30, 2024.

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing. 

How to Read the Charts?

The yellow colour line reflects the 21-period simple moving average (SMA) while the blue line indicates the 50- period simple moving average (SMA). SMA helps to identify existing price trends. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The orange colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The red and green colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps with easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is January 29, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: The report publishing date is as per the Pacific Time Zone.