Daqo New Energy Corp. stabilizes in 2015 during tumultuous year for polysilicon

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Daqo New Energy Corp.’s yearly financial results reflect the falling polysilicon prices in 2015, but also the decrease in production costs, and the rise in demand, as it maintained its revenue and EBITDA, by increasing its production volume and external sales. This was particularly the case in the fourth quarter, as the company enjoyed huge sequential increases in revenue, net income and EBITDA.

The fall in polysilicon prices in 2015 was well documented, however, Daqo managed to counteract this development by slashing its own production costs, ending the year with total production costs of just $9.74/kg. The company attributes this to lower electricity consumption and improvements in production efficiency.

This enabled the company to ramp up its production volume, without having too much of a negative effect on its operating costs. Daqo’s yearly production volume was 9,771 MT, which was a staggering increase of 48.9% from 2014, when it produced 6,560 MT. This production continued to increase sequentially throughout the year, topping out at 3,547 MT in Q4, which was a 31.9% increase from Q3.

As demand for polysilicon grew within China towards the end of 2015, Daqo were able to sell the majority of the polysilicon it produced, selling 8,234 MT externally in 2015, compared to 5,972 MT in 2014. “Our polysilicon facilities were running successfully at full capacity for the entire quarter, and we are excited to report that both our external sales volume and cost structure exceeded our prior guidance,” said Dr. Gongda Tao, CEO of Daqo New Energy. “We achieved record-high quarterly polysilicon production volume of 3,547 MT, an increase of 31.9% from 2,689 MT in the third quarter of 2015 and 12% above our name plate capacity.”

With polysilicon’s average selling price (ASP) falling in 2015 and Daqo pumping up its sales, it comes as little surprise that the company’s revenue managed to stay relatively stable in 2015. It generated total yearly revenues of $182 million, which was only slightly down for the $182.6 million it achieved in 2014. The company’s net income dropped a little more dramatically from $16.6 million in 2014 to $13 million in 2015.

Maintaining operating margins

What was always going to be interesting was whether Daqo could keep a similar level of operating margin during the market fluctuations, which it more or less managed. Its EBTDA (non-GAAP) for 2015 was $58.2 million, which was just a 2.9% decrease from 2014 when it had an EBTDA (non-GAAP) of $60 million. The EBTIDA (non-GAAP) margin fell slightly from 32.9% in 2014 to 32% in 2015.

However, in a good sign of what may be to come in 2016, sequentially the fourth quarter’s EBITDA (non-GAAP) grew substantially to $23.4 million, which is a of 56.3% increase from $15 million in Q3. “In the fourth quarter of 2015, we delivered strong operating and financial results that were beyond our internal expectations,” said Tao. “Thanks to our technology and operations team, we made solid progress on our cost reduction efforts, and reduced our polysilicon average total production cost and cash cost even further.”

During the early part of 2016, polysilicon ASPs enjoyed a resurgence, as demand grew in China before the change in the feed-in-tariffs later in the year. This enabled Daqo to reduce its polysilicon inventory to “normal levels” during the fourth quarter.

Daqo expects an increase in demand to continue through 2016, as its customers add additional wafer capacities. The company also cited China’s 13th Five-Year-Plan, which aims for 150GW of solar capacity by 2020, which would mean an additional 107GW installed in that time period. Daqo believes that this will push up the demand for polysilicon in the region; however it can’t be sure of the ASPs fluctuations after the new FIT kicks in.