Whether from the perspective of stock price or performance, Daqo New Energy (DQ. US) had a bumpy experience in the first quarter of 2024.
At the market level, the stock price briefly soared to around $30 in March, but has now fallen back to $19, approaching the all-time low at the beginning of the year. The just-disclosed quarterly report continued to decline, of which the company's operating income was 2.982 billion yuan, a year-on-year decrease of 38.6%; net profit was 330 million yuan, down 88.64% year-on-year; The gross margin was 17.4%, which is also a decrease of nearly 1 percentage point from the gross margin of 18.3% in the fourth quarter of 2023.
As the first quarter has passed, polysilicon prices continue to bottom out and show no signs of stopping. On April 17, the Silicon Branch of the China Nonferrous Metals Industry Association (CNNIFIC) disclosed data showing that the mainstream price range of polysilicon fell below 50,000 yuan/ton, which has fallen below the cost price of second-tier manufacturers. All kinds of pessimistic signals make investors worry, when will Daqo New Energy's downward cycle bottom?
Performance continued to decline
In fact, in the previously disclosed 2023 annual results, Daqo New Energy's financial indicators have shrunk significantly. The total operating income for the year was 16.329 billion yuan, a year-on-year decrease of 47.22%; the net profit attributable to the parent company was 5.763 billion yuan, a year-on-year decrease of 69.86%; deducted non-net profit of 5.776 billion yuan, a year-on-year decrease of 69.84%.
While the performance declined, the company's expenses increased significantly. In 2023, sales expenses will increase by 152.62% year-on-year, management expenses will increase by 33.57% year-on-year, R&D expenses will increase by 6.47% year-on-year, and financial expenses will change from 78.7284 million yuan in the same period last year to 331 million yuan, and the expense ratio during the period will be 0.53%, a decrease of 0.25 percentage points from the same period last year.
According to the Zhitong Financial APP, during the reporting period, the dependence of Daqo New Energy's major customers was more obvious. In 2023, the total sales amount of the company's top five customers will be 13.640 billion yuan, accounting for 83.52% of the total sales amount, and the total purchase amount of the company's top five suppliers will be 5.596 billion yuan, accounting for 67.89% of the total annual procurement amount.
Although lower polysilicon prices weighed on performance, the company's financial metrics remained in a healthy range. The company's net cash flow from operating activities was 8.741 billion yuan, a year-on-year decrease of 43.12%; free cash flow was 7.986 billion yuan, down 16.42% from the same period last year; The asset-liability ratio at the end of the year was 13.44%, an increase of 0.58 percentage points from the end of the previous year.
With overcapacity highlighted, when will polysilicon prices reach an inflection point?
According to Zhitong Financial APP, Daqo New Energy's main products are high-purity polysilicon, which is mainly used in photovoltaic cells and is in the upstream link of the photovoltaic industry chain. According to the different downstream production of silicon wafers, high-purity polysilicon can be divided into monocrystalline silicon wafer materials and polycrystalline silicon wafer materials.
Affected by the successive release of new production capacity and the significant increase in supply, polysilicon prices will fall rapidly in 2023. According to the estimation of the photovoltaic industry standard announcement, enterprise information and industry associations, in 2023, the national output of polysilicon, silicon wafers, cells and modules will reach a new high, and the national output of polysilicon will exceed 1.43 million tons, a year-on-year increase of 66.9%; In the same year, the prices of polysilicon and module products fell by more than 50%.
The trend of "volume increase and price reduction" can be seen from the financial report of Daqo New Energy. According to the disclosure, in the first quarter of 2023, the price of polysilicon of Daqo New Energy was 190.42 yuan/kg, and as of April 10, 2024, the silicon branch of the China Nonferrous Metals Industry Association released data showing that the average transaction price of polysilicon densifier was 48,700 yuan/ton (equivalent to 48.7 yuan/kg), down 18.83% from the previous quotation.
According to the China Merchants Bank Research Institute, the polysilicon industry is characterized by high technical thresholds, high investment costs, and long expansion cycles, with polysilicon typically taking 12-18 months and a ramp-up period of 3-6 months, while downstream wafers and cells take about 6-9 months to expand production and only about 3 months.
Looking forward to 2024, the industry will continue to expand production, and the problem of overcapacity is expected to continue. According to the statistics of the Silicon Industry Branch, about 1.23 million tons of new production capacity will be put into operation in 2024, and the annual polysilicon output is expected to reach 2.6 million tons, while the new installed capacity demand is about 1.6 million tons.
The Silicon Industry Sub-Council predicts that polysilicon prices will remain low for some time to come, due to the mismatch of production capacity cycles and high inventories. In this regard, Daqo New Energy also admitted in the annual report that "if the industry continues to expand production capacity in the future, resulting in adverse changes in the relationship between supply and demand, polysilicon prices will further decline, which will affect the company's profitability." ”
However, as a leading enterprise that has been deeply involved in the polysilicon sector for many years, Daqo New Energy's advantages in market share and production cost cannot be ignored. According to the data, in 2023, the domestic polysilicon output will exceed 1.43 million tons, while Daqo New Energy's polysilicon output will be 197,800 tons, accounting for about 13% of the domestic polysilicon output, and the scale is in the first echelon in the industry;
In terms of cost control, in 2023, the company's annual unit production cost including sales expenses will reach 48.70 yuan/kg, which is at the leading level in the industry and shows a benign trend of declining quarter by quarter. In contrast, the cost price of polysilicon for second-tier companies is probably in the range of more than 50,000 yuan/mt to 60,000 yuan/mt.
"Technical Roadmap Battle" in the Polysilicon Field?
Although the results of cost reduction and efficiency increase in the past year are remarkable, it does not mean that Daqo New Energy can "sit back and relax", with the emergence of lower-cost granular silicon, Daqo New Energy will also face the competitive pressure brought by the new technology route.
According to Zhitong Financial APP, the current mainstream polysilicon production technologies mainly include the modified Siemens method and the silane fluidized bed method, which are called rod silicon and granular silicon because of different product forms. At present, rod silicon with mature production process is the main polysilicon market, while granular silicon has the advantages of less carbon emissions, low energy consumption and low cost. In the first half of 2023, the production cost of granular silicon of existing enterprises will reach 35.68 yuan/kg, which is significantly lower than the production cost of rod silicon of Daqo New Energy. In the future, with the continuous improvement of the production process, its production cost is expected to be further reduced.
Looking at the industry trend in 2023, under the pressure of polysilicon prices, many companies have turned to granular silicon. According to the statistics of Huaxia Energy Network, the number of enterprises deploying granular silicon will increase from 2 to 7 in 2023, and the production capacity will also increase from less than 160,000 tons in 2022 to 400,000 tons in 2023, and the planned production capacity will reach 900,000 tons.
In this regard, Daqo New Energy is more conservative, the company's vice chairman Xu Xiang has publicly stated that there are still many bottlenecks to overcome in granular silicon, and the quality of Siemens rod silicon is much higher than that of granular silicon, which seems to have no plan to lay out granular silicon.
However, the recent gradual narrowing of the price gap between granular silicon and rod silicon does not seem to bode well for Daqo New Energy. According to the data recently disclosed by the Silicon Branch of the China Nonferrous Metals Industry Association, the average transaction price of N-type rod silicon was 52,500 yuan/ton, and the average transaction price of N-type granular silicon was 47,500 yuan/ton; In addition, the average selling price of granular silicon in 2023 will reach 76,800 yuan/ton, while the annual unit sales price of polysilicon will be 81,100 yuan/ton, with a price difference of only 4,300 yuan per ton.
In a market environment where polysilicon prices continue to be under pressure, the cost advantage brought by granular silicon is self-evident, and there is still considerable uncertainty about whether Daqo New Energy's market share of rod silicon will be caught up by granular silicon.
On the other hand, Daqo New Energy's current layout focus is obviously more on high-purity N-type polysilicon. Photovoltaic crystalline silicon cell technology uses silicon wafers as the substrate, which can be divided into P-type cells and N-type cells according to the difference of silicon wafers. The production process of N-type cells is more complex, but the conversion efficiency ceiling is higher, so it has gradually become an industry trend in recent years. According to InfoLink, the market share of N-type batteries has increased rapidly from about 9% in 2022 to 27% in 2023.
In the first quarter of 2024, Daqo Energy successfully produced 43,000 tons of N-type polysilicon and sold 37,000 tons of N-type polysilicon, accounting for 69.0% and 68.6% of N-type polysilicon production and sales, respectively. The company revealed in its first quarter report of 2024 that the second phase of the 100,000-ton high-purity polysilicon project in Baotou, Inner Mongolia is planned to be completed and put into operation in the second quarter of 2024, and the company's cumulative annual production capacity can reach 305,000 tons after the project is put into production. Since the Inner Mongolia production line has the capacity to produce 100% N-type polysilicon, it is expected that the company's N-type material sales ratio will reach more than 70% in 2024.
brief summary
After years of development, the photovoltaic silicon material industry has now entered the second half of the competition. Under the two-way pressure of demand and inventory, it is expected that the performance of enterprises in the industry will continue to diverge, and cost and efficiency will become important factors to test the operational robustness of enterprises. As polysilicon prices are unlikely to improve, 2024 will be an even more challenging year for Daqo New Energy.