Daqo New Energy (NYSE:DQ)

First Quarter 2012 Results

• Polysilicon shipments were approximately 964 metric tons, or MT. Photovoltaic (PV) module shipments were 2.3 Mega watts, or MW. Wafer shipments were 23.4 MW. In addition, the Company provided 2.4 MW PV modules manufacturing outsourcing service to its customers.
• Revenues were $34.0 million, compared to $38.2 million in the fourth quarter of 2011 and $87.3 million in the first quarter of 2011.
• Gross loss was $11.0 million, compared to a gross loss of $11.2 million in the fourth quarter of 2011 and gross profit of $44.5 million in the first quarter of 2011. Gross loss excluding an inventory write-down of $1.6 million was $9.4 million.
• Gross margin was negative 32.2%, compared to negative 29.3% in the fourth quarter of 2011 and 51.0% in the first quarter of 2011. Excluding $1.6 million of inventory write-down, gross margin would be negative 27.5%.
• Operating loss was $12.1 million, compared to operating loss of $49.9 million in the fourth quarter of 2011 and operating income of $43.5 million in the first quarter of 2011.
• Operating margin was negative 35.5%, compared to negative 130.4% in the fourth quarter of 2011 and 49.8% in the first quarter of 2011. Operating loss excluding an inventory write-down of $1.6 million was $10.5 million, representing an operating margin of negative 30.8%.
• Net loss attributable to Daqo New Energy Corp. shareholders was $13.7 million, compared to $39.4 million in the fourth quarter of 2011 and net income attributable to Daqo New Energy Corp. shareholders of $35.0 million in the first quarter of 2011.
• Loss per fully diluted ADS was negative $0.39, compared to negative $1.12 in the fourth quarter of 2011, and earnings of $0.99 in the first quarter of 2011.

"In the first quarter of 2012, we continued to operate our polysilicon production in full utilization. We exceeded our targets for shipments. Nevertheless, the solar PV market remains weak due to restrained demand as a result of uncertainties including changing governmental policies, tight credit markets and potential international trade conflicts." commented Dr. Gongda Yao, Chief Executive Officer of the Company "We will focus on the operation of our existing polysilicon site in Wanzhou and the construction of Phase 2 polysilicon plant in Xinjiang. We are confident that after our Phase 2 facilities commence production, we will be well positioned with a much lower cost structure and larger capacity."

Outlook for Second Quarter 2012

For the second quarter of 2012, the Company expects to ship 900-1000 MT of polysilicon, approximate 20.5 MW of wafers and 4.5 MW of modules. In addition, the Company expects to provide 200 metric tons of ingot and block manufacturing outsourcing services to its customers. This outlook reflects our current and preliminary view and may be subject to change. Our ability to achieve this projection is subject to risks and uncertainties. See "Safe Harbor Statement" at the end of this press release.

Fourth Quarter 2011 Results

• Polysilicon shipments were approximately 834 metric tons, or MT. Photovoltaic (PV) module shipments were 9.6 Mega watts, or MW. Wafer shipments were 7.8 MW. In addition, the Company provided 5.9 MW PV modules manufacturing outsourcing service to its customers.
• Revenues were $38.2 million, compared to $59.6 million in the third quarter of 2011 and $81.9 million in the fourth quarter of 2010.
• Gross loss was $11.2 million, compared to gross profit $19.9 million in the third quarter of 2011 and $45.8 million in the fourth quarter of 2010. Excluding the impact of $10.6 million inventory write-down, gross loss would be $0.6 million.
• Gross margin was negative 29.3%, compared to positive 33.3% in the third quarter of 2011 and 55.9% in the fourth quarter of 2010. Excluding $10.6 million of inventory write-down, gross margin would be negative 1.6%.
• Operating loss was $49.9 million, compared to operating profit $17.1 million in the third quarter of 2011 and $41.3 million in the fourth quarter of 2010.
• Operating margin was negative 130.4%, compared to positive 28.8% in the third quarter of 2011 and 50.4% in the fourth quarter of 2010. Excluding provision of fixed assets impairment of $38.5 million and inventory write-down of $10.6 million, operating loss would be $0.8 million, representing a margin of negative 2.1%.
• Net loss attributable to Daqo New Energy Corp. shareholders was $39.4 million, compared to profit $12.1 million in the third quarter of 2011 and $32.8 million in the fourth quarter of 2010.
• Earnings per fully diluted ADS were negative $1.12, compared to positive $0.34 in the third quarter of 2011, and $0.95 in the fourth quarter of 2010.

“In the fourth quarter of 2011, we continued to operate our polysilicon manufacturing smoothly. We achieved our targets for production and shipment. In addition, we successfully conducted annual maintenance, and in turn laid a concrete foundation for the operation in 2012.” commented Dr. Gongda Yao, Chief Executive Officer of the Company “Nevertheless, the weakening industry environment resulted in even lower selling prices for Polysilicon, Wafer and Module compared to the third quarter, which adversely affected our profitability.”

“For 2011, we achieved a year of growth in both shipment and revenue. We will continue our commitments to further improve operation efficiency and lower manufacturing cost. We are taking initiatives in our existing Wanzhou site and expect to see significant cost reduction when our Xinjiang facilities start operation in the fourth quarter of 2012.”

Dr. Yao continued “In order to best concentrate our financial and operational resources on Xingjiang project, which we believe is the first priority given the current market situation, we implemented projects consolidation plan to postpone the Hydrochlorination project in Wanzhou for one year. We will resume this project after Xinjiang facilities successfully ramp up. Besides that, the module production plan of JNE Daqo Solar Corp., which was a joint venture between Daqo New Energy and JNE in Canada, has also been suspended indefinitely.”

“In spite of the near term uncertainties and challenges in the market, we are confident that solar PV is becoming one of the most feasible, affordable and reliable alternative energies. We believe our Company with its high-quality and low cost polysilicon will weather through the downturn and seize opportunities for the next growth stage.” Dr. Yao concluded.

Outlook for First Quarter 2012 

For the first quarter of 2012, the Company expects to ship 800-900 MT of polysilicon. The Company also expects to ship approximately 16-17 MW of wafer and 5.3 MW of modules. For the module shipment, the Company further expects 2.9 MW will come from its brand name module and expects to provide 2.4 MW PV modules manufacturing outsourcing service to its customers. This outlook reflects our current and preliminary view and may be subject to change. Our ability to achieve this projection is subject to risks and uncertainties. See “Safe Harbor Statement” at the end of this press release.

CHONGQING, China--(BUSINESS WIRE)--Daqo New Energy Corp. (NYSE: DQ) ("Daqo New Energy" or the "Company"), a leading polysilicon manufacturer based in China, today announced the appointment of Mr. Bing Sun as Chief Financial Officer, effective February 1, 2012.

Mr. Sun joins Daqo New Energy from Shunda Holdings Co, a solar photovoltaic company based in China, where he was the Chief Financial Officer since June 2008. Prior to Shunda Holdings, Mr. Sun was financial controller at BCD Semiconductor, a leading analog integrated device manufacturer in China from April 2007 to June 2008. His earlier experiences include serving as audit manager at Deloitte Touche Tohmatsu and compliance manager at BAX Global. Mr. Sun holds MBA degree with concentration in accounting and he is a U.S. Certificated Public Accountant.

“We are very excited to have Mr. Bing Sun join Daqo New Energy. His more than 15 years’ financial and operational experience in various industries, including photovoltaic industry, will bring great value to the company.” said Dr. Gongda Yao, Chief Executive Officer of Daqo New Energy.

• Polysilicon shipments were approximately 1,001 metric tons, or MT. Photovoltaic (PV) module shipments were 3.9 Mega watts, or MW. In addition, the Company manufactured 8.1 MW PV modules for outsourcing customers. Wafer shipments were 1.3 MW.
• Revenues were $70.7 million, a decrease of 19.0% from the first quarter of 2011 and an increase of 34.8% from the second quarter of 2010.
• Gross profit was $33.0 million, a decrease of 25.9% from the first quarter of 2011 and an increase of 69.8% from the second quarter of 2010.
• Gross margin was 46.6% in the second quarter of 2011, compared to 51.0% in the first quarter of 2011 and 37.0% in the second quarter of 2010.
• Operating income was $32.6 million, a decrease of 24.9% from the first quarter of 2011 and an increase of 98.0% from the second quarter of 2010.
• Operating margin was 46.2%, compared to 49.8% in the first quarter of 2011 and 31.4% in the second quarter of 2010.
• Net income attributable to Daqo New Energy Corp. shareholders was $25.7million, a decrease of 26.6% from the first quarter of 2011 and an increase of 118.6% from the second quarter of 2010.
• Earnings per fully diluted ADS were $0.73, compared to $0.99 in the first quarter of 2011, and $0.41 in the second quarter of 2010.

"The substantial price decline and weak market demand in the second quarter of 2011 has impacted our revenue. However, our core business, the production of polysilicon, was still at 100% utilization and we kept no inventory at the quarter end. We have seen the pricing environment for polysilicon stabilized since the beginning of the third quarter and the demand picked up. The wafer and module markets continue to see pricing pressure. However, the modules order picked up in the third quarter and the majority of our wafer output will be used in our module production through tolling arrangement with our cell partner.” Commented, Dr. Gongda Yao, the Chief Executive Officer of the Company, “ On the financing side, we are happy to announce that we have obtained bank loan approval from Bank of China for our Xinjiang phase II polysilicon expansion plan, which fulfills the financing requirement for the project”.

Outlook for Third Quarter 2011

For the third quarter of 2011, the Company expects to ship 975-990 MT of polysilicon. The company also expects to ship 10 MW of wafer as well as 20 MW of modules. For the module shipment, the company further expects 10 MW will come from its brand name module and 10 MW outsourcing for its customers. This outlook reflects our current and preliminary view and may be subject to change. Our ability to achieve this projection is subject to risks and uncertainties. See “Safe Harbor Statement” at the end of this press release.

CHONGQING, China--(BUSINESS WIRE)--Daqo New Energy Corp. (NYSE: DQ) ("Daqo New Energy" or the "Company"), a leading polysilicon manufacturer based in China, today revised its second quarter 2011 revenue guidance.

Due to the impact of price decline throughout the entire photovoltaic (PV) supply chains in the second quarter of 2011, the Company updates its revenue guidance for the second quarter of 2011 to the following:

For the second quarter of 2011, the Company expects its total revenue to be in the range of $70 million to $71 million, compared to a prior guidance of range of $92 million to $95 million. The Company expects to ship between 970 MT to 990 MT of polysilicon in the second quarter of 2011. The Company also expects to ship approximately 0.7 MW of wafer, 4 MW PV modules under its own brand and sales of approximately 8 MW PV modules outsourcing for its customers.

"We had experienced a substantial price decline in the second quarter of 2011, and as a result, we are revising our revenue guidance for the second quarter of 2011," says Jimmy Lai, CFO of the company. "The reduction in revenue guidance is mainly due to the less shipment in the down-stream product, wafer and module."

We expect that we will require approximately $210 million for capital expenditures in 2011. Such projected capital expenditures will be used primarily for technological improvements and equipment enhancements for our Phase 1 polysilicon facilities, construction of our Phase 2 polysilicon facilities and wafer facilities, and the gradual increase of our module production capacity.

We believe that our current cash and cash equivalents, anticipated cash flow from our operations, and proceeds from additional bank borrowings will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months.

First Quarter 2011 Financial and Operating Highlights

• Polysilicon shipments were approximately 1,089 metric tons, or MT. Photovoltaic (PV) module shipments were 4.8 Mega watts or MW and 8 MW of outsourcing for our customers. The Company also shipped approximately 8 MT polysilicon to produce PV wafer through a tolling arrangement
• Revenues were $87.3 million, an increase of 6.6% from the fourth quarter of 2010 and 93.6% from the first quarter of 2010.
• Gross profit was $44.5 million, a decrease of 2.8% from the fourth quarter of 2010 and 214.9% increase from the first quarter of 2010.
• Gross margin was 51.0% in the first quarter of 2011, compared to 55.9% in the fourth quarter of 2010 and 31.3% in the first quarter of 2010.
• Operating income was $43.5 million, an increase of 5.4% from the fourth quarter of 2010 and 310.1% from the first quarter of 2010.
• Operating margin was 49.8%, compared to 50.4% in the fourth quarter of 2010 and 23.5% in the first quarter of 2010.
• Net income attributable to Daqo New Energy Corp. shareholders was $35.0 million, an increase of 6.6% from the fourth quarter of 2010 and 456.9% from the first quarter of 2010
• Earnings per fully diluted ADS were $0.99, compared to $0.95 in the fourth quarter of 2010, and $0.20 in the first quarter of 2010. Earnings per fully diluted ordinary share were $0.20, compared to $0.19 in the fourth quarter of 2010 and $0.04 in the first quarter of 2010

"We are happy to announce another record quarter in terms of revenue and profitability. Our ability to control our production cost, combined with ongoing favorable polysilicon pricing environment helped us to achieve this record result. During the quarter, we also successfully progressed the construction of our Shihezi, Xinjiang polysilicon phase 2 facility as planned. Our wafer production facility in Wanzhou also commenced production in April. Initial output product quality met our expectations" said Dr. Gongda Yao, CEO of the Company, "With a good start in the first 1 quarter of the year, we are confident that we can execute on our business plan for the year. We are also reaching out to our current and potential polysilicon material customers to secure our polysilicon output for the year of 2012 through 2014 with the signing of supply agreements with advance deposits. We will continue to work hard and deliver value and return for our investors".

For the second quarter of 2011, the Company expects its total revenue to be in the range of $92 million to $95 millions. The Company expects to ship between 950 MT to 1000 MT of polysilicon and generate revenues from the sales of polysilicon in an amount between US$64.5 million to US$67.5 million in the second quarter of 2011. The Company also expects to ship approximately 7 MW of wafer and generate about $4.5 million of revenue. The Company expects PV module sales to be approximately $23 million with the sales of approximately 14 MW PV modules under the Company's own brand and sales of approximately 2.5 MW PV modules outsourcing for its customers. This outlook reflects our current and preliminary view and may be subject to change. Our ability to achieve this outlook is subject to significant risks. See Forward-Looking Statements at the end of this press release.

Fourth Quarter 2010 Financial and Operating Highlights 

• Polysilicon shipments were approximately 966 metric tons, or MT. Photovoltaic (PV) module shipments were 3.5 Mega watts, or MW. The company also shipped approximately 20.5 MT polysilicon to toll into PV wafer.
• Revenues were $81.9 million, an increase of 29.6% from the third quarter of 2010 and 158.2% from the fourth quarter of 2009.
• Gross profit were $45.8 million, an increase of 70.2% from the third quarter of 2010 and 466.4% from the fourth quarter of 2009.
• Gross margin was 55.9% in the fourth quarter of 2010, compared to 42.5% in the third quarter of 2010 and 25.5% in the fourth quarter of 2009.
• Operating income were $41.3 million, an increase of 71.8% from the third quarter of 2010 and 379.5% from the fourth quarter of 2009.
• Operating margin was 50.4%, compared to 38.0% in the third quarter of 2010 and 27.1% in the fourth quarter of 2009.
• Net income attributable to Daqo New Energy Corp. shareholders was $32.8 million, an increase of 85.3% from the third quarter of 2010 and 229.3% from the fourth quarter of 2009
• Earnings per fully diluted ADS were $0.95, compared to $0.64 in the third quarter of 2010, and $0.40 in the fourth quarter of 2009. Earnings per fully diluted ordinary share were $0.19, compared to $0.13 in the third quarter of 2010 and $0.08 in the fourth quarter of 2009.

Full Year 2010 Results Financial and Operating Highlights 

• Polysilicon shipments were 3,650 MT, an increase of 143.6% from 2009.
• Revenues were $242.7 million, an increase of 118.3% from 2009.
• Gross profit was $106.2 million, an increase of 153.2% from 2009
• Gross margin was 43.8% for 2010, compared to 37.7% for 2009
• Operating income was $92.5 million, compared to $36.4 million for 2009.
• Net income was $69.1 million, compared to $29.9 million for 2009.
• Net income attributable to Daqo New Energy Corp. shareholders for 2010 was $68.6 million, an increase of 122.4% from 2009
• Earnings per fully-diluted ADS for 2010 were $2.32, compared to $1.45 in 2009.

"We are very pleased with our operating performance in the fourth quarter of 2010. We executed our business plan well, which resulted in a record quarter, based on the key metrics of revenue, gross profit, gross margin, operating margin and net income. We also successfully completed the Phase 1 polysilicon debottlenecking project, which will enable us to increase our name plate capacity from 3,300 MT to 4,300 MT,” said Dr. Gongda Yao, the chief executive officer of the company. “With the successful listing on the NYSE during the quarter, we now have a platform to grow the company into a leading global solar supply company. In 2011, we will focus on building our Phase 2 polysilicon production facility in Xinjiang, China. We will also commence our 250 MW solar wafer production, along with expanding our PV module capacity. In the beginning of 2011, we have continued to see strong demand from our customers for quality polysilicon, which should lay a strong foundation for a successful year for Daqo New Energy.”

Q1 2011 Outlook 

• For the first quarter of 2011, the company expects
• total revenue to be in the range of $81.5 million to $83.5 millions.
• to ship between 1075 MT to 1100 MT of polysilicon and generate revenues from the sales of polysilicon in an amount between US$74 million to US$76 million in the first quarter of 2011.
• revenue for the PV module sales to be approximately $7.5 million with the sales of approximately 4 MW PV modules under the company's own brand and sales of approximately 8 MW PV modules outsourcing for its customers.

CHONGQING, China--(BUSINESS WIRE)--Daqo New Energy Corp. today announced revised guidance for its fourth quarter ended December 31, 2010. Based on the customer orders and product deliveries,

• the Company now estimates its fourth quarter shipments of polysilicon to be between 930 to 950 metric tons, or MT, above the high-end of its previous guidance of 825 MT to 850 MT given on November 16, 2010.
• The Company also shipped approximately 3 to 4 megawatts, or MW, of photovoltaic modules, versus its previous guidance of 4 to 5 MW.
• Primarily as a result of the increased shipments, total revenues for the fourth quarter 2010 are currently estimated to range between US$75 to US$76 million, also above the high end of its previous range of US$65 to US$69 million.

“The successful completion of the Phase 1 capacity enhancement project has increased our total production capacity to 4,300 MT in 2011, which will help us to better serve our customers in the future.”

Daqo New Energy also announced that it plans to build its Phase 2 polysilicon production facility in Shihezi Economic Development Area in Xinjiang autonomous region, China. This new production facility is expected to commence production in the third quarter of 2012 and to be fully ramped up by the end of 2012.

"We are happy to raise the fourth quarter guidance due to better than expected customer demand and pricing environment. Furthermore, we are pleased to report that we have made encouraging progress in pursuing our polysilicon production capacity expansion strategy. Our periodical maintenance and capacity enhancement of our Phase 1 polysilicon manufacturing facility undertaken in December 2010 had been completed on schedule, and we have selected the location for our Phase 2 polysilicon manufacturing facility," said Dr. Gongda Yao, Chief Executive Officer of Daqo New Energy. "The successful completion of the Phase 1 capacity enhancement project has increased our total production capacity to 4,300 MT in 2011, which will help us to better serve our customers in the future.”

On October 12, 2010, we issued an alert that we were initiating a short-term trade on DQ @ $10.99. (Current price is $14.00).

Why we took the plunge

• Improved short-term sentiment in the ChinaHybrid space
• Solar sector has been in vogue as evidenced by sharp move in Jinkosolar Holding Adr (NYSE:JKS).
• Stock did not over perform in its IPO debut

Note that we have begun winding dwon this trade and this is not a value play.

Investors should be aware of the following points: (Per GeoContributor Dan France).

• DQ is an upstream commodity company supplying polysilicon to solar companies that is trying to build a vertically integrated solar product chain from recovered silicon materials to solar modules.

• DQ attempting to become a vertically integrated company while competing with much larger, well established companies (JKS, LDK) with far greater resources that are already vertically integrated.

• Wide swings in the price of polysilicon and the impact on margins and profitability.

• Volatility of polysilicon prices make forecasting the business challenging.

• Market factors causing a temporary spike in poly prices including plant closures for two major suppliers.  Once plants up and running and supply and demand back in balance the upward pressure on polysilicon prices will abate.  Also, polysilicon imports from the US are filling the supply gap.

• Substantial cap ex needs including $110 million for 2010 and $211 million in 2011. 

• 2010 funded but 2011 is not. 

• Cash flow from operations and additional bank debt won’t fund 2011 so a substantial equity raise will likely be  required.

Daqo New Energy plans for Initial Public Offering.

Company Snapshot:

Leading polysilicon manufacturer based in China.

Industry Snapshot:

• Photovoltaics are one of the proven and most rapidly growing renewable energy sources in the world. Solarbuzz, a solar energy research and consulting firm, reports that the global photovoltaic market reached 7.3 gigawatts, or GW, in 2009, an increase from 1.7 GW in 2006, representing a three-year compound annual growth rate of 62.5%. Solarbuzz forecasts the market to grow from 7.3 GW in 2009 to 37.1 GW in 2014, representing a compound annual growth rate of 38.4%.

• Despite the decrease in demand for solar power products during the second half of 2008 and the first half of 2009 resulting from the global recession and credit market crisis, we believe that demand for solar power products has recovered significantly in response to a number of factors, including the gradual recovery of the global economy and increasing availability of financing for solar power projects. Although selling prices for solar power products have generally stabilized at levels substantially below pre-crisis levels, selling prices may fluctuate again in the future.

• We believe that demand for solar power products will continue to grow rapidly in the long term as solar power becomes an increasingly important source of renewable energy. We believe several factors will drive demand in the global photovoltaic industry, including advantages of solar power, government incentives and decreasing costs of solar energy.

• We believe the key challenges presently facing the photovoltaic industry include the need to improve cost competitiveness against other energy sources, possible additional reduction or elimination of government subsidies and economic incentives and the ability to obtain financing.

• The photovoltaic market in China is at an initial stage of development. According to Solarbuzz, the photovoltaic market in China was 208 MW in 2009, compared to just 35 MW in 2008. However, Solarbuzz expects that China’s photovoltaic market will undergo a significant transformation from a market dominated by off-grid rural and industrial projects to one marked by a significant increase in large on-grid, ground mounted systems as the result of changing project economics and increasing governmental support.
    

Use Of proceeds:

Our net proceeds from this offering are expected to be approximately $83.9 million (assuming an initial public offering price of $11.50 per ADS, the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us). We plan to use approximately $65.0 million of the net proceeds to expand our polysilicon manufacturing facilities and the remainder to finance capital expenditures for our wafer manufacturing business. See “Business—Manufacturing Capacity” for additional information about our production capacity expansion plan.

Underwriter:

• Morgan Stanley & Co. International plc
• Piper Jaffray & Co.

Proposed offering price: $10.50 and $12.50 per ADS

Post IPO Share Calculation: (assuming 5 to 1 Ordinary to ADS conversion ratio).

• 25,942,820: Pre IPO fully diluted share count used in EPS calculation.
•   8,000,000: Newly issued ADS shares
•   1,200,000: Over-allotments ADS shares 

GeoTeam® best effort calculation of total post IPO ADS count to be used in EPS calculations, assuming full conversions and an Ordinary to ADS conversion ratio of 5 to 1:   35,142,820 (Investors can also multiply 5 by reported EPS per ordinary figures to convert to EPS per ADS).

Financial Snapshot:

We have achieved substantial growth since we commenced commercial production of polysilicon in July 2008. In 2009, we produced 1,523 MT of polysilicon and sold 1,498 MT, compared to 291 MT of polysilicon produced and 237 MT sold in 2008. In the six months ended June 30, 2010, we produced 1,826 MT of polysilicon and sold 1,710 MT.

We generated:

• Revenues of $18.0 million for the six months ended June 30 2010 compared to $15.1 million in the comparable 2009 period.
  
• Net income of $15.4 million for the six months ended June 30 2010 compared to $7.4 million in the comparable 2009 period. (Earnings per ads is tracking at about $0.90 using anticipated post IPO share count)