On Wednesday, Daiwa Securities revised its rating on Daqo New Energy Corp (NYSE:DQ) shares, shifting from a 'Neutral' stance to an 'Outperform' position, accompanied by a new price target set at $25.00.
The adjustment follows a notable decline in the company's market capitalization, which at $1.5 billion, now sits below Daiwa's net cash projections for the coming years—$2.2 billion for 2024, $1.8 billion for 2025, and $1.5 billion for 2026. This reassessment is grounded in a conservative outlook on the pricing of polysilicon, a key material in solar panel manufacturing.
Daqo's share price experienced a 23% drop on Tuesday, which Daiwa interprets as an opportune moment for investors to reconsider the stock's valuation. The firm suggests that the current market cap presents an attractive entry point, as it is considered inexpensive relative to their cash estimates.
Recent developments within the solar sector have also influenced Daiwa's optimistic outlook.
Over the past week, two significant events have spurred investor interest: an appeal by the China Photovoltaic Industry Association (CPIA) to maintain solar module prices above a certain threshold, and rumors that the Ministry of Industry and Information Technology (MIIT) will introduce new energy consumption standards.
These standards aim to phase out less efficient polysilicon production capacities, potentially leading to a price stabilization and recovery in the market.
Looking ahead, Daiwa anticipates further catalysts that could drive Daqo's share price upward. The China National People's Congress (NPC) is scheduled to convene from November 4 to November 8, where discussions regarding fiscal stimulus plans are expected.
Similar to the positive reaction observed in late September following favorable macro policy announcements, Daiwa predicts a potential surge in Daqo's stock value if the NPC delivers encouraging news.
Daiwa's reassessment concludes with the expectation that the upside risks previously associated with their 'Hold' rating have begun to manifest, justifying their decision to upgrade Daqo to an 'Outperform' rating. This perspective is based on the current market dynamics and potential policy-driven momentum in the solar industry.
In other recent news, Daqo New Energy Corp. reported a smaller than anticipated loss for the third quarter of 2024. The Chinese polysilicon manufacturer posted an adjusted loss of $0.59 per American Depositary Share (ADS), beating analyst estimates for a loss of $0.70 per ADS.
However, the company's revenue of $198.5 million fell short of the projected $271.62 million. In comparison to the second quarter, Daqo's results showed an improvement, with the company attributing the narrowing losses to lower inventory write-downs.
Daqo reduced its production utilization rate to 50% in Q3 due to weak demand, producing less polysilicon than in Q2. For the fourth quarter, Daqo expects polysilicon production to be between 31,000 to 34,000 metric tons and has narrowed its full-year 2024 production guidance to 200,000-210,000 metric tons.
Despite challenging market conditions, Daqo maintains a strong balance sheet with $853.4 million in cash and no debt. These are some of the recent developments regarding Daqo New Energy Corp.
InvestingPro Insights
Recent InvestingPro data provides additional context to Daiwa's upgraded outlook on Daqo New Energy Corp (NYSE:DQ). The company's market capitalization stands at $1.49 billion, aligning closely with Daiwa's assessment. Daqo's Price to Book ratio of 0.34 suggests the stock may be undervalued, supporting Daiwa's view that the current market cap presents an attractive entry point.
InvestingPro Tips highlight that Daqo holds more cash than debt on its balance sheet, which corroborates Daiwa's focus on the company's net cash projections. Additionally, the tip indicating that Daqo is trading at a low revenue valuation multiple further reinforces the notion that the stock may be undervalued at current levels.
It's worth noting that InvestingPro offers 14 additional tips for Daqo, providing a more comprehensive analysis for investors considering this opportunity in the solar energy sector.
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