Daqo New Energy Corp. :DQ-US: Earnings Analysis: Q1, 2016 By the Numbers : June 7, 2016

Daqo New Energy Corp. reports financial results for the quarter ended March 31, 2016.

We analyze the earnings along side the following peers of Daqo New Energy Corp. – Dow Chemical Company, Cabot Microelectronics Corporation, Hanwha Q CELLS Co., Ltd. Sponsored ADR, ReneSola Ltd. Sponsored ADR and STR Holdings, Inc. (DOW-US, CCMP-US, HQCL-US, SOL-US and STRI-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 56.16 million, Net Earnings of USD 8.11 million.
  • Gross margins widened from 20.23% to 29.02% compared to the same period last year, operating (EBITDA) margins now 36.76% from 25.48%.
  • Year-on-year change in operating cash flow of 826.12% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 41.57 34.26 45.89 58.18 56.16
Revenue Growth (%YOY) -1.06 -20.28 -2.73 17.75 35.11
Earnings (mil) 1.17 -0.92 3.04 9.44 8.11
Earnings Growth (%YOY) -55.46 -120.8 -48.31 162.14 593.14
Net Margin (%) 2.81 -2.7 6.62 16.23 14.43
EPS 0.12 -0.09 0.29 0.98 0.73
Return on Equity (%) 2.11 -1.55 5.12 15.76 13.1
Return on Assets (%) 0.66 -0.49 1.63 5.48 4.86

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Market Share Versus Profits

Revenues History
Earnings History

DQ-US‘s change in revenue this period compared to the same period last year of 35.11% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that DQ-US is holding onto its market share. Also, for comparison purposes, revenues changed by -3.48% and earnings by -14.14% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 20.23% to 29.02% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 25.48% to 36.76% compared to the same period last year. For comparison, gross margins were 28.54% and EBITDA margins were 39.25% in the last reporting period.

Gross Margin Versus EBITDA Margin

Cash Versus Earnings – Sustainable Performance?

DQ-US‘s change in operating cash flow of 826.12% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 9.04% to 21.84% and (2) one-time items. The company’s pretax margins are now 16.47% compared to 3.33% for the same period last year.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Daqo New Energy Corp.

Company Profile

Daqo New Energy Corp. is engaged in the manufacture and sale of polysilicon and silicon wafer. Its products include polysilicon, silicon wafers, and solar modules. The company was founded on November 22, 2007 and is headquartered in Wanzhou, China.

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