Daqo New Energy Corp. :DQ-US: Earnings Analysis: Q4, 2016 By the Numbers : April 11, 2017

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

Highlights

  • Summary numbers: Revenues of USD 44.58 million, Net Earnings of USD 3.99 million.
  • Gross margins widened from 28.54% to 30.74% compared to the same period last year, operating (EBITDA) margins now 34.66% from 39.25%.
  • Change in operating cash flow of -18.21% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

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

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 44.58 53.18 69.61 56.16 58.18
Revenue Growth (%YOY) -23.37 15.89 103.19 35.11 17.75
Earnings (mil) 3.99 10.97 19.45 8.11 9.44
Earnings Growth (%YOY) -57.72 260.96 2204.85 593.14 162.14
Net Margin (%) 8.95 20.62 27.94 14.43 16.23
EPS 0.48 0.98 1.72 0.73 0.98
Return on Equity (%) 5.81 16.14 29.94 13.1 15.76
Return on Assets (%) 2.42 6.61 11.65 4.86 5.48

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, DQ-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if DQ-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -16.17% and earnings by -63.61% compared to the previous period.

Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 39.25% to 34.66%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 28.54% to 30.74%. For comparison, gross margins were 37.09% and EBITDA margins 42.00% in the immediate last period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

DQ-US‘s year-on-year change in operating cash flow of -18.21% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 23.85% to 17.10% and (2) one-time items that contributed to a decrease in pretax margins from 17.30% to 11.85%

EBIT Margin History
PreTax Margin History

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Company Profile

Daqo New Energy Corp. is a holding company, which engages in the manufacture and sale of polysilicon products for solar cell and module manufacturers. It operates through the Polysilicon and Wafer segments. The company was founded on November 22, 2007 and is headquartered in Wanzhou, China.

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