Daqo Energy(688303) 高盛·2025-01-09 08:23Investment Rating - The investment rating for Daqo New Energy ADR/A (DQ/688303.SS) is "Buy" based on the belief that the current valuation overly reflects concerns about the decline in polysilicon prices and that the company will maintain its industry-leading position in the medium to long term [6]. Core Insights - Daqo New Energy has reduced its production capacity utilization to 35%-40% in Q4 2024 to match downstream demand and has successfully lowered its inventory to a healthy level of one month [2][3]. - The company is experiencing a continuous decrease in cash costs due to falling industrial polysilicon and electricity prices, as well as optimization of production capacity structure [2]. - Management confirmed the implementation of an industry production quota mechanism, which is expected to last at least until mid-2025 [2][3]. - If polysilicon prices rise above RMB 50 per kilogram, the company may increase its capacity utilization, with an expected monthly demand increase of 50,000-100,000 tons [3]. - The company plans to execute a $100 million ADR buyback only after reaching cash cost breakeven, which is above RMB 45 per kilogram for polysilicon [3]. Summary by Sections Production and Inventory Management - As of the end of 2024, Daqo New Energy's inventory has been reduced to one month, down from a peak of two months, while production capacity utilization has decreased to 35%-40% from 50% in Q3 2024 [2]. Cost Structure - The management anticipates a reduction in cash costs in Q4 2024 due to lower prices for industrial polysilicon and electricity, alongside the closure of older production lines in Xinjiang [2][3]. Industry Mechanisms - The production quota mechanism led by the China Photovoltaic Industry Association is primarily based on self-discipline among companies, with no substantial penalties for violations [2]. Price Sensitivity - The management indicated that if polysilicon prices remain below RMB 55 per kilogram, the likelihood of resuming second and third-tier production capacity is low, as this price point corresponds to the EBITDA breakeven level for marginal capacities [3]. Financial Strategy - The company is waiting to reach cash cost breakeven before considering the execution of its ADR buyback plan, which is contingent on polysilicon prices exceeding RMB 45 per kilogram [3].