Daqo New Energy Corp. Q3 FY2026 earnings call

• Market Environment: Polysilicon prices rebounded toward cost levels due to policy enforcement against low-cost sales, but downstream inventory remains high, limiting trading volumes.
• Operational Efficiency: Production volume reached 53,469 metric tons, exceeding guidance. Average selling price increased 2% sequentially to $4.12/kg. Average cash cost fell 7.4% to a record low of $4.23/kg.
• Strategic Pivot: Management is evaluating a reduction in utilization rates to align with demand and support destocking. They are diversifying into AI Data Center (AIDC) power infrastructure, including energy storage and solid-state transformers, leveraging expertise from affiliated entity DaKo Group.
• Financial Position: The balance sheet remains robust with zero debt. Cash, equivalents, and short-term investments totaled approximately $2.06 billion USD as of September 30, 2026.
• Long-term Outlook: Optimistic about long-term solar PV growth despite near-term challenges. Commitment to N-type technology and digital transformation to maintain competitive edge.

The company reported total revenue of $194.2 million for the third quarter of 2026, a significant increase from $62.7 million in Q2 and a decrease from $244.6 million in Q3 2025. This growth was driven by a surge in shipment volumes to 46,910 metric tons (up from 15,190 metric tons in Q2). The firm operates primarily in the polysilicon segment; specific breakdowns for other product segments were not provided as they are not yet generating revenue. Gross loss narrowed to $60.6 million from $82.7 million in Q2, resulting in a negative gross margin of 31% compared to -132% in Q2. Net loss attributable to shareholders was $52.9 million, improving significantly from $81.2 million in Q2.

• Q4 2026 Production: Expected to be between 35,000 and 45,000 metric tons, reflecting a disciplined approach to align production with market demand.
• Full Year 2026 Production: Expected to be in the range of 175,000 to 185,000 metric tons.
• Cost Trends: Expectation that Q4 costs will remain similar to Q3 levels, with 2027 costs potentially showing slight reductions.
• Inventory Provisions: Management expects Q4 inventory impairment provisions to be lower than Q3 if average selling prices remain stable or improve.

• Policy Enforcement Uncertainty: The exact level and timing of regulatory enforcement regarding pricing laws and energy consumption standards remain unclear, creating uncertainty for industry-wide price recovery.
• High Inventory Levels: Elevated industry inventories (approx. 700,000 metric tons) and weak near-term demand continue to challenge the operating environment.
• Execution Risk in Diversification: Success of the new AIDC business depends on timely construction completion and market adoption of next-generation energy solutions.
• Regulatory Changes: Potential shifts in trade policies or export restrictions could impact overseas expansion strategies.

Q: How should we view Q4 ASP relative to spot prices given contracts signed in July? / A: Management aims to sell above all-in cost (~43 RMB/kg), but price recovery will be gradual due to high inventory. Prices may ramp up to 45-50 RMB/kg if policy enforcement strengthens and supply rebalances faster. The process involves moving from cash cost to full cost recovery over several months.

Q: What is the strategy for Q4 production volume amidst industry calls for capacity cuts? / A: Current monthly production is ~15,000 metric tons. While the company welcomes industry-wide utilization reduction to ~35%, it will wait for peers to act before committing to deeper cuts. The wide Q4 guidance range (35k-45k tons) reflects this fluidity and observation of peer actions.

Q: When will the AIDC business generate revenue and what is the capex plan? / A: Construction has begun, with completion expected in H1 2027. Revenue generation is expected in 2027, starting with integrated electrical equipment solutions (transformers, bus gear). Capex for 2027 is estimated at 1 billion RMB, targeting 15-20% gross margins.

Q: Will the company initiate share repurchases given its strong cash position? / A: Share repurchases are a priority but are currently delayed pending clarity on anti-involution policy enforcement and peer responses. Management wants to ensure correct sizing of returns based on future cash generation potential, with board discussions planned for Q4.

Q: What is the outlook for global demand and China's domestic demand in 2027? / A: Global demand is expected to grow in the high single digits. In contrast, China’s domestic demand is expected to be flat or see a slight year-over-year decline, remaining in the high 100s to 200 GW range, leading to a net-flat global picture.