Behind the more than 50% increase in stock price within the year, "anti-interior curling" has become the value engine of Daqo New Energy Corp Sponsored ADR(DQ.US)

Thanks to the rebound in silicon prices, after experiencing more than a year of price declines and performance pressure, the upstream of the photovoltaic industry was the first to see a turnaround in performance in the third quarter of this year, with Daqo New Energy Corp Sponsored ADR (DQ.US) being one of them. It was learned that on the evening of October 27, Daqo New Energy Corp Sponsored ADR announced its unaudited financial performance for the third quarter of 25Q3. The latest financial report data shows that the company achieved a total revenue of approximately $245 million in the current period, a significant increase of 225.27% compared to the previous period; compared to the same period last year, the company's overall revenue increased by 23%. Benefiting from the strong financial report, on October 27, Daqo New Energy Corp Sponsored ADR's stock price surged by 14.06%, reaching a high of $30.28 in intraday trading, approaching the yearly high point. Whether it can continue to break through to new highs has become the focus of investors' attention. Behind the more than 50% increase in the stock price this year Although Daqo New Energy Corp Sponsored ADR fell slightly by 0.88% on October 28, looking at a longer timeline, the company's stock price has risen by 51.39% so far this year. If this trend continues, the company is expected to exit the downward trend in its stock price that has persisted since 2021. This round of market performance for Daqo New Energy Corp Sponsored ADR began in early July of this year. Prior to that, the company's stock price had hit a yearly low of $12.40 at the end of April. The reason behind this was the simultaneous decline in volume and price in the industry. It is understood that in the first half of this year, the overall sales volume of the top four polysilicon companies in China, including Xinjiang Daqo New Energy, significantly declined. Statistics show that the total sales of polysilicon by the four leading companies, including Tongwei Co., Ltd. (600438.SH) and Daqo New Energy Corp Sponsored ADR, decreased by 37.4% year-on-year to 368,800 tons. Xinjiang Daqo New Energy had the largest decline in sales volume, with a year-on-year decrease of 52.49%. In addition to the decrease in sales volume, the price of polysilicon also experienced a significant decline during the same period. This was due to the oversupply of industry capacity and high inventory levels at the time, causing market prices in the CECEP Solar Energy value chain to fall below the cash cost level. Data shows that at that time, the average selling price of polysilicon for Daqo New Energy Corp Sponsored ADR was $31.20/kg, a year-on-year decrease of 33.63%, already below its cash cost of $37.66/kg in the same period. This directly led to a 65.8% year-on-year decrease in the company's revenue in Q2 of this year, with a net loss of $76.5 million for shareholders. With the convening of a symposium on manufacturing enterprises in the photovoltaic industry on July 3, the industry's "anti-internal competition" received higher-level attention, increasing market expectations for greater efforts to regulate the disorderly competition in the domestic photovoltaic industry. In addition, thanks to the 'anti-internal competition' policy promoted at the national level since July, the irrational situation where polysilicon prices were far below the cost line has been effectively reversed, causing the mainstream polysilicon futures contract prices to rise continuously above 40,000 yuan since July. On July 2, Daqo New Energy Corp Sponsored ADR's stock price gapped up and surged by 15.75%, showing positive market feedback. under the continued promotion of the "anti-internal competition" in the industry, the stock price achieved a rally in July, until July 24 when its stock price rose along the 5-day moving average. In terms of trading volume, after July 2, the daily trading volume of the company showed a trend of fluctuating decline, dropping to 690,000 shares on July 21, indicating a gradual increase in the consistency of the holders in the market. It was not until July 22 that Daqo New Energy Corp Sponsored ADR once again recorded a substantial increase with a trading volume of 4.9066 million shares, and significant differences began to emerge again in the market. Analyzing the chip data from July 2 and July 22, it can be seen that the peak of the chip on July 2 was around $13.8, reflecting the situation where investors who had held off until the stock price hit a yearly low of $13.8 entered the market in large numbers; on July 22, the peak of the chip rose to around $20, with a significant decrease in chips around $13.8, indicating that after this rally, Daqo New Energy Corp Sponsored ADR had undergone a large-scale exchange of chips inside and outside the market, and most of the chips that had been invested near $13.8 had exited with profits. Since then, Daqo New Energy Corp Sponsored ADR has been fluctuating technically around the upper band of the BOLL line, only touching the lower band of the BOLL line on October 10 when it fell significantly by 14.52%, with a trading volume of 2.836 million shares on that day indicating that a new batch of holders had entered the market at the lows. It can be seen that on the day the Q3 financial report was released, although Daqo New Energy Corp Sponsored ADR's stock price once again surged by 14%, the daily trading volume was only about 2 million shares, and the volume further decreased the next day, indicating that market participants are still waiting and watching, or waiting for the next industry signal. Supply and demand adjustments and "anti-internal competition" Due to the high profitability of polysilicon in 2021 and 2022, the industry has expanded production capacity on a large scale, with China's polysilicon production expected to reach 1.43 million tons in 2023, a year-on-year increase of 76.33%. With a significant increase in supply and continuous price declines, leading companies have continued to expand production capacity to increase market supply. Taking Daqo New Energy Corp Sponsored ADR as an example, as a leading company that has been deeply involved in the silicon material segment for many years, it has long had advantages in market share and production costs. Data shows that in 2023, domestic polysilicon production exceeded 1.43 million tons, with Daqo New Energy Corp Sponsored ADR's polysilicon production reaching 197,800 tons, accounting for about 13% of the domestic polysilicon production, ranking among the top tier in the industry. However, despite the rapid decline in silicon prices, Daqo New Energy Corp Sponsored ADR continued to expand on a large scale. In December 2023, Daqo New Energy Corp Sponsored ADR announced a plan to invest 15 billion yuan to build a silicon-based new material industrial park. The project is planned to be implemented in two phases, with the first phase investing 7.5 billion yuan to build an annual production of 50,000 tons of polysilicon and matching 150,000 tons of industrial silicon and 1.2 million pieces of round silicon core projects; and the second phase investing 7.5 billion yuan to build an annual production of 50,000 tons of polysilicon and matching 150,000 tons of industrial silicon and 1 million pieces of round silicon core projects. As the competition in the photovoltaic industry intensified, the oversupply of polysilicon and the sharp drop in silicon prices led to a significant decline in Daqo New Energy Corp Sponsored ADR's subsequent performance. This is also an important reason for the continuous decline in the company's stock price in recent years. This reflects the imbalance between production and sales of silicon materials in China. The total polysilicon capacity in China has reached 3.5 million tons, with an estimated global demand of only about 1.5 million tons by 2026, resulting in an oversupply rate of more than double. Therefore, only by resolving excess capacity or effectively limiting production can price volatility be fundamentally restrained. In May of this year, there were market rumors that the industry would establish a polysilicon storage and procurement consortium similar to conduct procurement, which was expected to eliminate about 1 million tons of outdated capacity, followed by rumors that the consortium (storage platform) is expected to be built by 2025, which temporarily boosted stock prices of many listed photovoltaic companies. Although the above rumors have not been confirmed, in response to the domestic policy of "anti-internal competition," Daqo New Energy Corp Sponsored ADR, as a leading player in the silicon material industry, has taken the lead in reducing production. It was learned that in the first half of this year, the extent to which polysilicon companies reduce production is highly correlated with whether the polysilicon price falls below the cash cost. Companies with higher cash costs, such as Daqo New Energy Corp Sponsored ADR, have taken proactive measures to reduce production to minimize losses. According to financial report data, Daqo New Energy Corp Sponsored ADR's current polysilicon production is 50,800 tons, a year-on-year decrease of about 60%, and the company's corresponding capacity utilization rate has also dropped to 33.31%, a decrease of 50.1 percentage points year-on-year. In terms of the industry, with polysilicon prices stabilizing at around 50,000 yuan per ton, recent market news suggested that polysilicon projects in the southwestern region may be shut down. It is reported that Sichuan, Yunnan, and other southwestern regions are one of the main production areas for polysilicon in China, and these regions experience a dry season from November to April of the next year when electricity prices rise by 30-50% compared to the wet season. The sharp increase in production costs is expected to lead to a comprehensive shutdown of some polysilicon production bases in the southwestern region in late October to early November this year. If the above rumors are true, it may involve about 320,000 tons of polysilicon production capacity, and the time has come to verify this market rumor. The attitude of holders in the market in the short term may depend on the realization of related favorable conditions.