Daqo New Energy Corp. (DQ) Q4 2012 Earnings Report, Transcript and Summary

Gongda Yao - Chief Executive Officer Bing Sun - Chief Financial Officer

Good day and welcome to the Daqo New Energy Fourth Quarter 2012 Results Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded. And I would now like to turn the conference over to Sun Bing, CFO. Please go ahead.

Thanks, Emily. Thanks everyone for joining us today for Daqo New Energy’s fourth quarter and the fiscal year 2012 unaudited financial results conference call. Daqo New Energy issued its financial results for the fourth quarter earlier today, which can be found on the company’s website. To facilitate in today’s conference call, we put together a PPT presentation. Today, attending the conference call, we have Dr. Yao, our CEO and myself. The call today will feature our remarks from Dr. Yao covering business and operational developments. And then I will discuss the company’s financial performance for fourth quarter. After that, we will open the floor to Q&A section from the audience. With no further delay, I will turn the call over to Dr. Yao.

Thank you, Bing. Although the global solar PV market endured a significant downturn in 2012, we are encouraged to see that solar market has begun to stabilize across the value chain since the end of 2012. We do see the demand for polysilicon is picking up. The average selling price is increasing and the payment terms are improving. We believe the worst days have passed and the industry needs some time to recover through capacity rationalization, merger and acquisition, and a further technical improvement. As for our Xinjiang facilities, we started a pilot production in September 2012. Thanks to the dedication and hard work of our technical and operation teams. We produced 617 metric ton of polysilicon in our Xinjiang facility in the fourth quarter of 2012. We shipped 323 metric ton to our customers and 139 metric ton internally to our wafer manufacturing business in the fourth quarter of 2012. We successfully reached our targets in terms of capacity and cost structure by end of March 2013. Our total production cost of polysilicon in Xinjiang was already below $20 per kilo in February. And we believe there is still some room for further improvement. Now, we are working intensely to maximize the output and further reduce the cost in Xinjiang plant. We have also entered into long-term supply agreements with its top tier downstream players. We estimated that polysilicon outputs from Xinjiang will be around 1,000 metric ton shipments will be around 720 metric ton. All polysilicon inventory in Xinjiang has been booked out. We expect our Xinjiang facilities will start to generate positive cash flows in the first quarter of 2013. We believe we are well positioned in the current challenging market with Xinjiang facility’s low cost and high quality of polysilicon products. As for our facilities in…

Thank you, Dr. Yao. Let’s look through the financial performance. As we can see in our third page of financial data in our PPT to investors P&L summary and the balance sheet summary. For more detailed financial data and the related analysis, you may look at our Q4 and the fiscal year 2012 earnings release, and I’ll be happy to answer your questions. Now, let’s go through the financials. Revenue was $6.2 million compared to $21.1 million in the third quarter. The revenue in Q4 of our sales of Wanzhou polysilicon inventory up 266 metric ton, 5.9 megawatt of wafer, and the 33 metric ton of ingot. Sales proceeds from polysilicon made by the Xinjiang facility during pilot production period were excluded from our revenue recorded in Q4. The cost of the revenue was $17.2 million, which included the cost of the Wanzhou polysilicon facility of $9.5 million during its maintenance and the technology improvement period with no output. Expenditures related at the Xinjiang polysilicon facility in the pilot production period were not included in the cost of revenue in Q4. Gross loss was $11.1 million, compared to $10.8 million in the third quarter. SG&A expenses were $1.6 million in Q4 compared to $5.1 million in third quarter of 2012. The company recorded a $2.1 million bad debt provision in the third quarter. There was no such provision in the fourth quarter of 2012. Also, the decrease was due to our assets on cost of reduction. Long-lived asset impairments, in the fourth quarter of 2012, the company recorded $42.9 million long-lived asset impairments of our wafer facility. It was to reflect the market challenges that have an adverse effect on the expected profit-generating ability of these wafer assets. In the fourth quarter of 2011, the company recognized a long-lived assets…

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And at this time, I am not showing any questions, so I would like to turn the conference back over to Sun Bing for any closing remarks.

Thanks everybody for your time. And if you have any questions after this conference call, please feel free to contact me directly or you can contact our Investor Relationship Manager, Kevin He. Thank you everybody for your time.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.