Daqo Top Gainer Monday as Optimism Rises for Chinese Solar Stocks

The case of Daqo shows how undervalued Chinese solar stocks are in the U.S. markets.
Aug. 30, 2021 19:16
Daqo Top Gainer Monday as Optimism Rises for Chinese Solar Stocks

It was less than two weeks ago when Daqo New Energy Corp. (NYSE: DQ) hit its lowest point of 2021, at $45.11 per share. Today, however, shares of the Chinese maker of polysilicon for solar panels have recovered to the level of early August – and are thus in-the-green year-to-date. The company was the biggest gainer among U.S.-listed Chinese stocks on Monday, trading up 16% intraday, at $63.47 a share.

The rise occurs on lack of timely news; two weeks back, Daqo posted better-than-expected earnings and revenue, and raised its estimates for full-year production. Now, investors may be catching on, seeing the surging market value of Daqo's operational subsidiary, Xinjiang Daqo New Energy (SSE:688303), after its July listing at home, on the STAR Market in Shanghai.

Indeed, Xinjiang Daqo raised an equivalent of $1 billion on Shanghai Stock Exchange's Sci-Tech innovation board on July 23. The stock in the subsidiary ended 3% higher Monday, at 90 yuan ($13.92) – that's 44% above its debut day close and four times the issue price. That places Xinjiang Daqo at a market capitalization of about $26.8 billion. To compare, U.S.-listed Daqo has a market cap of $4.6 billion.

And Bloomberg pointed out the discrepancy between the two market caps last week: citing an analyst at CMB International Securities Corp., Robin Xiao, the medium said the assets at the two firms are "almost identical." The report further describes the shift of the Chinese solar firms to domestic markets, where investors are more optimistic on the path for growth for the solar industry thanks to President Xi Jinping's net-zero targets.

Meanwhile, investors in the United States are worried about the headwinds. One, it's the ongoing trade war between Beijing and Washington. In mid-August, a group of U.S. solar manufacturers have filed with the U.S. Department of Commerce requesting the Chinese firms manufacturing in Malaysia, Vietnam, and Thailand to be taxed for their imports to the U.S. as Chinese manufacturers would be. The American Solar Manufacturers Against Chinese Circumvention claimed their rivals in China were "unlawfully circumventing" tariffs.

Earlier, U.S. Customs and Border Protection began detaining panel imports from China in relation to the alleged human rights violations in Xinjiang. That was after Washington added Hoshine Silicon Industry Co. to its sanctioned entities list on the grounds that "the subject entities are engaging in or enabling activities contrary to U.S. foreign policy interests." Daqo, with factories in Xinjiang, has tried to shield itself from any sanctions related to the alleged labor camps and even launched open-door campaigns at its facilities.

And lastly, concerns remain over the delisting of Chinese stocks after the Holding Foreign Companies Accountable Act was passed in late 2020. Recently, Senate had voted to fasten the effect of the Act, shortening the time to comply with the law to two years from three. According to the Act, foreign firms have to succumb to U.S. PCAOB auditing and reveal any ties to the Chinese government.

Recently, China's Ministry of Industry and Information Technology released June figures for the production of polysilicon, showing 42,000 tons of polysilicon and 14 GW of solar modules produced in China. In the first half-year, the world's leader in the manufacturing of solar panels produced 238,000 tons of polysilicon, 105 GW of silicon wafers, 92.4 GW of solar cells and 80.2 GW of solar modules.

As to Daqo, for the second quarter, it reported $441.4 million in revenue on $232.1 million in income, compared with $256.1 million revenue and $83.2 million income in the first quarter.

In a statement at the time, Daqo's CEO Longgen Zhang said, "On the policy front, during the Politburo Central Committee meeting on July 30 regarding economic activity in the second half of 2021, with China's President Mr. Xi Jinping presiding over the meeting, the central government reiterated the urgency for national coordination on carbon peak and carbon neutrality goals and the development of the peak carbon 2030 action plans and related policies as early as possible. In addition, China recently announced an ambitious program to massively deploy distributed generation solar projects at the local government level. We believe solar will continue to be a strong beneficiary of government policies and support."

On Monday, other Chinese solar stocks gained as well. JinkoSolar Holding (NYSE: JKS) was trading 11% higher, ReneSola Ltd. (NYSE: SOL) gained 1%, and Canadian Solar Inc. (Nasdaq: CSIQ) was up about 2% intraday. Unlike Daqo, all three are down year-to-date, along with the majority of Chinese stocks trading in the United States amid heightened market fears. Separately, JinkoSolar and Canadian Solar are also seeking public listings at home.

Daqo, DQ, JKS, China, Xinjiang, SOL, CSIQ