Daqo New Energy (DQ) - one of the largest Chinese polysilicon manufacturers.

This material is used in the production of ingots and wafers for solar panels and solar energy components.

Key factors driving investment appeal:

1. The market currently assigns no value to DQ's business operations, as its market capitalization is equal to its cash balance. As of the end of 2022, the company had virtually no debt, and its cash balance amounted to around $3.5 billion, approximately equal to its market capitalization.
2. Revenue and EPS grew more than 2.5 times. Daqo finished 2022 with record financial results in the company's history. The company managed to increase its revenue to $4.6 billion, 176% higher than the previous year. EBITDA, in turn, grew 2.8 times to $3.1 billion. These results were achieved due to a nearly 4-fold increase in the market value of polysilicon over the last two years and an increase in sales volume.
3. Low costs are a key competitive advantage. Daqo is not only one of the lowest-cost polysilicon producers but also holds a significant global market share (around 13%). Its low production cost (only about $7,000 per ton) ensures high business efficiency and profitability. In 2022, the EBITDA margin and net margin were 68% and 40%, respectively.

Risks:

1. 2022 may remain a record year for financials. Despite the record results in 2022, the company is unlikely to show multiple growth in the next few years. According to Bloomberg forecasts, the company could face a 20-25% (YoY) decline in revenue and EPS in 2023-24.
2. Exposure to market cycles. Daqo cannot control the price of its products or the size of its costs. Over 50% of its costs come from polysilicon extraction, while electricity accounts for over a quarter of its expenses. Although the company hedges itself with long-term contracts, a drop in the price of polysilicon (which has been noticeable since the end of 2022) could impact the company's revenues.
3. Country risk. DQ is a Chinese company actively operating in the US market, and its shares are traded on an American exchange. If geopolitical tensions between China and the US increase, this could become a negative factor for the company.