2024-04-03 14:16:53 ET
Summary
- Daqo New Energy holds a majority stake in its subsidiary Xinjiang Daqo, which is listed on the Shanghai Stock Exchange.
- Daqo is trading at 29.9% of the NAV of the stake in the Chinese subsidiary, which translates into an upside of 235%.
- There is significant operating leverage in the polysilicon price, potentially adding further upside to the discount to NAV.
- There are manageable operational and regulatory risks involved.
Daqo New Energy ( DQ ) is the holding company of one of the world's largest polysilicon manufacturers, Xinjiang Daqo, which is listed as a subsidiary of Daqo on the Shanghai Stock Exchange via A-shares.
Thesis
The investment thesis is very simple. Daqo New Energy currently holds around 72.68% of the Chinese subsidiary Xinjiang Daqo, which currently has a market capitalization of around 8.05 billion and is listed on the Shanghai Stock Exchange. The stake in the subsidiary is therefore worth around $5.8 billion. With a market capitalization of around $1.74bn, Daqo is therefore currently valued at 29.9% to NAV, which translates into an upside to fair value of 235% (or $62.70 per share) and potentially much more if the polysilicon price, which I will discuss further below, turns in Daqo's favor. So one can buy Daqo for 30 cents on the dollar, implying a huge margin of safety....
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For further details see:
Daqo New Energy: An Opportunity To Buy The Company For Cents On The Dollar