Intrinsic value of Daqo New Energy ADR - DQ

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$19.29

  Intrinsic Value

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  Value-price divergence*

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of DQ stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  25.82
  14.90
  13.91
  13.02
  12.22
  11.50
  10.85
  10.26
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.26
  7.04
  6.83
  6.65
  6.49
  6.34
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
Revenue, $m
  229
  209
  238
  269
  302
  337
  373
  412
  452
  494
  537
  583
  630
  679
  730
  783
  838
  895
  955
  1,017
  1,081
  1,148
  1,218
  1,291
  1,367
  1,446
  1,529
  1,615
  1,705
  1,799
  1,897
Variable operating expenses, $m
 
  172
  196
  222
  249
  278
  308
  339
  372
  407
  443
  480
  519
  559
  602
  645
  691
  738
  787
  838
  891
  946
  1,004
  1,064
  1,126
  1,192
  1,260
  1,331
  1,405
  1,482
  1,563
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  164
  172
  196
  222
  249
  278
  308
  339
  372
  407
  443
  480
  519
  559
  602
  645
  691
  738
  787
  838
  891
  946
  1,004
  1,064
  1,126
  1,192
  1,260
  1,331
  1,405
  1,482
  1,563
Operating income, $m
  65
  37
  42
  47
  53
  59
  66
  72
  80
  87
  95
  103
  111
  119
  128
  138
  148
  158
  168
  179
  190
  202
  214
  227
  241
  255
  269
  284
  300
  317
  334
EBITDA, $m
  99
  72
  82
  93
  105
  117
  129
  143
  156
  171
  186
  202
  218
  235
  253
  271
  290
  310
  331
  352
  374
  398
  422
  447
  473
  501
  529
  559
  590
  623
  657
Interest expense (income), $m
  14
  12
  15
  18
  21
  24
  28
  32
  36
  40
  45
  49
  54
  59
  64
  69
  75
  81
  87
  93
  100
  106
  113
  121
  128
  136
  145
  153
  162
  172
  182
Earnings before tax, $m
  51
  25
  27
  30
  32
  35
  38
  41
  44
  47
  50
  53
  57
  61
  64
  68
  73
  77
  81
  86
  91
  96
  101
  106
  112
  118
  124
  131
  138
  145
  152
Tax expense, $m
  7
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
Net income, $m
  43
  18
  20
  22
  24
  25
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  82
  86
  91
  95
  100
  106
  111

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  16
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  657
  744
  848
  958
  1,075
  1,199
  1,329
  1,465
  1,608
  1,757
  1,912
  2,073
  2,241
  2,416
  2,598
  2,787
  2,983
  3,187
  3,398
  3,619
  3,848
  4,087
  4,336
  4,595
  4,865
  5,146
  5,440
  5,747
  6,067
  6,402
  6,752
Adjusted assets (=assets-cash), $m
  641
  744
  848
  958
  1,075
  1,199
  1,329
  1,465
  1,608
  1,757
  1,912
  2,073
  2,241
  2,416
  2,598
  2,787
  2,983
  3,187
  3,398
  3,619
  3,848
  4,087
  4,336
  4,595
  4,865
  5,146
  5,440
  5,747
  6,067
  6,402
  6,752
Revenue / Adjusted assets
  0.357
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
  0.281
Average production assets, $m
  551
  634
  722
  816
  915
  1,021
  1,131
  1,247
  1,369
  1,496
  1,628
  1,765
  1,908
  2,057
  2,212
  2,373
  2,540
  2,713
  2,894
  3,081
  3,276
  3,480
  3,691
  3,912
  4,142
  4,382
  4,632
  4,893
  5,166
  5,451
  5,749
Working capital, $m
  -177
  -63
  -72
  -81
  -91
  -102
  -113
  -124
  -136
  -149
  -162
  -176
  -190
  -205
  -220
  -236
  -253
  -270
  -288
  -307
  -327
  -347
  -368
  -390
  -413
  -437
  -462
  -488
  -515
  -543
  -573
Total debt, $m
  244
  310
  375
  445
  518
  596
  678
  764
  853
  947
  1,045
  1,146
  1,252
  1,362
  1,476
  1,595
  1,718
  1,846
  1,980
  2,118
  2,263
  2,413
  2,569
  2,732
  2,902
  3,079
  3,264
  3,457
  3,658
  3,869
  4,089
Total liabilities, $m
  387
  468
  533
  603
  676
  754
  836
  922
  1,011
  1,105
  1,203
  1,304
  1,410
  1,520
  1,634
  1,753
  1,876
  2,004
  2,138
  2,276
  2,421
  2,571
  2,727
  2,890
  3,060
  3,237
  3,422
  3,615
  3,816
  4,027
  4,247
Total equity, $m
  270
  276
  315
  355
  399
  445
  493
  544
  596
  652
  709
  769
  832
  896
  964
  1,034
  1,107
  1,182
  1,261
  1,343
  1,428
  1,516
  1,608
  1,705
  1,805
  1,909
  2,018
  2,132
  2,251
  2,375
  2,505
Total liabilities and equity, $m
  657
  744
  848
  958
  1,075
  1,199
  1,329
  1,466
  1,607
  1,757
  1,912
  2,073
  2,242
  2,416
  2,598
  2,787
  2,983
  3,186
  3,399
  3,619
  3,849
  4,087
  4,335
  4,595
  4,865
  5,146
  5,440
  5,747
  6,067
  6,402
  6,752
Debt-to-equity ratio
  0.904
  1.120
  1.190
  1.250
  1.300
  1.340
  1.370
  1.400
  1.430
  1.450
  1.470
  1.490
  1.510
  1.520
  1.530
  1.540
  1.550
  1.560
  1.570
  1.580
  1.580
  1.590
  1.600
  1.600
  1.610
  1.610
  1.620
  1.620
  1.630
  1.630
  1.630
Adjusted equity ratio
  0.421
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  43
  18
  20
  22
  24
  25
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  82
  86
  91
  95
  100
  106
  111
Depreciation, amort., depletion, $m
  34
  36
  41
  46
  51
  57
  64
  70
  77
  84
  91
  99
  107
  116
  124
  133
  143
  152
  163
  173
  184
  195
  207
  220
  233
  246
  260
  275
  290
  306
  323
Funds from operations, $m
  118
  54
  61
  68
  75
  83
  91
  100
  109
  118
  128
  138
  149
  160
  171
  183
  196
  209
  222
  236
  250
  265
  281
  298
  315
  332
  351
  370
  391
  412
  434
Change in working capital, $m
  19
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
Cash from operations, $m
  99
  55
  69
  77
  85
  93
  102
  111
  121
  131
  141
  152
  163
  175
  187
  199
  212
  226
  240
  255
  270
  286
  302
  319
  338
  356
  376
  396
  418
  440
  464
Maintenance CAPEX, $m
  0
  -31
  -36
  -41
  -46
  -51
  -57
  -64
  -70
  -77
  -84
  -91
  -99
  -107
  -116
  -124
  -133
  -143
  -152
  -163
  -173
  -184
  -195
  -207
  -220
  -233
  -246
  -260
  -275
  -290
  -306
New CAPEX, $m
  -67
  -82
  -88
  -94
  -100
  -105
  -111
  -116
  -121
  -127
  -132
  -138
  -143
  -149
  -155
  -161
  -167
  -174
  -180
  -188
  -195
  -203
  -212
  -221
  -230
  -240
  -250
  -261
  -273
  -285
  -298
Cash from investing activities, $m
  -66
  -113
  -124
  -135
  -146
  -156
  -168
  -180
  -191
  -204
  -216
  -229
  -242
  -256
  -271
  -285
  -300
  -317
  -332
  -351
  -368
  -387
  -407
  -428
  -450
  -473
  -496
  -521
  -548
  -575
  -604
Free cash flow, $m
  33
  -58
  -54
  -58
  -61
  -63
  -66
  -68
  -71
  -73
  -75
  -77
  -79
  -81
  -83
  -86
  -88
  -90
  -93
  -96
  -99
  -102
  -105
  -108
  -112
  -116
  -120
  -125
  -130
  -135
  -141
Issuance/(repayment) of debt, $m
  -9
  61
  65
  69
  74
  78
  82
  86
  90
  94
  98
  102
  106
  110
  114
  119
  123
  128
  133
  139
  144
  150
  156
  163
  170
  177
  185
  193
  202
  211
  220
Issuance/(repurchase) of shares, $m
  1
  33
  28
  29
  30
  31
  32
  33
  34
  34
  35
  35
  36
  36
  37
  37
  37
  38
  38
  39
  39
  40
  41
  42
  43
  44
  45
  46
  47
  49
  50
Cash from financing (excl. dividends), $m  
  -30
  94
  93
  98
  104
  109
  114
  119
  124
  128
  133
  137
  142
  146
  151
  156
  160
  166
  171
  178
  183
  190
  197
  205
  213
  221
  230
  239
  249
  260
  270
Total cash flow (excl. dividends), $m
  2
  3
  11
  12
  13
  14
  16
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  46
  49
  51
  54
  58
  61
  64
  68
  72
  76
  80
Retained Cash Flow (-), $m
  -30
  -36
  -38
  -41
  -43
  -46
  -48
  -51
  -53
  -55
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -109
  -114
  -119
  -124
  -130
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  8.00
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
PV of cash for distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  85.3
  75.9
  68.1
  61.6
  56.2
  51.6
  47.6
  44.2
  41.3
  38.7
  36.5
  34.5
  32.7
  31.2
  29.7
  28.5
  27.3
  26.3
  25.3
  24.4
  23.6
  22.9
  22.2
  21.5
  20.9
  20.3
  19.7
  19.2
  18.7
  18.2

Daqo New Energy Corp. manufactures and sells polysilicon and wafers in the People’s Republic of China. It operates through two segments, Polysilicon and Wafers. The company offers polysilicon to photovoltaic product manufactures, who further process it into ingots, wafers, cells, and modules for solar power solutions. It also provides standard and high efficiency multi-crystalline wafers, as well as wafer original equipment manufacturer services to customers through tolling agreements. The company was formerly known as Mega Stand International Limited and changed its name to Daqo New Energy Corp. in August 2009. Daqo New Energy Corp. was founded in 2006 and is headquartered in Wanzhou, the People’s Republic of China.

FINANCIAL RATIOS  of  Daqo New Energy ADR (DQ)

Valuation Ratios
P/E Ratio 118
Price to Sales 22.2
Price to Book 18.8
Price to Tangible Book
Price to Cash Flow 51.2
Price to Free Cash Flow 158.5
Growth Rates
Sales Growth Rate 25.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -17.3%
Cap. Spend. - 3 Yr. Gr. Rate 15.2%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 41.9%
Total Debt to Equity 90.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 8.4%
Ret/ On Assets - 3 Yr. Avg. 5.8%
Return On Total Capital 8.5%
Ret/ On T. Cap. - 3 Yr. Avg. 5%
Return On Equity 16.9%
Return On Equity - 3 Yr. Avg. 10.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 34.9%
Gross Margin - 3 Yr. Avg. 26.4%
EBITDA Margin 43.2%
EBITDA Margin - 3 Yr. Avg. 36.5%
Operating Margin 28.4%
Oper. Margin - 3 Yr. Avg. 20.1%
Pre-Tax Margin 22.3%
Pre-Tax Margin - 3 Yr. Avg. 13.1%
Net Profit Margin 18.8%
Net Profit Margin - 3 Yr. Avg. 11.7%
Effective Tax Rate 13.7%
Eff/ Tax Rate - 3 Yr. Avg. 7%
Payout Ratio 0%

DQ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DQ stock intrinsic value calculation we used $182 million for the last fiscal year's total revenue generated by Daqo New Energy ADR. The default revenue input number comes from 2016 income statement of Daqo New Energy ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our DQ stock valuation model: a) initial revenue growth rate of 14.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8%, whose default value for DQ is calculated based on our internal credit rating of Daqo New Energy ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Daqo New Energy ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of DQ stock the variable cost ratio is equal to 82.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for DQ stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.7% for Daqo New Energy ADR.

Corporate tax rate of 27% is the nominal tax rate for Daqo New Energy ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the DQ stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for DQ are equal to 303%.

Life of production assets of 17.8 years is the average useful life of capital assets used in Daqo New Energy ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for DQ is equal to -30.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $240 million for Daqo New Energy ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 10.092 million for Daqo New Energy ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Daqo New Energy ADR at the current share price and the inputted number of shares is $0.2 billion.


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COMPANY NEWS

▶ 5 Stocks to Buy on New Analyst Coverage   [May-15-17 09:41AM  Zacks]
▶ Daqo posts 1Q profit   [May-09-17 05:02AM  Associated Press]
▶ Daqo posts 4Q profit   [05:19AM  Associated Press]
▶ Is Daqo New Energy Corp (DQ) A Good Stock To Buy?   [Dec-16-16 12:29AM  at Insider Monkey]
▶ 2 Scorching Hot Cheap Stocks -- Are They Buys?   [Nov-19-16 03:05PM  at Motley Fool]
▶ Daqo posts 2Q profit   [06:27AM  AP]
▶ Top Stock Picks for the Week of April 25th   [Apr-25-16 03:21PM  Zacks]
▶ Daqo posts 4Q profit   [06:23AM  AP]
Stock chart of DQ Financial statements of DQ Annual reports of DQ
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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