Daqo New Energy Corp

Daqo New Energy Corp (NYSE: DQ) is a China based leading manufacturer of polysilicon for solar PV industry. The Company has an annual production capacity of around 70,000 metric tons of polysilicon from manufacturing facility based in Xinjiang.

The Company will release Q4 and FY2020 results on 9 March 2021.

Investment Highlights - Daqo New Energy Corp – Avoid at USD 94.51

• Despite the improved performance in Q3 FY2020, the trading environment remained challenging and is full of uncertainties.
• In the last one month, the Company delivered a negative return of ~8.61% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, the EV/Sales and Price/Earnings multiples of Daqo New Energy Corp are currently higher as compared to the corresponding multiples of the Renewable Energy industry, reflecting overstretched valuations.
• From the technical standpoint, 90-day RSI is supporting downward movement (around 54 level), which means the stock price could decline in the short term.

Key Risks

• Excessive competition in the industry could affect the revenue and profitability of the Group.
• Any change in regulations and government policies could affect the overall business of the Company.

Financial Highlights – Q3 FY2020 (30 September 2020) (released on 23 November 2020)

(Source: Quarterly Report, Company Website) 

• In the third quarter of the financial year 2020, due to lower sales volume of polysilicon, the revenue declined to $125.5 million (Q2 FY2020: $133.5 million). The revenue improved compared to Q3 FY2019 data.
• The profitability for the period improved significantly, driven by lower cost of sales and operating expenses. The Company reported net income attributable to shareholders of $20.8 million in Q3 FY2020 (Q2 FY2020: $2.4 million and Q3 FY2019: $5 million).
• The cash balance as on 30 September 2020 declined to $70.2 million (30 June 2020: $88.2 million).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

The Company has shown an improvement in financial performance in the third quarter of the financial year 2020 as compared to Q2 FY2020 and Q3 FY2019. The Company reported lower revenue as compared to Q2 FY2020 data, while bottom-line performance improved significantly. DQ has a well-positioned balance sheet, while liquidity position has declined. The Company’s operations were impacted by covid-19 pandemic, which resulted in disruption in supply chain, material shortages and higher production costs. Although the Company was benefitted by higher average selling price, however, global trading environment is highly uncertain. The stock made a 52-week low and high of USD 8.32 and USD 130.33, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Daqo New Energy Corp at the closing price of USD 94.51 (as on 3 March 2021), and with support from few catalysts needs to be evaluated at a later stage such as measures taken to control cost and boost production.

Foresight Autonomous Holdings Ltd

Foresight Autonomous Holdings Ltd (NASDAQ-CM: FRSX) is a Nasdaq-listed technology Company. The Company is engaged in the business of designing, developing and commercializing of ADAS (Advanced Driver Assistance Systems) based on 3D multi-camera.

Investment Highlights - Foresight Autonomous Holdings Ltd – Avoid at USD 7.48

• The Company remained in the development stage and did not generate any revenue in Q3 FY2020 and 9M FY2020, and profitability remained in the negative zone.
• In the last one month, the Company delivered a negative return of ~9.66% and delivered lower returns compared to the benchmark Index.
• As per valuation metrics, the Price/Earnings multiple of Foresight Autonomous Holdings Ltd is currently higher as compared to the corresponding multiple of the Software & IT Services industry, reflecting overstretched valuations.
• From the technical standpoint, 90-day RSI is supporting downward movement (around 54 level), which means the stock price could decline in the short term.

Key Risks

• Failure in cybersecurity and a critical data breach could hamper the operation as well as the reputation of the company.
• The Company’s operations are impacted by risks related to market trends, political change and change in the regulatory authority.

Recent News

On 1 March 2021, Foresight Autonomous Holdings announced that its subsidiary, Eye-Net Mobile Ltd, completed the trail of a cellular-based accident prevention solution, Eye-Net™ Protect, for intelligent transport system division of global Japanese vehicle manufacturer.

Financial Highlights – Q3 and 9M FY2020 (30 September 2020) (released on 12 November 2020)

(Source: Quarterly Report, Company Website) 

• For the third quarter and nine months period of FY2020, the Company did not generate any revenue and managed to reduce operating expenses for the period.
• Due to higher equity in net loss of an affiliated Company, the loss for the period increased to $3,980 thousand and $11,360 thousand in Q3 and 9M FY2020, respectively.
• The cash balance as on 30 September 2020 declined to $9,395 thousand (31 December 2019: $4,827 thousand).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the third quarter and nine months period of the financial year 2020. The Company is in the development stage and hence rely on grants and cash balances to carry on all the business activities. The operations are financed by the sale of equity securities by private placements. The Bottom-line performance has declined, while profitability remained in the negative zone and generated negative cash flow from operations. Foresight Autonomous Holdings operations are impacted by the outbreak of the covid-19 pandemic and have been focusing on strengthening its balance sheet and reducing its costs to preserve cash. The stock made a 52-week low and high of USD 0.461 and USD 12.14, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on Foresight Autonomous Holdings Ltd at the closing price of USD 7.48 (as on 3 March 2021), and with support from few catalysts needs to be evaluated at a later stage such as measures taken to control cost and improve liquidity position.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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