① Daquan Energy expects the short-term trend of silicon prices to rise, but the actual transaction price depends on the game between upstream and downstream. Currently, the tight balance between supply and demand for silicon materials has not been achieved; ② If the transaction price of silicon only rises slightly, it is not economical to restart and shut down production capacity. During the production capacity switch, manufacturers will suffer a “double kill” of cost and quality; ③ Maintaining a stable supply chain is compounded by demands to reduce costs, and the “integrated” layout of industrial silicon will occur.
Editor's note:
From January 25 to 26, 2024, the China Securities Regulatory Commission held the 2024 System Work Conference and emphasized the need to highlight the investor-centered concept. In order to help investors better understand the true development situation and value of the enterprise and further protect the legitimate rights and interests of investors, etc., the Financial Federation and “Science and Technology Innovation Board Daily” jointly created the “Direct Access to Shareholders' Meeting” column.
The “Direct Shareholders' Meeting” column focuses on the long-term strategies, major decisions, management policies, etc. of the enterprise by confronting the chairman of the listed company and other core management at the shareholders' meeting in the form of a live report. The aim is to enhance the corporate capital market image, optimize investor relationship management, and improve the relevant governance and development of listed companies.
Current company: Daquan Energy
▍ Company Profile
Daquan Energy focuses on the R&D, production and sales of high-purity polysilicon. The main product is high-purity polysilicon, which is mainly used in the photovoltaic industry. It is in the upstream part of the photovoltaic industry chain. After melting ingots or pull-on slices, polysilicon can be made into polycrystalline silicon wafers and monocrystalline silicon wafers separately, which are then used to manufacture photovoltaic cells.
▍ Company Highlights
Daquan Energy uses an improved Siemens cooling and hydrogenation process to prepare polysilicon. The technology is mature, the safety is high, the product quality is high, and it can produce solar-grade products with a purity of 6N-9N. The company not only focuses on the production of high-purity polysilicon, but also actively lays out industrial silicon and semiconductor-grade polysilicon.
▍ Profit Model
Daquan Energy mainly achieves profits by selling photovoltaic products such as high-purity polysilicon.
“Science and Technology Innovation Board Daily”, September 12 (Reporter Qiu Siyu) “Currently, the beta power of the photovoltaic industry is too strong, and the alpha of enterprises will inevitably be covered up.” At the site of Daquan Energy's first extraordinary shareholders' meeting in 2024, Li (pseudonym), an individual investor who has invested in the photovoltaic industry for a long time, told the “Science and Technology Innovation Board Daily” reporter. (Note: In stock investment, α and β are commonly used to describe the relationship between the company and the industry. Beta usually represents the increase in the industry, and α represents the increase of individual stocks surpassing the industry.)
In recent years, the imbalance between supply and demand in the photovoltaic market has led to a continuous decline in product prices in all parts of the industrial chain, and corporate profit margins have been drastically compressed. Silicon material company Daquan Energy is no exception. In the first half of this year, Daquan Energy lost 0.67 billion yuan in net profit, compared with 4.426 billion yuan in net profit for the same period last year. However, as the average price of solar-grade polysilicon transactions has turned red in the past two weeks, the industry seems to have seen the “dawn” of breaking out of the downward cycle.
At this shareholders' meeting, issues such as when the photovoltaic industry can break out of the quagmire and whether silicon prices can continue to rise became the focus of investors' attention.
<公司章程>At the same time, Daquan Energy reviewed and passed the “Proposal on Changing the Company's Business Scope, Registered Address and Amendment”, the bill on the resignation of the company's supervisor and the by-election of the supervisor, and the bill on by-electing Mr. He Guangjin as the supervisor of the 3rd board of supervisors of the company.
▍ The “tug-of-war” for short-term silicon prices may continue for 2-3 quarters
Regarding the recent rise in silicon prices, investors at the Daquan Energy Shareholders' Meeting told the “Science and Technology Innovation Board Daily” reporter that there are two logical supports behind the rise in silicon: first, manufacturers such as Longji Co., Ltd. and TCL Zhonghuan raised silicon prices, and downstream price increases brought a certain degree of support to upstream silicon prices; second, the overall monthly silicon output in August was at an all-time low for nearly a year. “Supply continues to decline, and the market anticipates that a tight balance between supply and demand for silicon materials may arrive. There is not much room for subsequent prices to decline, and they can even rise in the short term. Most importantly, the current price is below the cost of cash.”
Although the price trend of silicon materials is quite optimistic recently, the current industry's capacity utilization rate is not high. During the photovoltaic downturn, many manufacturers chose to cut production or even shut down some high-cost production capacity. After the price of silicon materials rises, if it causes production capacity to be reworked, will the price increase be suppressed again?
Faced with a question from the “Science and Technology Innovation Board Daily” reporter, the Daquan Energy customs broker mentioned above said, “This question involves the actual operation of the factory. In fact, if production capacity that has been shut down is restarted, its cost will rise.”
“For chemical plants, stable and full load operation is equivalent to a 'long run'. The utilization rate of energy and material consumption is the highest, and the cost is the lowest.” The customs broker further explained, “During the production capacity switch, its load rate was less than 100%, and the amortization rate of costs was very high; on the other hand, product quality was greatly disturbed during this period. Therefore, during the start and shutdown of production capacity, manufacturers will suffer a 'double kill' of cost and quality.”
Therefore, for silicon material manufacturers, if the transaction price of silicon materials only rises slightly, it is not economical to restart and shut down production capacity. Daquan Energy revealed that according to financial accounting and various assessments, the company's production capacity utilization rate is currently 50%, and this capacity utilization rate is the “most economical” balance point. According to its semi-annual report, polysilicon production is expected to be 43,000 tons to 46,000 tons in the third quarter, and the annual production forecast for 2024 is adjusted to 0.21 million tons to 0.22 million tons.
It is worth mentioning that although Daquan Energy expects the price of silicon materials to rise in the short term, the company still admits that the actual transaction price is not the same as the price price, and it is still unknown whether the transaction price can be executed according to the price. “The actual transaction price depends on the game between upstream and downstream.”
Looking at overall production capacity, Daquan Energy's customs investors said, “Currently, the production capacity of the entire industry is about double the demand, and it will take at least 2 to 3 months to remove inventory. At the same time, it has not yet reached the stage of “eating inventory”. There is still surplus production capacity every month, and the inventory level is high. As a result, the tight balance between silicon supply and demand has not actually been achieved.”
“We expect this round of 'tug-of-war' to continue for 2 to 3 quarters. After two or three quarters of 'burning cash', some second- and third-tier companies are bound to 'drop the table'.” According to Dazuan Energy.
Currently, the photovoltaic industry is already in the process of clearing production capacity. During this period, industry mergers, acquisitions and restructuring have also accelerated. Just in August of this year, Tongwei Co., Ltd. announced that it plans to increase its capital by 5 billion yuan to hold Runyang shares.
There is no shortage of voices in the industry encouraging mergers and restructuring. In May of this year, the China Photovoltaic Industry Association issued a document stating that the current industry difficulties will be solved through market-based means, industry mergers and restructuring will be encouraged, and the market exit mechanism will be unblocked.
Regarding mergers, acquisitions and restructuring matters, the director of Daquan Energy revealed at the shareholders' meeting that currently, the company has no intention of mergers and acquisitions. “The company believes that the most important thing right now is to protect the cash on hand, and then make corresponding adjustments and changes according to market trends. In terms of clearing inventory, the company is also discussing issues related to polysilicon futures with Guangji.”
▍ Stabilize the supply chain and demand cost reduction to “integrate” the layout of industrial silicon
Why not a downstream layout? Investors at the shareholders' meeting told the “Science and Technology Innovation Board Daily” reporter that on the one hand, Daquan Energy is from the chemical industry and did not start in the manufacturing industry. “Downstream, whether it's silicon wafers, cells, or components, is in the field of manufacturing, and manufacturers need to compete for scale and gross profit.”
“Going back to 2017, Daquan Energy once had a silicon wafer production capacity. It was only 500 megawatts. It was difficult to generate economies of scale, and there was no cost advantage.” The customs investor recalled, “In fact, it is difficult for a company to take the lead in all four aspects of photovoltaics, which is a huge test for talent, team, and capital.”
The director of Daquan Energy also confessed at the shareholders' meeting: “At this point, it is difficult for manufacturers to compete for more downstream market share.”
The customs investor mentioned above also mentioned that during the upward phase of the industry, photovoltaic manufacturers were able to “eat” the dividends of the four links through the layout of energy saving, but currently the market has taken a sharp turn, and manufacturers with an integrated layout mean that they will have “four links of blood loss points.” “The company has only one blood loss point, so the cash loss is currently not as serious as other peers.”
For ordinary investors, since Daquan Energy only focuses on the field of silicon materials, indicators in various aspects such as cash cost, quality, and energy consumption are more transparent. “From an investor's point of view, with an integrated layout, it is difficult for ordinary investors to split data on financial indicators such as product cost and allocation, unless they are professional investors.” The customs broker added.
Financial reports show that in the first half of the year, Daquan Energy's unit cash cost of polysilicon was 40.31 yuan/kg, the unit sales price (excluding tax) was 47.01 yuan/kg, the output was 12.72 tons, and the sales volume was 9.71 tons.
It is easy to see that due to various reasons such as cost and financial pressure, Daquan Energy has not arranged downstream silicon wafers, batteries, etc. Unlike other photovoltaic manufacturers, Daquan Energy chose an “integrated” layout, that is, to develop the industrial silicon sector.
Field investor Li (pseudonym) expressed related doubts about Daquan Energy's strategic choice. The director and secretary of Daquan Energy indicated that the company chose to lay out industrial silicon has two requirements: “First, to ensure the stability of the entire supply chain of silicon raw materials; second, the company intends to reduce the manufacturing cost of polysilicon through the layout of industrial silicon.”
In terms of production capacity, Daquan Energy invested 0.3 million tons/year high purity industrial silicon project in Baotou, Inner Mongolia.
▍ There are 8-10 interested customers for semiconductor-grade polysilicon products
At a time when the profitability of the silicon business is under pressure, in addition to deploying industrial silicon upward to enhance supply chain stability and seek cost reduction, it is also particularly important for companies to seek the next profit growth point.
The “Science and Technology Innovation Board Daily” reporter observed that in May of this year, the first batch of products from Daquan Energy's semiconductor-grade polysilicon project was released. Previously, in 2021, Daquan Energy planned to build a 0.021 million-ton semiconductor-grade silicon-based material project in Baotou City, Inner Mongolia Autonomous Region. Among them, the first phase plans to have an annual production capacity of 1,000 tons of semiconductor-grade polysilicon, and construction will commence in the second quarter of 2022.
Daquan Energy Investors told the “Science and Technology Innovation Board Daily” reporter at the shareholders' meeting that the quality of the project's products is climbing. After future quality meets internal control standards, they will enter the product classification verification process. “Currently, there are 8 to 10 interested customers for semiconductor-grade polysilicon products. Once the products are qualified, customers are willing to schedule and verify production.”
As an upstream material for semiconductor silicon wafers, semiconductor-grade polysilicon is completely different from the process technology of photovoltaic grade polysilicon. Polysilicon technology for 8-inch and 12-inch wafers is difficult, and there are high requirements for production process control, technical threshold, equipment and process. For a long time, the technology and markets for 12-inch straight-drawn polysilicon and 8-inch fused polysilicon were mainly controlled by a few international giants such as Germany, Japan, and the United States.
The director of Daquan Energy said at the shareholders' meeting, “Currently, the company is fully capable of breaking through the 4-inch and 6-inch technical barriers, and related products are already in the process of being implemented. But the 8-inch and 12-inch related products are still being 'polished'.”