On the first weekend in August, the US Senate experienced a real marathon session. The Inflation Reduction Act was hotly debated for 27 hours. In the end, the Democratic initiative won by a narrow margin of 51 to 50 votes, with Vice President Kamala Harris casting the deciding vote. A few days later, the second chamber of Congress, the House of Representatives, also voted in favor. President Joe Biden can now begin to implement some of his most important election promises. In addition to relief for citizens, the Act includes the closing of tax loopholes and a major climate package. USD 369 billion is to be channeled into the fight against global warming. Among other things, the states are focusing even more on renewable energy sources. In this respect, it is not surprising that shares from this sector were in demand after the decision.
Among the potential beneficiaries of the U.S. initiative is Daqo New Energy. Founded in 2008, the Chinese company is a leading global polysilicon producer. As a supplier of the basic material for photovoltaic modules, the group is at the beginning of the value chain for solar energy. Daqo has been listed on the New York Stock Exchange for almost 12 years. The general boom in green energy stocks had lifted the stock to an all-time high at the beginning of 2021. Daqo New Energy then corrected along with the sector, only to enter a sideways movement that continues to this day. Operationally, the trend is up. "We are very proud to present an excellent quarter with record high production volumes and profits," CEO Longgen Zhang reported in early August. The experienced manager backed up this statement with a strong set of figures.
In the April-June 2022 period, Daqo nearly tripled sales to USD 1.244 billion compared to the same quarter last year. Operationally (Ebdita level), the company earned USD 955.4 million, up from USD 311.7 million in the second quarter of 2021, resulting in an increase in Ebitda margin of more than 6 percentage points to a handsome 76.8%. "Our sequential improvements in gross profit and margin were primarily due to a 28% reduction in polysilicon production costs," the CEO said. Despite the inflationary environment, he aims to keep the cost structure stable or even improve it further. A new mining site in Inner Mongolia should also ensure progress in this regard. Production is already running at full speed. "In the quarter under review, we operated at full capacity and produced 35,326 tons of polysilicon," Zhang said. This exceeded the previous quarter's output by 12.6% (see chart).
Neither the presentation of figures nor the U.S. climate package passed a few days later were able to change anything about the overriding sideways movement of the Daqo share. The political tensions between Washington D.C. and Beijing are seen as a general burdening factor for Chinese papers. Softcallable barrier reverse convertibles make partially protected positioning possible. Leonteq has issued three variants of this popular structure on Daqo New Energy. As a single underlying, the share in the product currency CHF makes a coupon of 15% p.a. possible. In the USD product, the quarterly payout amounts to 18% p.a.. For another issuance, Leonteq brings Daqo together with the Chinese solar module manufacturer JinkoSolar. The CHF-denominated multi-BRC pays a guaranteed coupon of 17% p.a.. All three products come with a 51% risk buffer. This is a European barrier, which is only activated at the final fixing. During the term, the underlyings have full "freedom of movement". Should a stock be found at or below the barrier on the record date in 12 months, the partial protection expires. In this case, the redemption would be linked to the performance of Daqo or, in the case of the multi BRC, the weaker of the two underlyings. Please also note the soft callable feature. It makes early termination and redemption of these BRCs possible.
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