What happened
Shares of Daqo New Energy (DQ 10.23%) slumped roughly 14.7% today, according to data from S&P Global Market Intelligence. The Chinese solar energy materials stock gave up ground in conjunction with pricing moves for the company's Xinjiang Daqo subsidiary, which had its initial public offering (IPO) on the Shanghai Stock Exchange (SSE) yesterday.
Xinjiang Daqo's share price skyrocketed roughly 184% in its first day of trading on the market, and Daqo New Energy stock surged roughly 20% in the session thanks to excitement surrounding the Shanghai listing. However, Daqo New Energy stock then pulled back in conjunction with pricing moves for its subsidiary.
Image source: Getty Images.
So what
Many Chinese companies that list their stocks on U.S. exchanges have recently turned to listings on the Shanghai Stock Exchange and the Hong Kong Stock Exchange in order to raise capital and reduce exposure to risks from only being listed on foreign exchanges. Outside of raising fresh capital, the SSE listing for Xinjiang Daqo probably won't have much of an impact on long-term Daqo New Energy shareholders.
Xinjiang Daqo sold 3 million shares in its IPO, representing roughly 15.6% of the company's total outstanding share count. The sale raised 6.45 billion Chinese yuan -- or roughly $1 billion based on the current exchange rate. Prior to the public offering, Daqo New Energery owned a 95.6% stake in Xinjiang Daqo.
Now what
Renewable energy technologies could see surging demand over the next decade and beyond, but Daqo isn't the only large polysilicon producer, and the space could become increasingly competitive. The company is already posting substantial sales and earnings, but investors should proceed with the understanding that Daqo's performance is sensitive to pricing shifts in the polysilicon market.
Daqo New Energy has a market capitalization of roughly $5 billion and is valued at approximately 3.3 times this year's expected sales and 8.6 times this year's expected earnings.
