Chapter 6

Capital Allocation

Daqo is a family-controlled company that has run its balance sheet through the cycle with a growth reflex. It spent roughly $2.7 billion building new capacity into the price collapse — one plant that started up in 2024 has still not been given a ramp-up schedule "due to adverse market conditions" — and it has left two authorized $100 million buyback programs entirely unused while the ADS trades at 0.19x book, choosing to reserve capital for industry consolidation and a fresh RMB6 billion diversification into data-center power.

Who decides

Control sits with three generations of one family. Xiang Xu has been both chairman and chief executive since August 2023, taking the combined role from his father, founder Guangfu Xu; his daughter Xiaoyu Xu, a former J.P. Morgan banker, became deputy chief executive in October 2024 [1]. The directors affiliated with Daqo Group — the two Xus, Xiaoyu Xu, Dafeng Shi and Fei Ge — together beneficially own 35.6% of the ordinary shares, a block the filing says gives them "substantial influence" over mergers, asset sales, board elections and other significant corporate actions, and whose interests "may not always be aligned" with those of other shareholders [2].

Source: FY2025 Annual Report (Form 20-F), Item 6.E Share Ownership [3].

The board is a majority of independents — six of eleven directors — and an audit committee reviews related-party dealings [4]. Two features temper how much comfort a minority holder should take from that. First, disclosure is thin: as a foreign private issuer Daqo reports executive pay only in aggregate — about $2.4 million for all directors and officers combined — with no individual figures and no CEO pay ratio. Second, the founding family's ownership at the listed company is a minority of the votes, so alignment runs to the enterprise, not automatically to the per-ADS value a New York holder cares about — the distinction that the earlier chapters on cash location (Where the Cash Sits) and the cross-listing (The Listing Gap) turned on.

The record: building into the fall

The clearest read on management is what it did with capital during the boom. Between 2021 and 2024 Daqo more than tripled nameplate polysilicon capacity, from 105,000 tonnes to 305,000 tonnes, through the Phase 5A and 5B plants in Baotou, Inner Mongolia [5]. That build cost about $2.7 billion of property, plant and equipment, concentrated in 2022 and 2023 — the very years the polysilicon price was rolling over from its Q4 2022 peak of $37.41/kg toward the $4.62/kg trough of Q4 2024.

Sources: FY2025 Annual Report (Form 20-F), Consolidated Statements of Cash Flows, for 2023–2025 [6]; FY2023 Annual Report (Form 20-F), Consolidated Statements of Cash Flows, for 2021–2022 [7].

The Phase 5B plant, a 100,000-tonne line, began production in May 2024 straight into the glut [8]. By the time of the FY2025 report it still had no ramp-up schedule: the company states it "currently do[es] not have an expected ramp-up schedule for our Phase 5B facilities or our polysilicon project for the semiconductor industry, primarily due to adverse market conditions" [9]. Part of that expansion was funded by a July 2022 sale of Xinjiang Daqo shares on the Shanghai STAR Market that raised about RMB11 billion but diluted the Cayman parent's stake in its own operating subsidiary to 72.8% [10] — the minority leakage that the cash and listing chapters already priced.

The fairer reading is not that management is reckless. Those Phase 5 approvals were made when the price still looked durable, and low-cost capacity is precisely the asset that lets Daqo wait out the trough it helped create. The discipline showed up once the cycle turned: capex fell to $359 million in 2024 and $173 million in 2025, and Phase 5B was left idle rather than force-ramped. But the pattern is a growth reflex — add tonnes when cash is plentiful — and the industry-wide version of that reflex is what produced the oversupply the whole investment case now waits on.

The buyback that hasn't happened

The forward choice is sharper. Daqo's board authorized a $100 million repurchase program in July 2024 and a second $100 million program in August 2025. Neither has been used at all [11]. The company has never paid a dividend on its ordinary shares or ADSs [12].

That inaction is recent, not habitual. In 2023, when the operating subsidiary was still profitable and paying cash up to the Cayman parent, Daqo repurchased $485.9 million of its own ADSs. As the trough deepened, ADS repurchases collapsed to $5.0 million in 2024 and to zero in 2025 [13].

Source: two $100M programs authorized July 2024 and August 2025, none used [14]; price/book per prior chapters.

Source: FY2025 Annual Report (Form 20-F), Item 5 financing-activities discussion; $200M authorized across the 2024 and 2025 programs, $0 used [15] [16].

The timing is what makes the pause notable. The ADS now trades below its own look-through cash and at roughly a fifth of book — the cheapest the stock has been in its listed life, and by the arithmetic of a 0.19x-book price the most accretive moment to retire shares. Management does not dispute the value. On the Q4 2025 call it said it sees "tremendous value and intrinsic value in our shares," but judged it "essential to wait for more clarity on the policy implementation and also the outcomes before proceeding" — a "wait-and-see stance" to "optimize the timing" of the program [17]. A quarter earlier the explanation was more concrete: the repurchase was "paused pending clarity on the capital required for industry consolidation" [18], and management added that after it announced the program the share price had risen to $31 — about 35% above late-August levels — so it would begin buying "after we have a more clear picture of what the consolidation looks like" [19].

Two readings compete here. The charitable one is that reserving dry powder for a consolidating industry — where a low-cost, debt-free balance sheet could buy distressed capacity cheaply — may create more value than shrinking the share count. The skeptical one is that the group did keep buying stock through the trough, just not the cheap one: Xinjiang Daqo continued to repurchase its own STAR shares, at a mark near book value, spending $7.7 million in 2024 and about $0.9 million in 2025 [20] [21]. Capital returned inside China defends the A-share mark; the far cheaper ADS goes unbought.

The new growth engine

While the buyback waits, a new use for capital has appeared. In June 2026 Daqo signed an agreement to build a manufacturing base in Kunshan for energy solutions aimed at AI data centers — storage systems, solid-state transformers and batteries — with a first phase of about RMB2.1 billion and a total of roughly RMB6.0 billion, per company announcements. Management has begun framing this on its calls, describing data-center power and even space-based solar as "a significant new growth engine for the sector" and casting the balance sheet as the tool to "capitalize on the market recovery and these long-term growth" opportunities [22].

For a company whose entire investment case rests on a cash cushion of about $2 billion outlasting a polysilicon trough, a multi-billion-renminbi push into an unrelated business is the capital-allocation event to watch. It is early and small relative to the balance sheet, and diversification away from a single commoditized product has a logic. But it points the same direction as the Phase 5 build: capital flowing to new capacity and new markets rather than to the discounted equity, at a moment when the equity is the cheapest asset management could buy.

The read this chapter lands on: management has been a capable operator and a genuine defender of the enterprise balance sheet — it stopped spending when the cycle turned and refuses to sell polysilicon below cash cost — but its allocation instincts run to tonnage and new ventures over per-ADS value. The strongest fact against that read is that Daqo did execute a large ADS buyback in 2023 when cash was available, so the machinery exists and can restart. What would change the read is simple and falsifiable: the company using even a fraction of its $200 million of authorized buybacks at a fifth of book, or channeling a recovery in subsidiary earnings up to the ADS rather than into the next growth project.