Chapter 7

Carrying Value

Property, plant and equipment is the single largest thing Daqo owns — about $3.4 billion at the end of 2025, more than half of both its assets and its book value. That carrying value is not a fixed floor. Daqo wrote $175.6 million off its plants in 2024 as polysilicon prices fell, avoided a further charge in 2025 only because prices rebounded, and books the rest on a recoverability test that a sustained relapse below cost would re-arm. The cash floor is harder than the book floor.

The book value is mostly plant

The balance sheet that earlier chapters treated as a floor is not all cash. Of $5,916.3 million of consolidated equity at end-2025, gross property, plant and equipment nets to $3,399.1 million after $971.0 million of accumulated depreciation and $177.3 million of cumulative impairment [1]. That plant is 52.7% of total assets and 57.5% of total equity [2]. The roughly $2.0 billion of cash and deposits examined in Where the Cash Sits is the other half — and the two halves behave very differently in a trough.

Source: FY2025 Annual Report (Form 20-F), property, plant and equipment note [3] and Consolidated Balance Sheets [4]; ratios derived from those figures.

This matters because the ADS is valued on book. The listing gap in The Listing Gap is a discount to a book value of $4,406.7 million attributable to DQ shareholders [5], and the largest input to that book value is the carrying amount of plants running near 40% of nameplate. Whether that carrying amount holds is an accounting-quality question, not a market one.

The 2024 write-down, and the one that did not happen in 2025

Daqo has already marked its plants down once in this cycle. It recognized a $175.6 million long-lived-asset impairment in 2024 — nothing in 2023, nothing in 2025 [6]. The charge was "mainly related to our older polysilicon facilities," and management attributes it to "the continuous downward trend of the polysilicon selling prices" impairing the recoverability of those assets [7].

The 2025 result is the more revealing number. Impairment fell "from $175.6 million in 2024 to nil in 2025, mainly because the polysilicon selling prices rebounded substantially in 2025, which enhanced the recoverability of the carrying amount of our long-lived assets" [8]. In other words, the plant carrying value survived 2025 not because operations improved but because the H2 2025 policy-driven price rebound described in Waiting on Beijing lifted the forecast enough to clear the test. The same lever that turned the reported loss less negative also kept the book value intact.

Inventory tells the parallel story on the current-asset side. The write-down against inventory ran $4.5 million in 2023, jumped to $81.4 million in 2024, and eased to $21.5 million in 2025 as prices recovered [9]. Then, in the first quarter of 2026, the relapse below cost forced a fresh $98.4 million inventory impairment, and gross margin was "negative 521% compared to 7% in the fourth quarter of 2025" [10]. Inventory, carried at the lower of cost or net realizable value [11], re-marks every quarter; the plant does not, but it is tested on the same prices.

Source: FY2025 Annual Report (Form 20-F), Item 5 impairment discussion [12] and Consolidated Statements of Cash Flows [13]. The Q1 2026 inventory charge of $98.4M is not shown.

Why a price relapse re-arms the test

The reason the carrying value moves with prices is the mechanics of the impairment test. Daqo evaluates its plants for impairment "whenever events or changes in circumstances (such as a significant adverse change to market conditions)" indicate the carrying amount may not be recoverable, comparing that carrying amount to "future undiscounted cash flows" and, only if those fall short, writing the asset down to fair value based on discounted cash flows [14]. The fair-value estimate "incorporates significant assumptions including revenue growth rate, gross margin, and discount rate," which "might be affected by expectations about future market and economic conditions" [15]. Those are the same variables that Waiting on Beijing showed hinge on whether Beijing enforces an above-cost price floor by the mid-2026 cost re-determination.

The undiscounted-cash-flow first step is a genuinely high bar to fail — an asset is impaired only when the sum of all future undiscounted cash flows over its life falls below carrying value, so low-cost, long-lived plant clears it far more easily than a mark-to-spot would. That is why Daqo could avoid a 2025 charge on a modest price recovery. But the bar is not immovable: the older facilities failed it in 2024, and Daqo has done this before — in the prior down-cycle it "incurred fixed asset impairment charges related to the Phase 1 polysilicon facilities" in 2013 [16]. A relapse to sustained below-cost pricing pulls down the revenue and gross-margin assumptions that the recoverability of the older plants depends on, and it re-tests the newest capacity — the $2.7 billion Phase 5 build examined in Capital Allocation, whose Phase 5B line is idle with no ramp schedule — as it enters the depreciable base.

The subjective levers: useful lives and the tax asset

Two accounting judgments sit under the plant carrying value, and both lean toward keeping it high.

The first is depreciable life. Depreciation of plant rose from $148.9 million in 2023 to $206.4 million in 2024 to $236.7 million in 2025 [17], and management projects a further increase in 2026 "driven by an increase in our projected depreciable asset base" — Phase 5B moving from construction into service [18]. The sensitivity is large: shortening the estimated useful lives of all depreciable assets by five years would raise annual depreciation by roughly $248.8 million, while lengthening them five years would cut it by about $67.0 million [19]. Against $665.4 million of revenue, a $248.8 million swing in a single non-cash line is material — and this connects to the full-versus-cash-cost gap in Cost Curve: the reported full cost is inflated by exactly this depreciation, spread over idle capacity.

The second is the deferred tax asset. Daqo carries $115.7 million of net deferred tax assets at end-2025, including a net-operating-loss carryforward that grew from $38.0 million to $78.2 million and an impairment-related asset of $31.1 million, against a valuation allowance of just $5.0 million [20]. Recognizing those assets almost in full — after two consecutive loss years — embeds a management judgment that Daqo will earn enough future taxable profit to use them. That is the same bet on recovery the impairment test makes; a rising valuation allowance in a future filing would be management's own signal that it doubts it.

Source: FY2025 Annual Report (Form 20-F), Critical Accounting Estimates [21] and Income Taxes note [22].

What the auditor flagged

The independent auditor's one critical audit matter is not impairment. It is revenue cut-off for domestic polysilicon sales — the risk of "inconsistency between the date of customer acceptance and the date of revenue recognition" — which the auditor singled out as an "especially challenging, subjective, or complex" judgment requiring extensive procedures [23]. That the plant carrying value was not elevated to a critical audit matter — after a $175.6 million charge the prior year — is a mark in Daqo's favor: an independent auditor did not judge the 2025 recoverability conclusion to be the hardest call in the file. Revenue cut-off is worth noting on its own — timing recognition around period-end is where a commodity producer under volume pressure has the most discretion — but the filing gives no evidence it was mishandled, only that it is where the audit spent its effort.

The read

The evidence points to a book value that is sound today but softer than the headline equity figure implies, and soft in a specific, checkable way. Roughly $2.0 billion of the equity is cash and deposits that no impairment can touch — impairments are non-cash and leave the solvency floor from Where the Cash Sits intact. The other ~$3.4 billion is plant whose carrying value is a direct function of the polysilicon price path: it was cut $175.6 million in 2024, held flat in 2025 only because prices rebounded, and would be re-tested if they relapse. The strongest fact against reading this as fragile is the undiscounted-cash-flow test itself, which low-cost long-lived assets pass comfortably, plus the auditor's decision not to flag it — the 2025 book value is a defensible conclusion, not an aggressive one.

What would change the read: a return to sustained below-cost pricing through the mid-2026 cost re-determination, which re-arms the test on the older facilities and on Phase 5B as it enters service; a fresh long-lived-asset impairment or a rising valuation allowance against the deferred tax asset in a 2026 filing, either of which is management conceding the recovery assumptions have weakened; or, on the other side, an enforced above-cost floor, which would lift the very forecasts that keep the plant — and the tax asset — whole. The book-value floor and the price recovery are not two separate questions; they are the same one, read off the balance sheet.