short anlysis

8/11/2019 short anlysis

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4/17

Memorandum

Confidential Page 2 09/05/2014

o REC Silicon is caught in the crosshairs of a messy trade war between China and the US In response to the US Department of Commerces imposition of duties on Chinese

manufactured solar panels earlier this year,Chinas Ministry of Commerce (MOFCOM)has just removed an import loophole on US polysilicon and imposed a 57% import tariff

on REC Silicon (US-based manufacturing despite trading in Oslo) and the other US-based polysilicon manufacturers Stated bluntly, this 57% tariff level renders REC Silicons completely uneconomic in the

Chinese marketo We believe that at least 80% of REC Silicons polysilicon volume is sold into China and that no

sufficient sources of demand exist outside of China Ex-China solar polysilicon demand cannot possibly absorb the excess supply as it

represents a tiny fraction of global demand We estimate that China consumes 80-90% of global polysilicon demand

REC Silicons polysilicon is disqualified from the electronics industry (largelysemiconductor wafer manufacturers), the only other consumer of polysilicon albeit on adramatically smaller scale than solar

The vast majority of REC Silicons production does not meet the high puritystandards of the electronics industry

As such, REC Silicon will be extremely challenged to find ex-China off-takers for itsoutput at almost any selling price

We believe REC Silicons revenues will collapse as they are forced to both lower sellingprices and capacity utilization as global polysilicon supply dwarfs ex-China polysilicondemand

81%

75%

82%

0%

25%

50%

75%

100%

Shipment Volume Revenue EBITDA

REC Silicon Estimated China Contribution

Silane Gas (ex-China)

Ex-China Polysilicon

China Polysilicon at Risk

Source: Esplanade Capital Analysis, REC Silicon

0

1,000

2,000

3,000

4,000

5,000

6,000

Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014E Q4 2014E

REC Silicon Silicon Prodction by End Market

Solar Grade Polysilicon (lowest purity)

Electronics Grade Polysilicon (highest purity)


S

A

O

O

S

O

C

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T

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R
http://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtmlhttp://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtmlhttp://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtmlhttp://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtmlhttp://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtmlhttp://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtmlhttps://www.sumzero.com/https://www.sumzero.com/https://www.sumzero.com/http://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtmlhttp://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtmlhttp://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtmlhttp://www.mofcom.gov.cn/article/b/c/201408/20140800698490.shtml


5/17

Memorandum


Moreover, given the high fixed cost structure of REC Siliconsmanufacturingoperations, production costs are likely to skyrocket as capacity utilization wanes

Consequently, we believe that REC Silicons EBITDA could collapse by 50 (perhaps

more) from Q3 2014 levels versus Street expectations for increasing revenue and

EBITDA as far as the eye can see

o Yet, REC Silicons shares have barely budged since the MOFCOM announcement suggesting themarket is not appreciating the dire implications of this trade restriction

o In addition, Street price targets, revenue, and EBITDA estimates keep levitating higher in theface of Chinese sanctions confirming that analysts do not anticipate a major disruption to RECSilicons operations

0

100

200

300

400

500

600

0

20

40

60

80

100

120

140

160

Q2 14 Q3 14 Q1 15 Esplanade Street

Actual Results Peak 2014 Revenue Prices Fall and

Shipments Collapse

Due to China Market

Restriction

2015E

REC NO Revenue Erosion Trajectory

Revenue

Collapses

~20%

from

Q3 14

Esplanade

Forecasts 2015

Revenue ~20%

Below Street

0

20

40

60

80

100

120

140

160

180

0

10

20

30

40

50


Actual Results Peak 2014 Utilization

& EBITDA

Prices Fall, Utilization

Collapses, Costs Leap

Due to China Market

Restriction

2015E

REC NO EBITDA Erosion Trajectory

EBITDA

Collapses

~50%

from

Q3 14

Esplanade

Forecasts 2015

EBITDA50% Below

Street

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

8/1/2014 8/8/2014 8/15/2014 8/22/2014 8/29/2014 9/5/2014

REC NO Share Price Performance (NOK)

08/01/2014 - 09/05/2014

MOFCOM

Announcement
https://www.sumzero.com/https://www.sumzero.com/https://www.sumzero.com/https://www.sumzero.com/


6/17

Memorandum


o Finally, our confidence is further buttressed by the fact that REC Silicon trades at a ~15%premium EV/EBITDA multiple to its global polysilicon peer group despite the devastatingheadwinds faced

TEV/EBITDA STREET

GLOBAL POLYSILICON PEERS: 14Y 15Y

REC Silicon (REC NO) 10.3x 8.1x

GCL Poly (3800 HK) 9.3x 7.8xDaqo New Energy (DQ) 8.7x 4.8x

OCI (010060 KS) 9.2x 7.6x

Tokuyama (4043 JP) 8.3x 7.5x

Wacker Chemie (WCH GR) 6.1x 6.2x

Mean 8.3x 6.8x

Median 8.7x 7.5x

Source: Bloomberg

Background on REC Silicono REC Silicon (REC) generates the preponderance of its revenues and EBITDA from the

manufacture of polysilicon (a key raw material) for the solar industry

REC Silicon also derives ~20% of its sales volumes from polysilicon and silane gas salesto the electronics industry which, for the purposes of this thesis, we assume remain stableat current levels despite years of underperformance

o REC Silicon operates two polysilicon (and related gases) production facilities in Moses Lake,Washington and Butte, Montana (despite the Oslo (Norway) share listing, REC Siliconheadquarters in operations in the United States

o REC ranks as the 5thlargest producer of polysilicon globally with approximately 21,000 metrictons (MT) of capacity or about 7% market share

2014 POLYSILICON CAPACITY AND SHARE

MT %

GCL Poly (3800 HK) 65,000 21.6%

Wacker Chemie (WCH GR) 52,000 17.3%

OCI (010060 KS) 48,000 15.9%Hemlock (JV w/Dow Corning and Shin-Etsu) 44,000 14.6%

REC Silicon (REC NO) 21,000 7.0%

TBEA (600089 CH) 15,000 5.0%

Tokuyama (4043 JP) 13,000 4.3%

Daqo New Energy (DQ) 12,150 4.0%

Remaining Manufacturers 30,850 10.2%

Total 301,000 100.0%

400.5

531.5

532.8

539.9

77.0

152.7 162.2 167.7

0

100

200

300

400

500

600

3.50

3.60

3.70

3.80

3.90

4.00

4.10

4.20

4.30

4.40

4.50

2013 Actual 6/30/2014 8/14/2014

MOFCOM

ANNOUNCEMENT

9/5/2014

REC Silicon Consensus Price Target (NOK), 2015E Revenue (USD),

& 2015E EBITDA (USD)

Consensus Revenue 2015E Consensus EBITDA 2015E Consensus Price Target

Source: Bloomberg


7/17

Memorandum


o REC Silicon differentiates itself by employing Fluid Bed Reactor technology (FBR) to producepolysilicon rather than the tradition Siemens method utilized by >90% of the global polysiliconproducers

FBR consumes less electricity in the manufacturing process and should produce at amuch lower cost than the traditional Siemens method

As a tradeoff, FBR produces granular and lower purity polysilicon versus chunk and

higher purity Siemens polysilicon Granular FBR polysilicon sells at a discount to Siemens polysilicon because it generally

has to be mixed with higher-purity chunk Siemens polysilicon to achieve purity levelsrequired in the solar manufacturing process (blending in lower-cost FBR usually reducesthe total cost of polysilicon thats why many solar manufacturers utilize it)

However, in the years since REC Silicon built out their FBR plant, Siemens-basedproducers have reduced their production costs to below RECs levels

Daqo New Energy(DQ), a traditional Siemens method polysilicon producer,has achieved lower production costs thanREC Siliconin recent quarters

Therefore, REC Silicon has squandered its technology-enabled cost advantages yet stillsuffers from discounted selling prices due to lower purity and granular format of theirproduction

o

REC also used to control fully integrated solar module manufacturing operations in Asia (andformerly Norway) butspun-out those manufacturing assets in October 2013 through a publicoffering(REC Solar - RECSOL NO) to cap off a massive balance sheet and operationalrestructuring

As such, REC Silicon exists as a pure-play polysilicon producer todayo REC Silicon sells the vast majority of its output to Chinese solar manufacturers

We believe that REC sells 80%+ of its solar polysilicon to China

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Stated Near-Term Targets

REC Silicon (FBR) vs. Daqo New Energy (Siemens)

Cash Production Costs

REC Silicon (REC NO)

Daqo New Energy (DQ)

Source: Esplanade Capital Analysis, REC Silicon, Daqo New Energy

81%

75%

82%

0%

25%

50%

75%

100%

Shipment Volume Revenue EBITDA

REC Silicon Estimated China Contribution

Silane Gas (ex-China)

Ex-China Polysilicon

China Polysilicon at Risk

http://c/Users/paul/Dropbox/Esplanade%20Capital/Research%20and%20Analysis/REC/DAQO%20NEW%20ENERGY%20REPORTED%20COST%20STRUCTURE_Q2%202014.PNGhttp://c/Users/paul/Dropbox/Esplanade%20Capital/Research%20and%20Analysis/REC/DAQO%20NEW%20ENERGY%20REPORTED%20COST%20STRUCTURE_Q2%202014.PNGhttp://c/Users/paul/Dropbox/Esplanade%20Capital/Research%20and%20Analysis/REC/REC%20SILICON%20REPORTED%20COST%20STRUCTURE_Q2%202014.PNGhttp://c/Users/paul/Dropbox/Esplanade%20Capital/Research%20and%20Analysis/REC/REC%20SILICON%20REPORTED%20COST%20STRUCTURE_Q2%202014.PNGhttp://c/Users/paul/Dropbox/Esplanade%20Capital/Research%20and%20Analysis/REC/REC%20SILICON%20REPORTED%20COST%20STRUCTURE_Q2%202014.PNGhttp://www.recsilicon.com/media/newsroom/newshandler/?feed=/R/136555/PR/201310/1738073.xmlhttp://www.recsilicon.com/media/newsroom/newshandler/?feed=/R/136555/PR/201310/1738073.xmlhttp://www.recsilicon.com/media/newsroom/newshandler/?feed=/R/136555/PR/201310/1738073.xmlhttp://www.recsilicon.com/media/newsroom/newshandler/?feed=/R/136555/PR/201310/1738073.xmlhttps://www.sumzero.com/https://www.sumzero.com/https://www.sumzero.com/http://www.recsilicon.com/media/newsroom/newshandler/?feed=/R/136555/PR/201310/1738073.xmlhttp://www.recsilicon.com/media/newsroom/newshandler/?feed=/R/136555/PR/201310/1738073.xmlhttp://c/Users/paul/Dropbox/Esplanade%20Capital/Research%20and%20Analysis/REC/REC%20SILICON%20REPORTED%20COST%20STRUCTURE_Q2%202014.PNGhttp://c/Users/paul/Dropbox/Esplanade%20Capital/Research%20and%20Analysis/REC/DAQO%20NEW%20ENERGY%20REPORTED%20COST%20STRUCTURE_Q2%202014.PNG


8/17


9/17

Memorandum


Whereas in 2014, 80% of the ~75,000 metric tons of US capacity owned byREC Silicon and its even larger US peer Hemlock (which cannot be shorted as aprivate company) was shipped into China

In 2015, 100% of US polysilicon capacity will be rendered uneconomic for

China buyers with a 57% import tariff How much solar polysilicon demand exists outside of China?

By our estimates, ex-China solar polysilicon buyers require ~40,000 metric tons2014E Polysilicon Demand (1) 2015E Polysilicon Demand (1)

China Ex-China Total China Ex-China Total

Silicon Solar Wafer Production(Gigawatts) 38 7 45 44 7 52

Polysilicon Consumed per Watt of Production 5.5 5.5 5.5 5.5 5.5 5.5

Polysilicon Required (MT) 211,613 35,750 247,363 244,145 39,188 283,333

REC Silicon Polysilicon Capacity (MT) 16,800 4,200 21,000 0 21,000 21,000

REC Capacity Share 7.9% 11.7% 8.5% 0.0% 53.6% 7.4%

Total US Polysilicon Capacity (MT) 60,000 15,000 75,000 0 75,000 75,000

Total US Capacity Share 28.4% 42.0% 30.3% 0.0% 191.4% 26.5%

Source: Esplanade Capital Analysis, PHOTON Consulting, REC Silicon(1) Excludes First Solar and other thin film production which do not consume polysilicon

REC Silicon faces several issues attempting to redeploy 80% of its production toex-China solar markets

1. While REC Silicon and other US producers cannot export into China in2015, German, Korean, Chinese, and all ex-US producers can shippolysilicon to any market in the world in addition to China

REC Silicon and other US suppliers will still face the sameglobal competition in all the ex-China markets

ORIGIN OF SUPPLY

China USA Korea EU Japan Otherhina USA Korea EU Japan Other

2015E

Map of Solar Polysilicon

Supply and Demand

2014E

Map of Solar Polysilicon

Supply and Demand

ORIGIN OF SUPPLY

Source: Esplanade Capital Analysis, PHOTON Consulting, and company reports

Total Total

C

n

B

d

P

y

c

o

D

m

n

Ex-China

Demand

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B

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P

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c

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Ex-China

Demand

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B

G

O

H

0%

100%

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A

L

O

H

US SUPPLIERS SHIP

80%

OF PRODUCTION INTO CHINA

US SUPPLIERS SHIP 0%

OF PRODUCTION INTO CHINA
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10/17

Memorandum


We expect competition to ratchet up in ex-China markets as thecombination of desperate US polysilicon makers and limitedex-China polysilicon demand drive ex-China poly pricingsharply downward

We estimate that US polysilicon producers alone could supply

almost 2X ex-China polysilicon demand

For REC Silicon to maintain full capacity utilization shipping

exclusively to ex-China customers, we estimate that they would

have to command 53% market share outside of China versus

historical share of ~10%

They would have to achieve that unprecedented

market share while larger and higher purity US

supplier Hemlock also tries to unload their volumes at

the same time with the same restrictions from China

2. As noted above, REC Silicons granular polysilicon is viewed lessfavorably by solar polysilicon consumers as it requires blending withhigher purity chunk polysilicon

3. REC Silicon would have to nurture new ex-China customerrelationships across the globe (often in countries where it doesntoperate today), an expensive and logistically challenging task

Can REC Silicon redeploy some of its volumes to the electronics industry (largelysemiconductor wafer manufacturers), the only other consumer of polysilicon albeit on amuch smaller scale than solar?

In short, 95% of REC Silicons production capacity does not meet the exactingpurity requirements of the electronics sector

Hemlock, the largest US polysilicon producer, on the hand, could mitigate aportion of the China crater through increased shipments to the electronicsindustry as nearly 100% of its capacity meets the purity standards of theelectronics industry

o

Moreover, Hemlock has been supplying the semiconductor industrysince its founding in the 1950s

How do the above translate into capacity utilization? While we dont model this scenario, we recognize that it is possible that REC

Silicon cannot replace any of its China business as Hemlock beats REC Siliconto the punch on the ex-China and electronics polysilicon markets

0%

25%

50%

75%

100%

Hemlock REC Silicon

REC Silicon Versus Hemlock

Electronics Grade Polysilicon (highest purity)

Solar Grade Polysilicon (lowest purity)


CANNOT BE

REDEPLOYED

TO

ELECTRONICS

INDUSTRY


11/17

Memorandum


o In this extreme but not impossible scenario, REC Silicons utilizationdrops to 20% (versus current levels of ~95%), EBITDA becomes arelic of the past, and debt covenants are tripped on the way to anotherrestructuring

In our very conservative Base case, we assume that utilization drops to 70%suggesting that REC Silicon manages to recover 60% of lost China shipments

o

Our Upside case forecasts utilization plummeting to 60% as only 50%of China shipments are redeployed

We admit that our Base and Upside cases represent likely very conservativeoutlooks as we cannot figure any reasonable path for REC Silicon to restoremuch of their lost China business

In reality, it may be near impossible to maintain the 60-70% utilizationsdescribed in our Base and Upside cases

oAverage Selling Prices (ASP)

REC Silicon is about to confront an untenable situation whereby ex-China polysilicondemand cannot possibly absorb stranded US polysilicon supply at almost any price

Polysilicon makers will stop producing when selling prices fall below cash productioncosts, which we witnessed in the solar industry shakeout in 2011/12

Today, REC Silicon produces their lowest cost FBR silicon at $14.30 per kgand targets cash production costs of $11.20 in Q4 14 (we discuss productioncosts in detail in the next section); however, when utilization drops, fixed costunder absorption drives up unit cash production costs

In our Base case (predicated on unrealistically high utilization rates), weconservatively forecast cash production costs to jump to $13.50 per kg in 2015

0%

25%

50%

75%

100%

Q2 14 Q3 14 Q4 14 Q1 15

REC NO Capacity Utilization Trajectory

Replaces

0%

Replaces

50%

Replaces

60%

0%

25%

50%

75%

100%

125%

Q2 14 Q3 14 Q4 14 Q1 15

REC NO Shipment Trajectory

(Percent of Q2 2014 Levels)


12/17

Memorandum


Needless to explain, with Q2 2014 selling prices hovering around $21.50 perkg, there is a long way down on ASPs to cash costs for REC Silicon

Like utilization, we really cannot justify selling prices anywhere close to current levels forREC Silicon, but for conservatism, we assume 2015 ASPs decrease only 7% fromcurrent levels (and decrease 12% for our Upside case)

o

Production Costs

As noted above, REC Silicon (and all polysilicon manufacturers) carry sizeable fixedcosts which enable margin expansion during increasing ASP and high utilizationscenarios but crush profitability in declining ASP and low utilization periods

In our Base case, we expect unit production costs to jump as decreased utilization

overwhelms REC Silicons cost structure with fixed cost under absorption

We conservatively forecast Base case cash production costs of ~ 13.50 per kg

for REC Silicons FBR production (reported production costs will be higher as

REC Silicons small (but higher cost) Siemens capacity is factored in

We consider this assumption our most conservative given our lack of faith that

REC Silicon can maintain any semblance of our forecasted utilizations

In a very realistic scenario, cash production costs could easily breach 15 per kg

At cash costs north of ~ 18 (~40% utilization), REC Silicon would lose money on

every kg sold

Below we illustrate sensitivity of cash production costs to utilization rates

0

5

10

15

20

25

Q2 14 Q3 14 Q4 14 Q1 15

REC NO ASP Trajectory

Cash

Cost

(Floor)

Upside

Case

Base

Q1 15 PR ODUCTION CASH COS T AND EBITDA SENSITIVITY TO CAPACITY UTILIZATION

Q4 14 Target

100% 90% 80% 70% 60% 50% 40% 30%

10.99 11.51 12.16 12.99 14.11 15.66 17.99 21.88

10.99 11.51 12.16 12.99 14.11 15.66 17.99 21.88

22.00 9.48 8.79 7.93 6.83 5.36 3.29 0.20 ( 4.96)

Q2 14 ASP 21.50 8.98 8.29 7.43 6.33 4.86 2.79 ( 0.30) ( 5.46)

21.00 8.48 7.79 6.93 5.83 4.36 2.29 ( 0.80) ( 5.96)

20.50 7.98 7.29 6.43 5.33 3.86 1.79 ( 1.30) ( 6.46)

20.00 7.48 6.79 5.93 4.83 3.36 1.29 ( 1.80) ( 6.96)

19.50 6.98 6.29 5.43 4.33 2.86 0.79 ( 2.30) ( 7.46)

19.00 6.48 5.79 4.93 3.83 2.36 0.29 ( 2.80) ( 7.96)

18.50 5.98 5.29 4.43 3.33 1.86 ( 0.21) ( 3.30) ( 8.46)

18.00 5.48 4.79 3.93 2.83 1.36 ( 0.71) ( 3.80) ( 8.96)

17.50 4.98 4.29 3.43 2.33 0.86 ( 1.21) ( 4.30) ( 9.46)

17.00 4.48 3.79 2.93 1.83 0.36 ( 1.71) ( 4.80) ( 9.96)

(1) EBITDA includes ~$8M per quarter in cash SG&A

SELLING PRICE

EBITDA PER KG (1)

CASH COST

CAPACITY UTILIZATION RATE

CASH COST
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13/17

Memorandum


We admit that these 2015 production cost forecasts likely present a best case scenario forREC Silicon (i.e., cash costs are likely to exceed the ~$13.50 per kg forecast)

o Revenue

Piecing together our conservative utilization and ASP assumptions, we forecast 2015

revenues ~20% below the Street

o EBITDA

Taking all of the above into consideration, we forecast 2015 EBITDA at least 50%

below the Street

Catalysts

0

5

10

15

20

25

Street Estimate Esplanade Capital

Q2 14A Q4 14 Company

Target

Q1 2015

ILLUSTRATIVE:

Trajectory of EBITDA per KG of Polysilicon Produced

Q2 14A to Q1 15E

EBITDA

Cash SG&A

Cash Cost

ASP

Source: Esplanade Capital Analysis, Bloomberg, REC Silicon

0

100

200

300

400

500

600

0

20

40

60

80

100

120

140

160


Actual Results Peak 2014 Revenue Prices Fall and

Shipments Collapse

Due to China Market

Restriction

2015E

REC NO Revenue Erosion Trajectory

Revenue

Collapses

~20%

from

Q3 14

Esplanade

Forecasts 2015

Revenue ~20%

Below Street

0

20

40

60

80

100

120

140

160

180

0

10

20

30

40

50


Actual Results Peak 2014 Utilization

& EBITDA

Prices Fall, Utilization

Collapses, Costs Leap

Due to China Market

Restriction

2015E

REC NO EBITDA Erosion Trajectory

EBITDA

Collapses

~50%

from

Q3 14

Esplanade

Forecasts 2015

EBITDA 50% Below

Street
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14/17


15/17

Memorandum


assume that REC is able to claw back ~60% of lost volumesthrough lower prices and aggressive tactics in ex-China markets

DOWNSIDE Trade war settlement reached before year-end 2014, and RECSilicon is allowed to import into China uninterrupted

o In the case that a settlement is negotiated by China andthe US, it is highly likely that a settlement is reachedwell after the December 31stdeadline facing RECSilicon given that neither the US or China has officiallylaunched any sort of negotiations to date

o REC Silicons core business could still be disruptedmeaningfully even with a settlement

REC Silicon achieves Consensus revenue and EBITDAestimates for 2015

REC Silicon shares still suffer a modest pullback as its multiplecompresses to global polysilicon peer multiples

NOK2.60-3.00

UPSIDE China import restrictions impact Q4 14 utilizations, shipments,and production costs as REC Silicon winds down productionahead of the December 31stdeadline to avoid buildinginventory in the face of a very uncertain 2015

REC Silicon forced to lower selling prices more aggressively(~12%) from ~$21.50 to ~$19 per KG in response and todecrease utilization due to limited ex-China polysilicon demand(and to avoid consuming working capital through inventorybuild)

Decreased utilization drives up production costs due fixed costunder-absorption

Despite 80% of shipment volumes at risk, we generouslyassume that REC is able to claw back ~50% of lost volumesthrough lower prices and aggressive tactics in ex-China markets

NOK0.70-0.90

UNLIKELYBUT POSSIBLEUPSIDE CASE

REC Silicon only replaces a small fraction of lost Chinabusiness Utilization crash to sub-50% or ASP crash to cash cost levels Debt covenants are tripped REC Silicon could face another restructuring

~NOK0.00

o We derive our price targets by applying the median 2015 peer EV/EBITDA multiple (based onConsensus) to our views on 2015 EBITDA as detailed below

BASE DOWNSIDE UPSIDE

2015E EBITDA $86.0 $167.7 $65.2

Median Peer Multiple 7.5x 7.5x 7.5x

Enterprise Value $646.8 $1,262.1 $490.7

Q2 2014 Gross Debt $261.0 $261.0 $261.0

Q2 2014 Cash $82.0 $82.0 $82.0

Equity Value $467.8 $1,083.1 $311.7

Share O/S 2,314 2,314 2,314

Equity Value per Share $0.20 $0.47 $0.13

NOK per USD 6.37 6.37 6.37

NOK Price Target 1.30 3.00 0.86

Upside / (Downside) 60.3% 8.0% 73.5%


16/17

Memorandum


o We outline our valuation ranges in the Base, Downside, and Upside cases below As the results show, we believe the downside is limited from a valuation perspective

DISCLOSURE: Esplanade Capital LLC and its affiliates hold short positions in REC Silicon and long

positions in Daqo New Energy (DQ US). Esplanade Capital LLC and its affiliates may buy or sell the sharesat any time.

TEV/EBITDA STREET

GLOBAL POLYSILICON PEERS: 14Y 15Y

REC Silicon (REC NO)

10.3x 8.1x

GCL Poly (3800 HK)

9.3x 7.8x

Daqo New Energy (DQ) 8.7x 4.8x

OCI (010060 KS) 9.2x 7.6x

Tokuyama (4043 JP) 8.3x 7.5x

Wacker Chemie (WCH GR) 6.1x 6.2x

Mean 8.3x 6.8x

Median 8.7x 7.5x

Source: Bloomberg

PEER MULTIPLE

VALUATION RANGE

X


86.0 167.7 65.2

2 0 15 R E C ESTIMATED EB ITDA

RESULTS IN

IMPLYING


MEAN 65.6% 18.5% 77.6%

MEDIAN 60.3% 8.0% 73.5%

UPS IDE / DOWNSIDE)

6,000

Solar Gra


MEAN 1.12 2.66 0.73

MEDIAN 1.30 3.00 0.86

REC S ILICON EQU ITY VA LUE PER S HAR E

6,000

Solar Gra
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