In the first half of 2021, the price of glass was better than the expected mid-term results of 2021, which exceeded market expectations, and the net profit of shareholders in the first half of 2021 changed from a loss of 250 million yuan in 2020 to a profit of 270 million yuan. mainly due to the fact that float glass is in short supply, the average selling price of glass rose 51.3% to 115 yuan per heavy box. As a result, the total gross profit margin increased by 19.4 percentage points to 35.3%.
Glass production capacity continues to expand
The company added two new float glass production lines in production in the first half of the year, and the daily melting capacity increased to 6200 tons from 5200 tons at the end of 2020. Considering the addition of a float glass production line in Longyan, Fujian Province in July, we expect the company's daily melting capacity to increase by at least 32.7% to 6900 tons by the end of 2021 compared with the same period last year. On the other hand, the company also has an off-line low-radiation coated glass production line, an ultra-thin photovoltaic packaging material production line for double glass modules, and a pharmaceutical glass production line technical service company. This will help the company to expand its business beyond float glass in the long run and increase its source of income.
Raise the hypothesis of glass selling price and raise the profit forecast
In terms of the industry, under the pressure of glass inventory, the market price of glass has maintained an upward trend recently. According to market information, recently, the national enterprise glass inventory reached 2258 million cases, down 27.8% from the same period last year. We expect that the short-and medium-term supply of float glass will continue to fall short of demand, supporting glass prices. Therefore, we raised the average selling price of glass in 2021-23 (yuan / heavy box) assuming 28.8%, 27.6%, 28.0% to 149,153,156 respectively, and correspondingly significantly increased the annual shareholder net profit forecasts of 91.1%, 83.7% and 86.8%.
Raise the target price by 109.3% to HK $5.15 and reiterate the "buy" rating. We have raised the target price-to-earnings ratio for 2022 from 7.0 times to 7.8 times, which is equivalent to a 55% discount to 17.3 times the average valuation of the Hong Kong glass industry. To reflect the company's operational risk benefit turned to profit and decline. We correspondingly increase the target price from HK $2.46 to HK $5.15, corresponding to 29.5% room for increase. Reiterate the "buy" rating.
Risk tips: (1) delays in project development; (2) a sharp drop in demand in the real estate market; (3) sharp increases in raw materials and fuel costs; (4) asset integration led by the parent company may not be carried out or is less than expected; and (5) policy risks.