The 2022 results are in line with the previous forecast
The company announced its 2022 results: annual revenue was -14.6% year on year to 4.33 billion yuan; Guimu's net profit was -84% year on year to 116 million yuan, a sharp decline from last year. Among them, 2H22's revenue was -25.5% year-on-year to 2,265 million yuan; the net profit of the mother was about 460,000 yuan. The annual results are generally in line with the previous forecast.
1) The buoyancy of flotation declined, and overseas contributed high profits: In '22, the flotation industry faced a rapid decline in demand, oversupply, rapid weakening of prosperity, rising compounding costs, and heavy pressure on industry profits. The company sold 36.76 million boxes in '22 (-7% year-on-year), and the price of a single box was -12% to 108 yuan/box, but since the cost of a single box was +13 yuan to 93 yuan/box, the gross profit of a single box was -28 yuan to 15 yuan/box compared to the same period last year, and the gross margin of the glass sector was -21ppt to 13.6% year-on-year. However, with the release of the company's Nigerian production line, the share of overseas and export business rose rapidly by 13ppt to 37%, while overall overseas gross margin reached 42%, contributing to core profit (while domestic gross margin was only 4%). 2) 2H22 continues to bottom out: 2H22's average sales price was -15 yuan to 101 yuan/box, the cost was basically the same from month to month, and the gross profit of a single box fell to 7 yuan/box (-17 yuan month-on-month), leaving 2H22 gross margin of only 9% (we estimate that the second half of the year was still dominated by overseas gross profit contributions, and domestic gross profit may be negative), reflecting greater profit pressure. 3) The cost of a single box has increased: since management costs are +7.6%/+15% compared to financial expenses, the total cost of a single box is +2.4 yuan to 19 yuan/box compared to the same period. 4) Operating expenses have increased: the number of days the company's accounts receivable is +17 to 23 days compared to the same period, and the number of inventory turnover days is +24 to 91 days compared to the same period. 5) New production capacity has increased, and the debt ratio has risen: As the company recently invested in a new 1000t/d photovoltaic production line in Suqian, a 500t/d floating production line in Kazakhstan, and cold repair technology changed production lines in Dongtai and Weihai, capital expenditure increased. Total interest-bearing debt was +3.1 billion yuan to 7.94 billion yuan over the same period last year, bringing the balance ratio to 75%.
Development trends
The new layout is gradually taking shape, or showing high volume and price flexibility. We believe that recently, the company's emerging sector was quickly put into operation (including the kiloton photovoltaic glass production line, TCO glass production line, and Kazakhstan overseas production line), which may become an emerging sector for the company to provide high profit margins. At the same time, the company's cold restoration and production of 3 new float production lines in early '23 is expected to bring about a high elasticity in float sales. In terms of prices, we see that the current boom in the flotation industry has gradually recovered. The production and sales rate of manufacturers continues to be higher than 100%, and inventories are gradually declining. We are optimistic that, with the continuous implementation of security buildings in the second half of the year, demand for glass is expected to widen further, driving a gradual upward price trend and bringing high volume and price flexibility to the company.
Profit forecasting and valuation
Considering that the current cost of float glass is still high, we lowered the 23e EPS by 51% to 0.1 yuan and introduced the 24e EPS by 0.13 yuan. The current stock price corresponds to 2023e/24e 8.3x/5.9x P/E. We maintained outperforming industry ratings. Considering the gradual recovery of float glass boom, we lowered our target price by only 13% to HK$1.3, corresponding to 22e/23e 11.1x/7.9x P/E, implying 34% upward space.
risks
Demand for completion fell short of expectations, and overseas and new business development fell short of expectations.