1H23 performance slightly exceeded our expectations
The company announced 1H23 results: operating income -0.3% year on year to 3.72 billion yuan; net profit to parent company -28.5% year on year to 261 million yuan. Among them, 2Q23's net profit to parent was -21.3% year-on-year to 173 million yuan. The company's performance slightly exceeded our and market expectations, mainly because the profit of photovoltaic glass slightly exceeded expectations:
1H23 Jinjing Malaysia made a profit of 25.24 million yuan, and Ningxia Jinjing made a profit of 13.3 million yuan.
The profit of traditional glass is under pressure, and the growth of new energy glass is significant. 1H23's glass sector revenue was +11.8% year over year to 2.36 billion yuan, and gross margin was -5.4ppt to 8.3% year over year. The gross margin of the glass sector is falling or due to the pressure on traditional float profits: 1H23, the average price of the general floating method including tax was -9% year-on-year to 1905 yuan/ton, Tengzhou Jinjing lost 23.58 million yuan, and the profit of the traditional glass sector was under pressure. However, we believe that revenue growth was positive year-on-year or was due to the contribution of photovoltaic glass and TCO glass: 1) Photovoltaic glass: 1H23 Ningxia Jinjing's revenue was +1% over the same period to 370 million yuan, making a profit of 13.3 million yuan, turning a loss into a profit; Malaysia Jinjing had revenue of 260 million yuan, a profit of 25.24 million yuan, and a net interest rate of close to 10%. 2) TCO glass:
According to the company, its TCO products continue to maintain a leading market share in domestic perovskite and cadmium telluride.
The impact of pressure to reduce the price of soda ash in the first half of the year was limited, and the easing of cost pressure supported profit levels. 1H23's chemical sector revenue was -11.6% year-on-year to 1.99 billion yuan, and gross margin was +2.9ppt to 22.3% year-on-year. We believe that the tax-inclusive price of heavy alkali in the 1H23 industry is -4% to 2,545 yuan/ton, and the price reduction pressure is limited; at the same time, due to falling coal prices, the cost pressure of soda ash has eased or supported profits. The cost rate decreased year-on-year during the period, mainly due to the contribution of management expenses. The company's cost rate for the 2Q23 period was -0.3 ppt to 7.9% year over year, and the management fee rate was -0.9 ppt to 2.8% year over year. The company disclosed that due to a decrease in control expenses. The net to cash ratio has increased slightly, and the pressure on capital expenditure has declined. 1H23's net to cash ratio was 1.95, down year on year; revenue ratio was 0.56, up 28 ppt year on year; company 1H23's capital expenditure was 35.5% year on year to 4.2 billion yuan, with a slight decrease in pressure.
Development trends
The maintenance of the alkali plant from July to August led to a price rebound, and the company steadily promoted new business transformation. By business, we think 1) New energy glass: The company's second phase 600t/d production line in Malaysia was put into operation in late May. We judge that its photovoltaic glass performance may increase in the second half of the year; the company expects to resume production of Tengzhou Line 2 in the second half of the year, further contributing capacity reserves to TCO glass. 2) Soda Ash: As some enterprise maintenance reduced the load and the supply of soda ash contracted, the tax-inclusive price of heavy soda ash in the industry reached 2160 yuan/ton at the end of August, +110 yuan over the previous month; we have determined that if supply reduction slows down in the future, the price of soda ash may be under pressure; 3) Float glass: Inventory pressure on float glass from July to August improved compared to June, and the average price including tax reached 2,087 yuan/ton by the end of August. We judge that demand during the peak season is expected to drive glass prices, and production capacity pressure or part of the price rebound.
Profit forecasting and valuation
We lowered the profit levels of the soda ash and float glass businesses, and lowered 23e/24e EPS by 24%/41% to 0.38/0.43 yuan. The current stock price corresponds to 18x/16x P/E. We maintained our outperforming industry rating and lowered the company's target price by 19% to 8.7 yuan, corresponding to 23/24e 23x/20x P/E, implying 25% upside.
risks
The resumption of float production exceeded expectations, the price of soda ash fell more than expected, and new business orders fell short of expectations.