3Q23 results largely in line with our expectations

Jinjing Science & Technology Stock announced its 3Q23 results: Revenue rose 6.8% YoY to Rmb2.09bn; attributable net profit rose 224% YoY to Rmb162mn; recurring attributable net profit rose 241% YoY to Rmb168mn. The firm's results are largely in line with our expectations.

We estimate the firm's soda ash business was relatively stable in 3Q23, and earnings of photovoltaic (PV) glass improved.

Soda ash: There was seasonal maintenance in the soda ash industry in 3Q23. Resumption of float glass production lines and launch of new PV glass production lines increased daily production capacity by 8,600t/d. Soda ash prices rebounded from the lows in June, and ASP in 3Q23 fell 3% QoQ to Rmb2,401/t. We think earnings of this business were relatively stable QoQ.

PV glass: Demand was solid in 3Q23 and ASP of 3.2mm PV glass in the industry rose Rmb0.5/sqm QoQ to Rmb26.5/sqm. The firm's phase II 600t/d PV glass production line in Malaysia was put into operation in late May. We think profit contribution from PV glass further increased in 3Q23.

Float glass: The industry experienced effective destocking in 3Q23 thanks to the peak season. As of end-September, days in float glass deep processing orders increased four days from end-June to 20.3 days, and tax-included ASP of float glass rose 3% from end-June to Rmb2,035/t.

Inventory turnover improved slightly QoQ; cash flow was under pressure YoY. The firm's inventory turnover days in 3Q23 decreased four days QoQ to 68 days. Net operating cash flow declined 43% YoY to Rmb685mn, mainly due to increased purchases of materials. Ratio of operating cash flow to revenue was largely stable YoY at 0.6, and ratio of net operating cash flow to net profit fell 1.3 YoY to 1.6.

The firm transformed its Tengzhou No.2 glass production line into a transparent conductive oxide (TCO) glass production line. The firm announced that its 600t/d Tengzhou No.2 glass production line was transformed into a TCO glass production line, which was put into operation on September 8. In addition to TCO glass, the production line can also produce low-E glass.

Trends to watch

Earnings contribution from new businesses increases; the firm actively advances business transformation. The firm actively expands its TCO glass and PV glass businesses. TCO glass: The firm has high- quality products and pays attention to introducing large customers. It has established a strategic partnership with Microquanta. The firm is also making progress in cooperation with overseas customers. PV glass: The firm is building presence in Ningxia and other regions to be close to end- market customers. We expect earnings of the business to improve as the yield gradually rises.

Financials and valuation

As soda ash and float glass businesses may face pressure next year, we lower our price assumptions. We maintain our 2023 EPS forecast of Rmb0.38 and cut our 2024 EPS forecast 15% to Rmb0.36. The stock is trading at 17x 2023e and 18x 2024e P/E. We maintain OUTPERFORM and lower our target price 16% to Rmb7.3, implying 19x 2023e and 20x 2024e P/E and offering 11% upside.

Risks

Float glass production resuming faster than expected; soda ash prices falling by more than expected; orders for new businesses disappointing.