The increase in volume promoted a month-on-month increase in non-net profit deducted in the third quarter: in the third quarter, the company realized revenue/net profit attributable to parent/net profit deducted of RMB 19.5/69/63 million yuan, with a year-on-year growth of 92%/428%/7139%, month-on-month +44%/-41%/+158%, which met our expectations. The month-on-month decrease in net profit was due to a significant decrease in government subsidies. In the third quarter, the 650-ton production capacity of Yixing ignited by the company in May was gradually released, and the production in the second quarter was changed from more than sales to more than sales, which jointly promoted the month-on-month increase in sales volume. We estimate that the average price of 2.0mm photovoltaic glass of the company's main products in the third quarter was 18 yuan/square meter, down 1% month-on-month, but the decline in soda ash prices and internal cost reduction pushed the cost down more, so the gross profit margin increased by 2.1/1.2 percentage points year-on-year/month-on-month to 12.7%. Sales/management/R & D/finance expense ratios decreased by 0.2/1.0/0.7/0.3 percentage points year-over-year in Q3 due to scale effects of revenue growth. The increase in gross profit margin and the decrease in expense ratio pushed the deduction of non-net profit margin up 3.1/1.4 percentage points year-on-year/month-on-month to 3.2%.
Competition in the industry is fierce, but gross profit margin is still expected to rise slightly year-on-year next year under significant cost reduction: According to Zhuochuang Information, the price of 2.0 mm glass rose by 2 yuan/square meter in September. Due to the reduction of component production and the increase of glass supply, it fell by 0.5 yuan in October and will continue to fall by 0.5 yuan in November. However, we expect the average price in the fourth quarter to still rise by 0.6 yuan month-on-month, exceeding the cost increase caused by the rise in soda ash and natural gas prices, pushing the gross profit margin to increase slightly by about 1 percentage point month-on-month. We expect the gross profit margin of photovoltaic glass to increase by 2.8 percentage points month-on-month to 14% in the second half of the year and reach 12.8% for the whole year. Although more new ignition capacity before the end of the year will lead to pressure on glass prices in the first quarter and fierce competition in the industry next year, the capacity warning mechanism will prevent long-term serious overcapacity. Due to the large number of new capacity put into production at low cost and the scale effect, the gross profit margin of photovoltaic glass is expected to increase slightly to 13% next year. After the backward production capacity is gradually cleared, it will increase to 15% in the following year.
Reiterate Buy: Due to higher than expected competition in the industry, we have lowered our 2023/24/25 earnings forecast by 2%/27%/24%. Based on a forecast price/earnings ratio of 6.5 times for 2024 (a 25% discount to the current average of 8.6 times for the two first-tier companies), the target price will be lowered to HK $5.71 (originally HK $7.84). At present, the total production capacity of photovoltaic glass of the company is 5300 tons, and we expect it to increase to 15340 tons by the end of 2025, which will promote the rapid growth of the company's performance. Meanwhile, the cost gap between the company and the first-tier enterprises in the past two years has been significantly narrowed and will continue to narrow. With the financial support of the parent company China Building Materials Group, even if the industry has short-term extreme adverse conditions, it can still successfully pass the bottom of this cycle and increase the market share. There is no need for excessive pessimism and reiterate buying.
