Supply and demand development in the photovoltaic glass industry was more coordinated, and the rating was raised to “buy” Xinyi Solar's net profit of HK$4.19 billion in 2024, +9.6% year-on-year, exceeding market expectations (VisibleAlpha's agreed forecast: HK$3.80 billion). 2H23's net profit to mother was 2.80 billion yuan, +46%/+101% month-on-month respectively. The restoration of the price of photovoltaic glass and the elimination of cost disturbances are the main reasons for the company's 2H23 profit expansion. Considering the improvement in PV glass profits and the potential drag of the new business climbing period, EPS in 2024 was reduced by 8.9% to HK$0.63, EPS was raised by 1.5% to HK$0.88 in 2025, the 2026 EPS forecast was increased to HK$0.92, and the target price was increased by 3.9% to HK$8.36, based on 13.3x2024P/E, which is consistent with the company's historical average P/E since 2014. We expect supply growth in the industry to slow further in 2024, which will help the supply and demand sides of the industry develop in a more coordinated manner and further improve the company's profit margin. The company's stock price has been -59% since 2023/7/3, down 44% from HSCEI. We believe it has relatively fully reflected the uncertainty on the demand side. Raised to “buy”.
2H23 single-level gross profit bottomed out and rebounded, and photovoltaic power plants were centrally connected to the grid
The company 2H23 achieved sales of 3.45 million tons of photovoltaic glass, +48.9% year over year, continuing the strong growth of 1H23 (1H23: +49.8% year over year). ASP was -9.0% to HK$3,753 per tonne, up HK$341 per tonne (10.0%) from 1H23. The unit cost was -15.0%/-4.5% month-on-month to HK$2,761 per ton. Based on a thickness of 3.2 mm, the gross profit of a single square meter expanded 0.9/3.7 HKD/square meter to HK$7.9 per square meter, respectively, and bottomed out after 5 and a half years of continuous month-on-month decline since 1H21. The 2H23 PV plant was connected to the grid by more than 1 GW, offsetting the impact of the fall in average electricity prices. The photovoltaic power plant business 2H23 achieved revenue of 1.48 billion yuan, +20.7% year-on-year, and returned to a growth trajectory.
Reduce the speed of power plant development and focus on advantageous businesses
The company plans to launch 6 new photovoltaic glass production lines in 2024, corresponding to a production capacity of 6,400 tons/day and maintain a steady growth pace (2023:6, 6,000 tons/day); it plans to connect to the grid 300 MW centralized photovoltaic power plant (2023:1,094 MW). The total capital expenditure plan for 2024 was HK$7 billion, a significant decrease from 2023 (HK$9.9 billion). We believe that concentrating capital expenditure on the photovoltaic glass business will help the company focus on the development of advantageous businesses.
The decline in supply growth in the photovoltaic glass industry supports further improvement in profit margins. According to Zhuochuang News, the photovoltaic glass industry started a new production line of 25,000 tons/day in 2023, which has slowed down compared to 2022 (33,000 tons/day). Under the influence of factors such as the competent authorities further strengthening production capacity risk warning and enterprise expansion becoming more rational, the peak period of supply growth may have passed. As electricity costs continue to decline, we believe that the competitiveness of photovoltaic power generation is still increasing, and there is plenty of room for medium- to long-term growth in demand for photovoltaic glass. We expect more controlled supply expansion to help the industry achieve more coordinated development between supply and demand, and support further improvement in the company's PV glass business profit margin.
Risk warning: PV glass production capacity expansion is stronger than expected, and global PV installations are weaker than expected.