The gross margin/performance of PV glass in the second half of the year exceeded expectations: the company achieved net revenue/return profit of HK$266/4.19 billion, up 30%/10% year on year, and achieved net profit to mother of HK$2.80 billion in the second half of the year, up 46%/101% year over month, higher than our/ market expectations of 17%/19%. Driven by new production capacity, the company's photovoltaic glass sales increased by 49% last year, and revenue increased 33% to HK$23.5 billion, with a 22% month-on-month increase in the second half of the year. Due to lower costs due to rising sales prices and the elimination of one-time factors due to excessive natural gas purchase prices, the division's gross margin increased by 11.2 percentage points to 26.4% month-on-month in the second half of the year, 4 percentage points higher than our expectations. Last year, PV revenue increased 8% to HK$3 billion, and gross margin fell 1.9 percentage points to 68.5%.

Consolidating its leading position in glass, the polysilicon business is expected to be cost competitive: the company added 6,000 tons of photovoltaic glass production capacity last year, only 1,000 tons less than planned, and the degree of fulfillment was far higher than that of its peers. Production capacity increased to 25,800 tons at the end of the year, widening the gap with Follett in second place (adding only 1,200 tons last year), which helps maintain the cost advantage. The company plans to ignite 4*1000 tons in Wuhu in the first half of the year, 2*1200 tons in Malaysia in the second quarter, and resume production in the 3rd quarter of the 2,000 tons in Wuhu, which was cold repaired at the beginning of the year. The company is leading to a 35% increase in annual melting volume this year, which is higher than its estimated 20-30% demand growth rate, which will drive its market share to rise markedly after 2 consecutive years of decline, but we expect it to be difficult to achieve this goal. The company's approved projects also include 2*1200 tons in Qujing, 3*1200 tons in Shangrao, and 2*1450 tons in Indonesia. It is expected to be put into operation from next year. The company holds 52% of the 60,000 tons of polysilicon production capacity and plans to test production in the second quarter. The company expects to be cost competitive after delivery, and will still be profitable according to current sales prices.

Supply growth in the industry continues to slow, and the first half of the year is expected to be the bottom of long-term profits: excess photovoltaic glass increased due to the January-January production cut for downstream modules, and the price of 2.0 mm glass continued to fall by 1 yuan to a record low of 16.25 yuan/square meter since this year. We estimate that the industry's profit margin may have fallen to its lowest level in recent years, and only first-tier and very few second-tier companies can still be profitable. Under operating pressure, cold repair production capacity has reached 30,000 tons since this year, and ignition production capacity continues to fall short of expectations. Currently, production capacity in the mainland has decreased by 0.05 million tons to 99,000 tons compared to the end of last year, for the first time in recent years. According to industry feedback, module production schedules will increase dramatically in March. We expect excess glass to be significantly reduced and prices will stabilize. As demand continues to grow month-on-month, prices will clearly rebound from a low level in the second half of the year. Although excess is difficult to eliminate in the short term and will continue to suppress profit margins, the first half of the year is expected to be the bottom of long-term profits.

Raise the target price and repeat the purchase: We raised our 2024/25 profit forecast by 10%/5%, and based on 10 times the 2024 price-earnings ratio, we raised the target price to HK$5.93 (previously HK$5.18). The company's current stock price only corresponds to 6.4 times the price-earnings ratio of 2024, and the valuation is at its lowest level in the past 5 years. We believe that the market is overly pessimistic about photovoltaic glass overcapacity. The company's current polysilicon profit guidelines are also expected to ease excessive market concerns about losses in this business and maintain purchases.