2023 Results Exceed Our Expectations
The company announced its 2023 results: revenue of HK$26.629 billion, up 29.6% year on year; net profit to mother of HK$4.187 billion, up 9.6% year on year, corresponding to profit of 47.04 HK cents per share, exceeding our expectations. This was mainly due to a significant improvement in the profit margin of 2H23's main business photovoltaic glass, which led to an increase in total gross margin.
Development trends
PV glass production capacity bucked the trend, and profit improvements exceeded expectations. The company's gross margin for the photovoltaic glass business in the second half of the year was 26.4%, up 11.2 ppt from the first half of the year. We believe that one reason for the increase in profit was that improved supply and demand conditions in the 3Q23 industry drove up glass prices and increased profit margins; on the other hand, the company continued to expand production capacity, highlight scale advantages, and make continuous efforts to improve operational efficiency and reduce costs. In terms of production capacity, under policy control and a slowdown in the pace of industry capacity expansion, the company still completed the production expansion plan as scheduled, and the daily melting volume increased dramatically, reflecting its operating strength. In 2023, the company added 6 new 1000 tons/day production lines, with a total daily melting capacity of 25,800 tons/day, an increase of 30.3% over the previous year. The company expects to continue to put into operation 6 production lines in 2024 (4 1000 tons/day in Wuhu and 2 1200 tons/day in Malaysia), with a nominal production capacity of 32,200 tons/day by the end of the year, an increase of 24.8% over the previous year.
In addition, the company is committed to increasing overseas production capacity and overseas revenue share. Overseas revenue in 2023 will increase by 29.3% year on year. We expect the company's share of overseas production capacity to increase by 6ppt to 13.4% in 24. The price and profit of photovoltaic glass in overseas markets is high, and the increase in overseas revenue share will effectively help the company raise its profit center. In terms of sales strategy, the company accelerated inventory turnover to improve operational efficiency. The number of inventory turnover days in 2023 was 34 days, the lowest in the past three years. Driven by an active sales strategy, sales volume increased by 33.3% year-on-year. We are optimistic that the company's profitability will be maintained in 2024, and the leading position will be stable.
Thanks to falling component prices, the number of new grids added in 2023 reached a record high. In 2023, module prices continued to drop, and the yield of power plants increased. As a result, the company increased the number of grid-connected devices. The annual grid connection volume was 1,094 megawatts, and the cumulative grid-connected scale was close to 6 gigawatts, of which 5.5 GW was a centralized project and 0.4 GW was a distributed project. The company plans to add a 300 megawatt power plant project in 2024. The decrease in the amount added is affected by factors such as increased difficulty in power plant project reserves and increased allocation and storage requirements. We believe that the reduction in the number of new projects added by the company in the short term can help the company avoid risks and balance benefits. In the long run, the company has strong financial strength to support the sustainable development of the power plant business.
Profit forecasting and valuation
Due to fierce competition in the photovoltaic industry and the falling price of laminated glass, we lowered our 2024 performance by 13% to HK$5.14 billion and introduced a profit forecast of HK$6.46 billion for 2025.
As the company's profit recovery exceeded expectations, we maintained a neutral rating and maintained a target price of HK$7.07, corresponding to 12/10x P/E 2024/2025, up 49% from the current stock price, and the current stock price corresponds to 8/7x P/E 2024/2025.
risks
Risk of fluctuations in raw fuel prices, risk of policy fluctuations, risk of downstream demand falling short of expectations.