Net shareholders' profit increased 9.6% year over year in 2023
Despite being affected by the devaluation of RMB and rising interest rates on Hong Kong dollar loans, the company's net profit for shareholders rose 9.6% year on year to $4.19 billion (HK$, same below) in 2023, which is 11.5% and 7.8% higher than our and market forecasts, respectively. The decline in raw materials and fuel costs in the second half of last year supported the gross margin of the photovoltaic glass business to rise from 15.2% in 1H23 to 26.4% in 2H23. However, due to the decline in the average sales price of photovoltaic glass, the gross margin of related businesses fell slightly from 23.8% of FY22 to 21.4% of FY23 for the whole year. The company's total gross margin rose from 22.0% of 1H23 to 30.5% of 2H23, and the total gross margin for the year also fell moderately from 30.0% of FY22 to 26.6% of FY23.
We expect glass prices in 2024 to be roughly the same as the end of last year. Since prices fell rapidly in 2021 to a low level in recent years, some other producers have suspended or slowed plans to increase production capacity. This helps mitigate the risk of oversupply. In the short term, as PV module prices have continued to fall in recent months, we think it will be difficult for PV glass manufacturers to raise prices to module manufacturers.
The company aims to increase the effective annual melting volume by 35.2% year-on-year in 2024
In 2023, the company added 6 new photovoltaic glass production lines with a daily melting capacity of 1,000 tons (1 in Zhangjiagang, Jiangsu and 5 in Wuhu, Anhui), which is slightly below the target of 7 1,000 tons. Effective annual melting volume increased 45.9% year over year to 7.84 million tons. The company aims to add 6 new production lines in 2024 (4 with 1,000 tons in Wuhu, Anhui and 2 with 1,200 tons in Malaysia), totaling 6,400 tons, which is slightly higher than the actual additional production capacity of 6,000 tons in 2023. As a result, the effective annual melting volume in 2024 is expected to increase 35.2% year over year to 10.6 million tons. Considering the approval risks faced by the industry in recent years, we cannot rule out the possibility that plans for new production lines in central China will not be completed within this year.
Improve profit forecasting
In response to these results and plans to add new production lines, we raised our 2024-25 net profit forecasts by 5.6% and 8.9% to $5.08 billion and $7.30 billion respectively, up 38.6% and 25.7% year-on-year.
Raise the target price and reconfirm the “buy” rating
Accordingly, we raised the target price estimated by the DCF model from HK$6.20 to HK$7.22, corresponding 11.1 times the 2024 price-earnings ratio and 51.7% room for growth. Reiterate the “buy” rating.
Risk warning: (1) project delays; (2) a sharp drop in electricity prices; (3) glass price fluctuations; (4) fuel costs have risen sharply.