2023 results are in line with our expectations

The company announced 2023 results: revenue of 6.595 billion yuan, up 31.12% year on year; net profit to mother of 395 million yuan, -3.5% year over year, corresponding to profit of 0.61 yuan per share, in line with our expectations.

Development trends

The company's ability to obtain approval during hearings is strong, production capacity continues to expand, and profitability is maintained. In terms of production capacity, by the end of 2023, the company's photovoltaic glass production capacity was 5270 tons/day, up about 13% year on year, and annual output was 339 million square meters, up 65.40% year on year. We believe that the company's subsequent expansion of production capacity is highly certain, mainly because the company has received more approval projects at hearings. According to our statistics, the total approved project capacity of the company since 2022 is 9,600 tons/day, accounting for 14% of the total approved project capacity, and we are optimistic that the company's production capacity expansion will support the expansion of the business volume. In terms of sales, the company's photovoltaic glass sales volume in 2023 was 364 million square meters, an increase of 58.98% over the previous year. In the shipping structure, 2.0mm photovoltaic glass used for dual-glass modules accounted for more than 90% of shipments, leading its peers. In addition, the company signed a sales contract with Tianhe Solar and a new energy in 2022. The contract expires from September to October 2024. Abundant orders guarantee that the company's shipments will continue to increase. We expect the company's shipment volume to reach 450 million square meters in 2024, an increase of 22% over the previous year. In terms of profit, in 2023, we faced a situation where raw fuel costs such as soda ash and natural gas were high. The company's gross margin for photovoltaic glass remained stable, reflecting an increase in cost control capabilities. The gross margin of photovoltaic glass was 11.7%, an increase of 0.17 percentage points over the previous year. We believe 2024 will benefit from lower costs and higher glass prices, and gross margin is expected to increase.

The industry's supply and demand pattern has improved, and both volume and profit are expected to increase in 2024. In the long run, we believe that the policy will strictly control the investment of new glass production capacity. The supply growth rate is expected to slow further, the supply and demand pattern will improve throughout the year, and the further increase in double glass penetration rate will benefit the growth in glass demand. We estimate that if the module production schedule exceeds 55 GW in a single month, the supply of glass may be tight. In the short term, downstream module production schedule increased by about 50% month-on-month in March. Demand for photovoltaic glass is booming, and the number of inventory days is in a rapid decline channel. Currently, the average number of inventory days in the industry is about 20 days, which is a big drop from the high inventory days (30 days) after the Spring Festival.

We believe that glass prices can remain stable in the face of falling costs, reflecting the demand side's stable price support, the rapid decline in inventory days, and the elasticity of glass price increases. We expect glass prices to rise by 0.5-1 yuan/square in April, and profit margins are expected to increase.

Profit forecasting and valuation

We kept our 2024 profit forecast of 695 million yuan unchanged, and introduced the 2025 profit forecast of 992 million yuan for the first time. Maintaining an outperforming industry rating, keeping the target price of 18.98 yuan unchanged for 2024/2025, with 55% upside compared to the current stock price, and the current stock price corresponds to 11/8x P/E 2024/2025; due to the upward shift in the valuation center of the Hong Kong stock photovoltaic glass sector, the target price for H shares was raised 38% to HK$7.75, corresponding to 8/6x P/E 2024/2025. There is 40% room to rise from the current stock price. The current stock price corresponds to 5/3x P/E.

risks

Raw fuel prices fluctuate, policy fluctuations risk, capacity expansion falls short of expectations, and downstream demand falls short of expectations.