Incident: Xinyi Glass announced its 2023 results. The company achieved operating revenue of HK$27.5 billion in 2023, an increase of 5.7%, and achieved net profit of HK$5.4 billion to the mother, an increase of 4.6%.
Benefiting from the progress of domestic real estate completion, performance has recovered. In 2023, thanks to the promotion of policies such as building security, China's completed housing area reached 1 billion square meters, an increase of 17.0%. At the beginning of 2023, real estate completion continued its 22-year decline. Demand for float glass was weak, and prices were still under pressure. However, since then, demand has picked up, prices have increased, and corporate profits have gradually increased. According to the commodity market analysis system, the glass market fluctuated and rose in 2023. The average price on January 1 was 18.68 yuan/square meter, and the average price on December 31 was 22.2 yuan/square meter, an annual increase of 18.84%.
The 2024 float glass boom may be cautious, but there is no need to be overly pessimistic about the company's profits. Since the beginning of 2024, demand for completion has weakened, and the glass market is under some pressure. In January-January, the completed housing area in China was 150 million square meters, a decrease of 20.7%. Judging from current trends, the float glass boom may be under further pressure. However, from the cost side of the industry, as soda ash production capacity continues to be released and the supply and demand pattern continues to be optimized, the long-term price trend is expected to decline, and the pressure on glass costs will continue to ease. Furthermore, the profit periodicity of the company's construction glass, automotive glass and other businesses is weak, which can hedge against performance pressure to a certain extent.
Considering the declining trend in real estate completion, the float glass business may face some pressure. We forecast the company's net profit for 23-25 to be HK$53.7/54.0/HK$5.63 billion (the original 23-25 forecast was HK$62.2/73.2/HK$8.36 billion), which is comparable to the company's 24-year PE 9.0X. At this stage, the company's business is still dominated by float glass, which is more cyclical than other categories such as automobiles and photovoltaic glass. We give a 15% discount, corresponding to 7.7X PE in 2024. The target price is HK$9.86, maintaining the “buy” rating.
Risk warning
Real estate investment fell sharply, and raw material costs fell short of expectations