2023 results are in line with market expectations

The company announced its 2023 results: operating income +6.9% YoY to 7.970 billion yuan; net profit to mother +29.7% YoY to 462 million yuan; net profit after deducting non-return to mother +33.2% YoY to 501 million yuan, which is basically in line with market expectations. Among them, the company's annual non-recurring profit and loss was about 39 million yuan, mainly due to the effects of liquid asset disposal gains and losses.

The profits of photovoltaic glass have improved markedly, and the new layout is gradually expanding. In 2023, the company's PV glass revenue was +61% year-on-year to 1.07 billion yuan, with sales volume +72% to 58.54 million square meters, with a single square meter price of 18.3 yuan; gross margin +16.4ppt to 22% year-on-year, and gross profit of 4 yuan per square meter. We believe that the increase in sales was due to the company's 1) the start of production line production in 1H2023; 2) the gradual decline in early launch of production lines; the increase in profit margins was due to 1) timely regulation of raw fuel costs by overseas production lines locking in soda ash prices in a timely manner, and the Ningxia base relied on reducing unit consumption; the company's photovoltaic glass profit improved significantly, and the profit contribution gradually expanded.

Profits in technical glass are under pressure, and marginal improvements have been made in plain white. In 2023, the company's technical glass revenue was +4% to 1.89 billion yuan, and float glass revenue was +30% to 1.7 billion yuan, of which technical glass gross margin was -11.7ppt to 3.8% year over year. We believe that due to the decline in Pubai's profit in 2022, manufacturers switched production lines to ultra-white to increase market competition; the company still lost money, but gross margin improved slightly +7.5ppt year over year.

The price of soda ash declined, but the easing of cost pressure supported gross profit margins. In 2023, the company's soda ash revenue was -5.8% year-on-year. On the one hand, the average price of the industry declined. We estimate that the company's export unit price was 2,288 yuan/ton, but due to the downward pressure on raw fuel costs, its gross margin remained around 26%.

Inventory turnover improved, and the dividend rate exceeded 30%. The number of inventory turnover days in 2023 was -13.4 days to 62 days, and turnover efficiency was improved; the company's net operating cash flow was -27% year-on-year to 704 million yuan, mainly due to a year-on-year increase in cash expenses such as purchasing goods; and the company's dividend rate increased to more than 30% during the reporting period.

Development trends

The company's photovoltaic glass business is gradually expanding, and the domestic and overseas bases are well laid out, and the total growth is growing. The company's Malaysia base began standardization construction in 2023. On the one hand, we believe that after the company's early production line climbs, its yield and sales may increase; the purchase price of superimposed soda ash and fuel is expected to drop further, and the company's contribution to the profit contribution of photovoltaic glass in 2024 is still expanding. In terms of TCO glass, the company basically completed the Tengzhou second-line upgrade in 2023, and cooperation with overseas customers is still being actively promoted.

Profit forecasting and valuation

Considering that soda ash and float glass are still under pressure, we lowered 24e EPS 36% to 0.23 yuan and introduced 25e EPS 0.26 yuan. The current stock price corresponds to 24/25e 26x/23x P/E. We maintain our outperforming industry rating, taking into account adjustments in profit forecasts and the increase in the company's PV glass ratio, which is expected to boost the valuation center. We lowered our target price by 11% to 6.5 yuan, corresponding to 23/24e 28x/25x P/E, implying 10% upward space.

risks

Demand for float glass fell beyond expectations, soda ash prices fell beyond expectations, and new business orders fell short of expectations.