Incident: The company announced its 2023 annual report. During the reporting period, net profit to mother, and net profit without return to mother were 26.07 million, 296, and 281 million, respectively, compared to -13.59%, -63.77%, and -53.66%, respectively. 2023Q4 realized revenue, net profit to mother, and net profit without return to mother of 6.19, 0.08, and -81.26%, respectively, compared with -9.10%, -89.61% and -77.46%, respectively.

Incident: The company announced its 2024 quarterly report. During the reporting period, net profit attributable to mother, and net profit without return to mother were 5.81, 0.51, and 0.45 million yuan, respectively, compared with -3.67%, -37.56%, and -37.83%, respectively, and -6.14%, +537.5%, and +181.25%, respectively.

The glass fiber industry declined in 2023, and the company's glass fiber volume, price, and profit were all under pressure. Demand growth in all major glass fiber segments was under pressure in 2023, and there was an overall imbalance between supply and demand in the industry. On the price side, as production lines such as 200,000 tons of thick yarn in China's Jushi Jiujiang and Taishan Glass Fiber Zoucheng 6 to 12 thick yarn were ignited in the first half of the year, their production capacity climbed down significantly and had a significant incremental impact on the market in the second half of the year. Industry prices declined significantly month-on-month in Q3 and continued to hit record lows. Looking at the company's production and sales in 2023, the sales volume of glass fiber and products was 273,600 tons, -1.29% year on year, and sales revenue of glass fiber and products was 1.908 billion yuan, -15.77% year on year. We estimate that the average tonne price, ton cost and gross profit of the company's glass fiber and products were 6973.12, 5041.23, 1931.89 yuan/ton, respectively, -14.67%, +1.51%, and -39.73%, respectively.

The bottom of the glass fiber industry is clear. 2024 is optimistic about an improvement in supply and demand for thick yarn. We estimate that the new effective production capacity for thick yarn will be 40.6 and 648,000 tons in 2024-2025, corresponding supply growth rates are 4.5% and 6.8%, respectively. We estimate that the downstream demand growth rates for thick yarn will be 4.4% and 4.7% respectively in 2024-2025. Currently at the bottom of the cycle, production capacity at the end of the cycle is still losing money to cash costs. The pace of commissioning additional production capacity may slow down, cold repair production lines have increased, and the overall supply side is manageable. The supply side is generally manageable, and supply and demand in the glass fiber industry is expected to improve in 2024. Looking at 2024Q1, demand in the main downstream sectors of glass fiber has recovered. Among them, thermoplastics, electronics, and wind power related fields are growing better, while overseas market demand is stronger than domestic demand. From January to January 2024, the export volume of glass fiber and products was 525,500 tons, +12.07% over the same period last year. On March 25, 2024, when the recovery in domestic demand was compounded by recovery in external demand, there was a restorative price increase at the industry level, and inventories were rapidly eliminated. By the end of March, the inventory of glass fiber manufacturers was -12.4% month-on-month.

The number of projects under construction has increased dramatically, and the bottom is accumulating energy for the next boom cycle where volume and price are rising sharply. At the end of 2023, the company's on-going project had a book value of 474 million yuan, compared to the beginning of the period. This was mainly due to the commencement of construction of the first phase of the 600,000-ton new base (book value 374 million yuan at the end of the period) and the high-end technical improvement project for high-end high-performance glass fiber and special fabrics with an annual output of 80,000 tons (book value 63 million at the end of the period). According to the investor relations activity schedule, the 300,000 ton phase I project of the company's 600,000-ton new base is under construction. The first 150,000-ton production line is expected to be put into operation in 2024. The company's total design capacity is expected to reach more than 400,000 tons in 2024. The commissioning of the new line will contribute a certain increase to glass fiber export sales in 2024. According to the company's 2024 production capacity investment plan, with the implementation of the new pool kiln, the production capacity of glass fiber products will also expand simultaneously, the share of products is expected to continue to increase, and the competitive advantage of the entire industry chain will be strengthened once again.

2024Q1's performance exceeded market expectations, and the “small but beautiful” business quality was once again verified. 2024Q1 achieved net profit of 45 million yuan without return to mother, a significant increase over 2023Q4. We expect the core reasons behind this are: 1) the price increase was well implemented on March 25, and shipping prices were boosted month-on-month; 2) 2023Q4 asset impairment losses reached 17 million, and 2024Q1 was drastically reduced month-on-month. The 2024Q1 industry is still at its bottom. The company's performance resilience has shown a stronger level than the industry, and the “small but beautiful” business quality has been verified once again.

Investment advice: The company's 2023 performance is in line with expectations, but considering that it is still at the bottom of the industry, and the profit flexibility brought to the company by 2024 is relatively limited, we lowered the company's profit forecast and introduced the 2026 profit forecast. The net profit for 2024-2026 is 3.22, 4.71, and 644 million, respectively (pre-2024-2025 values were 4.75 and 697 million, respectively). The PE corresponding to the current stock price is 14.2 times, 9.7 times, and 7.1 times, respectively, maintaining the “increase” evaluation grade.

Risk warning: Production capacity expanded drastically; demand fell short of expectations; energy costs rose; capacity construction progress fell short of expectations; exchange rate fluctuated greatly.