The Zhitong Finance App learned that Huatai Securities released a research report saying that the overall supply and demand of the glass fiber industry was weak, production continued to grow but the growth rate slowed. Prices continued to decline throughout the year due to poor demand. As a result, the revenue and profit of glass fiber companies declined markedly in 23, but due to sales growth partially hedging price declines, the revenue drop was less than the decline in net profit after deducting non-return mother's net profit. The profitability of 24Q1 glass fiber companies further bottomed out, but as supply and demand improved in March and glass fiber companies collectively recovered prices, an inflection point in glass fiber prices appeared, and centralized procurement in the middle and downstream led to a marked decline in inventory for two consecutive months in March-April. Q2-Q3 supply and demand in the glass fiber industry are expected to continue to improve, and continued price increases are expected to drive a significant recovery in the profitability of glass fiber companies. Continued focus on recommending China Jushi (600176.SH), Sinoma Technology (002080.SZ), and Changhai Co., Ltd. (300196.SZ).

The main views of Huatai Securities are as follows:

Under downward price pressure, focus on product structure and high-end development, and cost competition intensifies, leading edge advantage is obvious

According to Zhuochuang Information, the average price of 2,400tex direct wound yarn/ G75 electronic yarn nationwide in '23 was 3762/8094 yuan/ton, compared to -29.1%/-15.4%. Huatai Securities estimated that in '23, China Jushi/Sinoma Technology/International Composition/Shandong Glass Fiber/Changhai Co., Ltd. had a year-on-year sales price of -24.4%/-21.5%/-7.6%/-29.4%/-14.7%. The price drop for enterprises with relatively high products was less significant; the importance of the product structure in the downward cycle was even more prominent; China Jushi/ China Stone in '23 Technology/International Rehabilitation The tonnage cost of Material/Shandong Glass Fiber/Changhai Co., Ltd. was -10.0%/-10.1%/+13.5%/-6.7%/+1.5%. Most glass fiber companies showed a downward trend in tonnage costs. Among them, China Jushi and Sinoma Technology saw a significant drop in tonnage costs, and the cost advantage of leading companies is still obvious in the context of increased competition.

Profitability fell below the bottom of the previous cycle, and some companies have experienced continuous losses

The profitability of glass fiber companies declined quarterly in 23 years. China Jushi/Sinoma Technology/International Composition/Shandong Glass Fiber/Changhai Co., Ltd. gross profit ratio was -54.6%/-45.2%/-45.3%/-76.9%/-39.7%. Since 23Q3, the gross margin and net interest rates of the five glass fiber companies have all fallen below the previous cycle (17Q3-20Q3) low. Among them, Shandong Glass Fiber 23Q3 already experienced a negative gross profit margin in 24Q1, and 24Q1 International Composites also experienced losses. The gross margins of 24Q1 China Jushi/Sinoma Technology/International Composite/Shandong Glass Fiber/Changhai Co., Ltd. were 20.1%/19.4%/-3.1%/21.6%, respectively, with net profit margins of 5.0%/2.4%/-5.5%/-17.0%/7.8%. In the downward cycle, China Jushi's profit resilience was prominent. Changhai Co., Ltd. maintained a lead in profitability with product structure and other advantages, and was the first to experience month-on-month improvement in 24Q1.

The trend of tonnage costs is diverging, and ongoing construction and capital expenses indicate that the industry continues to expand production

The tonnage trend of glass fiber companies diverged in 23. China's Jushi/Sinoma Technology/International Composition/Shandong Glass Fiber/Changhai Co., Ltd. was -17.9%/+1.2%/+24.5%/-9.0%/+3.5%, respectively. China Jushi and Shandong glass fiber tonnage costs remained relatively low and continued to decline for 23 years. Huatai Securities pointed out that in '23, due to declining revenue and profits, the net operating cash flow of major glass fiber companies all declined markedly, but Sinoma Technology bucked the trend and grew. In terms of capital expenditure, China's Jushi's capital expenditure and projects under construction declined sharply in '23 due to the pace of production capacity investment, but overall capital expenditure of other companies in the industry continued to grow, indicating that the industry's production capacity continues to expand.

Risk warning: Demand for glass fiber falls short of expectations, production capacity investment exceeds expectations, and energy costs have risen significantly.