Performance is at the bottom, and recovery can be expected. The contradiction between supply and demand in the industry was prominent in the first quarter of 2024. At the same time, the price of photovoltaic glass was still high during the year. Under double squeezing, the company achieved revenue of 1.44 billion yuan, up 0.8% year on year, after deducting non-net profit of 0.1 billion yuan, down 419.4% year on year, and profit fell to the bottom. At the same time, the company's own expansion and cost reduction effects are gradually showing, and profits are expected to be repaired.

Supply and demand have improved marginally, and prices have stabilized and profits have increased. Policy restrictions were compounded by profit compression, and supply growth slowed. The total daily melting volume for Q1 ignition and resumption of production in 2024 was 11,000 tons/day. Considering that there was a climbing period for newly built production capacity, the actual increase in production was limited. At the same time, the expected increase in installed demand was raised, and component production schedules were strong. As the marginal improvement in supply and demand in the industry, glass prices rose slightly in early April, and profits gradually recovered. According to statistics from Zhuochuang, about 8 production lines in Q2 are expected to be hot, with a total daily melting capacity of about 9200T/D. The new production capacity is expected to increase in June, but the installed capacity is also gradually entering the peak season. Overall supply and demand are in a tight dynamic balance throughout the year. It is expected that Q3 prices will stabilize, Q4 prices will face downward pressure, and the average price for the whole year is expected to remain the same as in 2023. The profit margin brought about by the reduction in soda ash prices is expected to remain within photovoltaic glass companies.

Scale enters the fast track of expansion, optimizing costs and releasing profit flexibility. 1) Scale increase: By the end of 2023, the company's production capacity of photovoltaic glass original sheets was 52,70T/D, an increase of about 13% over the previous year. According to the company's plan, the three production lines of Luoyang New Energy (2*1200T/D) and North Glass (1200T/D) are expected to ignite in 2024, and the annual output is expected to exceed 500 million **** meters. In the future, the company will also have 8 1200T/D production lines under construction or planning. At the same time, escrow enterprise assets are also expected to be injected, and production capacity expansion will accelerate. 2) Cost reduction: In terms of raw materials, in 2023, the company reduced costs by more than 58 million yuan by collecting more than 10 kinds of raw materials and equipment such as soda ash and silica sand. In the future, the company will further reduce costs by strengthening centralized procurement. In terms of production lines, the company has carried out cold repair technology for small-tonnage production lines. The newly built production lines are all 1,200-ton large kilns. Energy consumption and costs are expected to decrease as the scale of a single kiln is increased, and costs will also be reduced after the new line is put into operation. In terms of process, the company's comprehensive yield of photovoltaic glass in 2023 was 85.88%, up 2.11pct from 2022. It is at the leading level in the industry. The target original film yield will reach 87% in 2024, and the cost is expected to continue to drop as the yield increases. By optimizing raw material costs, strengthening scale effects, and improving yield, the company's profit potential is expected to be unlocked and the gap with leading companies narrowed.

Profit forecast: The planned production capacity of the company's photovoltaic glass is gradually being implemented, and the cost control capacity continues to improve due to scale effects, centralized procurement, and improved yield. We expect the company's revenue for 2024-2026 to be 8.325 billion yuan, 10.816 billion yuan, and 12.453 billion yuan, respectively, and net profit to mother of 519 million yuan, 701 million yuan, and 821 million yuan respectively, up 31.5%, 35.1% and 17.1% year-on-year respectively. The three-year performance compound growth rate was 25.8%, and the corresponding PE was 15.0X, 11.1X, and 9.5X respectively, maintaining the “buy” rating.

Risk warning: Risk of PV installed capacity falling short of expectations, risk of raw materials and fuel prices continuing to rise rapidly, risk of excessive release of photovoltaic glass production capacity, risk of hypothetical and measurement errors.