Key points of investment

Profit for the first half of 2024 was HK$1.963 billion, up 41% year over year, in line with expectations:

2024H1 achieved revenue of approximately HK$12.687 billion, up 4.5% year on year; gross profit of approximately HK$3.406 billion, up 27.5% year over year; profit attributable to shareholders of approximately HK$1.963 billion, up 41.0% year on year; basic earnings per share of HK22.03 cents, with an interim dividend of 10 HK cents per share (dividend rate of 45.4%).

The company's profit growth was significantly higher than revenue growth, mainly benefiting from the decline in natural gas and soda ash costs in the first half of this year, as well as the combined effects of large-scale cost effects brought about by new capacity efficiency improvements. The company's gross margin for photovoltaic glass during the period was 21.5%, up 6.3 percentage points from the previous year.

The photovoltaic glass industry is integrated, and the company adjusts the pace of commissioning:

Since May of this year, since the supply of photovoltaic glass is still high and demand performance is weak, glass prices have been under pressure for a while. Although cold repair kilns have recently begun to increase and production capacity supply has been mitigated to a certain extent, it is expected that the photovoltaic glass industry will continue to integrate in the second half of the year. Prices are still likely to decline further. The gross margin is expected to drop compared to the first half of the year. According to data from Zhuochuang News, as of August 2, the mainstream price of 2.0mm coating for domestic photovoltaic glass was 13.5 yuan/square meter, and the mainstream price for 3.2mm coating was 22.5 yuan/square meter, all down 1.5 yuan/square meter from month to month.

The company added 3 new solar glass production lines with a total daily melting capacity of 3,200 tons in the first half of the year. At the end of June 2024, the company's total daily melting capacity increased to 29,000 tons (including 2,000 tons of cold repair production capacity). In 2024, the company originally planned to add 6 new production lines, increasing the daily melting volume to 32,200 tons by the end of the year. Based on the current situation where supply exceeds demand in the photovoltaic glass industry and the peak season is not strong, the company will appropriately regulate the ignition time of the new production line according to the market supply and sales situation. We expect the Ministry of Industry and Information Technology to continue its policy of tightening photovoltaic glass production capacity, which will help the industry to clear production capacity. After industry integration is completed, the company, as a leading enterprise, is expected to demonstrate its domestic and international expansion and cost of scale advantages, which will further increase its market share.

Updated target price of HK$4.69 to maintain buy rating:

We updated our target price to HK$4.69, which is equivalent to 11 times and 7.5 times PE in 2024 and 2025. There is room for a 34% increase in the target price compared to the current price, and the purchase rating is maintained.

Risk warning:

PV installation demand and module companies' production schedules fall short of expectations

Raw materials and fuel costs have risen, and the decline in photovoltaic glass prices has exceeded expectations and production capacity has fallen short of expectations