Incident: On August 27, 2024, the company released its 2024 semi-annual report. 24H1 achieved revenue of about 7.912 billion yuan, +14.92% year-on-year, realized net profit of about 0.811 billion yuan, +25.35% year-on-year, and realized net profit without deduction of about 0.759 billion yuan, or +35.23% year-on-year. Looking at a single quarter, 24Q2 achieved revenue of about 4.055 billion yuan, +8.01% year-on-year, realized net profit of about 0.369 billion yuan, or -30.91% year-on-year, and realized net profit after deduction of about 0.344 billion yuan, or -30.85% year-on-year.

The price of float glass has declined a lot, and production and sales of photovoltaic glass have increased dramatically. In the first half of 2024, domestic real estate continued to operate weakly, and the completed area decreased by 21.8% year on year, dragging down demand for float glass. As of 24H1, the company produced 55.03 million heavy boxes of original float glass, a decrease of -3.30% or 1.88 million heavy boxes; sales of original float glass sheets were 48.82 million heavy boxes, a decrease of -9.07% or 4.87 million heavy boxes compared with the same period, achieving float glass revenue of 3.71 billion yuan.

In terms of photovoltaic glass, the company's production capacity has already ranked among the top three in the industry. Production and sales have increased dramatically year-on-year, the market share has increased, and the scale effect is gradually showing. As of 24H1, the company's photovoltaic glass production was about 0.213 billion square meters, and sales volume was about 0.185 billion square meters, achieving photovoltaic glass revenue of 2.901 billion yuan. 24H1's gross margin was about 24.28%, +3.62pct year on year. Looking at a single quarter, 24Q2's gross margin was about 22.56%, or -4.14pct year on year. We think or are mainly related: 1) Q2 float glass prices have dropped a lot. According to Zhuochuang Information, the average price of 24Q2 float glass nationwide is about 1698.30 yuan/ton, -18.11% year on month, -15.14%; 2) 24H1 The number of PV module operation/construction projects in China dropped sharply year on year, and several projects were announced to be terminated or postponed. The operating rate of the industry is less than 60%, causing the price of photovoltaic glass to fluctuate and decline. Both put some pressure on the company on the price side.

The 24H1 expense ratio increased, and operating cash flow decreased. The 24H1 company's expense ratio was 12.02%, +1.77pct, with sales/management/R&D/finance expenses ratios of 1.11%/5.18%/4.01%/1.73%, respectively, +0.12/+0.33/+0.98pct, respectively. 24H1's financial expense ratio increased a lot, mainly due to an increase in payment for project construction projects, and an increase in interest expenses due to the increase in the scale of loans. 24H1's net profit to mother was +25.35% to 0.811 billion yuan, and the net profit margin to mother was about 10.25%, +0.85pct year on year; net profit without return to mother was +35.23% to 0.759 billion yuan, net profit margin after deducting non-return to mother was about 9.60%, or +1.44pct year on year. In terms of cash flow, 24H1's operating cash flow was 0.052 billion yuan, or -114.69%, mainly due to: 1) the expansion of the company's photovoltaic glass production capacity and a significant increase in related business revenue, leading to an increase in operating assets such as accounts receivable and inventory; 2) the company used direct endorsements received from sales products to pay for fixed asset project construction expenses, reducing operating cash flow.

Diversification and internationalization are gradually improving, and integrated development strengthens competitiveness. The company has achieved a diversified product layout through continuous horizontal expansion of product production lines. As of 24H1, the company has 4 high-performance electronic glass production lines (345 tons/day) and 2 neutral borosilicate pharmaceutical glass production lines (65 tons/day). The production capacity scale of electronic glass and pharmaceutical glass all rank among the highest in the industry. In terms of internationalization, the company's Sabah PV 1,200 tons/solar glass production line and supporting Guda sand mine have been completed and put into operation in 24H1, and the construction of the Sabah PV Line 3 1,200 tons/day production line has started. At the level of integration, the company lays out quartz sand as an upstream raw material, extends the industrial chain vertically, and has the cost advantage of supplying its own raw materials. As of 24H1, the company has supported the construction of ordinary silica mines in Dongshan, Fujian, Liling in Hunan, Heyuan in Guangdong, and Negeri Sembilan in Malaysia, with the highest self-sufficiency rate of ordinary silica sand in the industry; the company has built ultra-white silica mines in Zixing, Hunan, Yiliang, Yunnan, and Guda, Sabah, Malaysia, and is also building large-scale ultra-white sand processing bases in Dongshan, Fujian. After subsequent sand mines and processing plants reach production, the self-sufficiency rate of ultra-white silica sand is expected to reach 100%. We believe that the company's abundant silica sand resources not only guarantee supply chain safety and product quality, but also effectively control costs and ensure medium- to long-term sustainable operation and stable profitability.

Investment advice: The company has leading scale and cost advantages in the industry. The expansion of photovoltaic, electronic glass and pharmaceutical glass production is progressing steadily, and the future may bring new growth points. However, considering that the current real estate is still in the process of bottoming out, dragging down demand for float glass, we slightly lowered our previous profit forecast. We expect the company's net profit for 2024-2026 to be 15.04 billion yuan, 21.50, and 2,391 billion yuan, respectively, corresponding EPS 0.56, 0.80, and 0.89 yuan, respectively, and corresponding PE valuations of 9.28, 6.49, and 5.84 times, respectively, maintaining the “buy” rating.

Risk warning: Prices of raw materials continue to rise, and cost pressure increases; real estate investment falls far short of expectations; progress in new business development falls short of expectations; environmental regulations are relaxed, and production capacity withdrawal falls short of expectations.