We have lowered Kaisheng Xinneng's profit forecast and valuation. We believe that the price of photovoltaic glass will remain low for a long period of time, so maintaining the company's neutral rating. Considering that the price of glass fell more than expected, the target price was lowered to HK$3.36 based on 0.43 times the 2024 net market ratio (compared to the current 0.97 times discount of leading player Follett (6865 HK), which is the average since this year).

Losses increased in the second quarter, and the gap with the leading gross margin widened: the company's net loss of 48.43 million yuan in the second quarter was higher than the 6.35 million yuan loss in the first quarter, which was in line with our performance forecast. Revenue increased 7.2% month-on-month, gross profit margin was 5.9%, falling 2.3 percentage points month-on-month, setting a new low, and calculated inventory depreciation of 26.06 million yuan. The company's photovoltaic glass production/sales volume in the first half of the year was 0.196/0.194 billion square meters, up 27%/31% year on year, with a gross profit margin of 6.9%. Compared with the leading company's gross profit margin of 21% or more, the gap widened.

The company ignited a 1,200-ton production line in Luoyang in April and cold-repaired the 650-ton production line in Hefei in July. Currently, the production capacity is 5,000 tons.

The price of photovoltaic glass continues to hit a new low, and the industry has entered the clean-up stage: PV module production continued to drop 11%/9% month-on-month in June/July, causing the oversupply of photovoltaic glass to increase. The price of 2.0 mm glass fell 10%/7% in July/August. At current prices, we estimate that with the exception of the 2 leading companies, all other companies have already lost money. Under losses and inventory pressure, the industry experienced a wave of cold repair. In July/August, the cold repair production capacity reached 6,250/3000 tons, while the production capacity for new ignition was only 1200/1200 tons. Currently, the nominal daily melting volume of the industry has decreased by about 6% compared to the end of June. At the same time, production of some kilns in production has also been cut, while component production increased in August, driving a sharp narrowing of the gap between supply and demand. As the peak season arrives, we expect component production to continue to increase in September and push for glass storage. Prices will rebound slightly in October-November, but leading companies still have many unfinished production plans this year. We expect a wave of commissioning at the end of the year. As the off-season arrives, prices may drop again in the first quarter of next year. We believe that the industry has entered the clean-up stage, glass prices will remain low for a long time, and the company's performance will continue to be under pressure to maintain a neutral rating.