The company announced third quarter results: Q3 revenue of 3.69 billion yuan, -14.2%/-9.0% YoY; net profit to mother -0.11 billion yuan, -0.7/-0.47 billion yuan YoY. In the first three quarters, the company achieved revenue of 11.6 billion yuan, +3.7% year over year; net profit of 0.7 billion yuan, the company's Q3 performance was slightly better than our expectations (-0.14 billion yuan), but the year-on-month loss change still shows the current high profit pressure in the glass industry. We believe that as the industry leader, the company has scale and cost advantages, and diversified development helps the company to be more resilient at the bottom of the cycle and maintain a “buy” rating.

Float/photovoltaic glass prices all declined. The gross margin in Q3 was under pressure of 19.0% in the first three quarters of 24, -4.3 pct year on year, 7.7% in Q3, and -20.0/ -14.9 pct month-on-month, mainly due to the decline in float glass and photovoltaic glass prices. According to Zhuochuang News, the average price of Q3 float glass is 75 yuan/heavy box, -16.5%/-28%; 2.0mm coated photovoltaic glass has an average price of 13.7 yuan/square meter, -24.8%/-22.4% month-on-month. We expect Q3's losses to mainly come from the photovoltaic glass business. Considering that the price of Q4 photovoltaic glass has not stopped falling, it is expected that it will still have an impact on the company's profit.

The expense ratio increased slightly during the period, and the settlement method affected the company's net operating cash flow rate of 12.4% for the first three quarters of 24, +1.8pct year on year. Among them, the sales/management/R&D/finance expense ratios were 1.2%/5.1%/4.1%/2.0%, respectively, +0.1/+0.5/+1.1 pct, all with a slight increase over the previous year. The company's net operating cash flow for the first three quarters of 24 was 0.3 billion yuan, -66.3% year-on-year, 0.35 billion yuan in Q3, or -34.3%. It was mainly due to increased sales of photovoltaic glass and settlement was mainly based on notes. The notes received by the company in the first three quarters directly endorsed payment of 0.75 billion yuan for the construction of fixed asset projects. The net actual operating cash inflow after recovering the impact of this note was 1.05 billion yuan.

The policy has made efforts to improve demand expectations. Since October, the price of float glass has risen since the end of September, various ministries have called a press conference to release a package of steady growth incremental policies. Among them, it is mentioned that the credit scale of the “white list” project will be increased to 4 trillion yuan before the end of the year, and the fight to guarantee housing is being vigorously promoted. According to Zhuochuang Information, as of October 24, the average price of float glass was 67 yuan/heavy box, +8.9% week over week, with inventory of 50.59 million heavy boxes, -1.6% week over week. The combined improvement of expectations during the peak completion season led to a recovery in float glass prices, and the profitability of glass companies may be recovering in the short term.

Profit forecasting and valuation

Considering the decline in glass prices, we lowered our 24-26 net profit forecast to 0.61/0.69/0.91 billion yuan (previous value: 1.18/1.19/1.41 billion yuan). Comparatively, the average expected value of the company corresponds to 1.8 xPb in 25 years. Considering that the company's new businesses such as photovoltaic glass are not yet fully mature, the short-term loss pressure is high. The company was given 1.6 xPb in 25 years, with a target price of 8.14 yuan (previous value: 6.60 yuan) to maintain a “purchase.”

Risk warning: Glass prices fell sharply, real estate demand declined, and PV glass production fell short of expectations.