The sharp drop in the price of photovoltaic glass led to an increase in losses: the company's revenue for the third quarter was 0.716 billion yuan (same below), down 63%/54% year on month, and the non-net loss was 0.193/0.206 billion yuan, up 298%/265% month on month. According to Zhuochuang News, the average price of 2.0 mm photovoltaic glass fell 22% month-on-month in the 3rd quarter, leading to a new low of -18.8%, a year-on-month decrease of 31.5/24.7 percentage points, and a sales/management/R&D/finance ratio of 0.6%/6.3%/2.4%, an increase of 0.2/2.7/2.8/1.2 percentage points year-on-year. Net profit margin after deduction was -28.7%, down 31.9/25.1 percentage points YoY. Inventories increased 35% month-on-month and continued to accumulate stocks. The company cold repaired the 650-ton new energy production line in Hefei in October. This year, the production capacity has dropped to 4,350 tons. Among them, the proportion of low-cost 1,200-ton kilns has risen to 55%, which is expected to drive down costs.

The industry continued to cut production but demand fell short of expectations, causing glass prices to keep falling to new lows: under losses and inventory pressure, the industry continued to cut production since September. Cold repair production capacity reached 1830/2450 tons in 9/10, with no ignition capacity. Currently, the industry's production capacity has dropped 9% compared to the peak at the end of June. Production capacity has also been reduced by blocking kilns, and the actual production reduction is even greater. However, due to demand falling short of expectations, there has been no significant recovery in monthly component production since production was cut in June. As a result, glass stocks have continued to accumulate, and 2.0/3.2 mm glass prices have continued to drop 8%/10% since September. However, with the continuous reduction in production, the current balance between supply and demand for glass is already in balance, we expect to slowly begin to be removed. However, with the arrival of the off-season in the first quarter of next year and the large number of unfinished production expansion plans of leading companies this year, there is still a lot of uncertainty about the intensity and duration of storage, and the obvious recovery in prices still requires further reduction in production.

Supply-side reforms may be introduced, which are expected to accelerate the clean-up of the industry: under pressure from losses, the industry is calling for supply-side reforms recently. We expect that the government may introduce policies such as raising energy consumption standards to speed up the clean-up of the supply of photovoltaic glass and the recovery in sales prices, but the actual effect still depends on the strength of the policy.

Maintaining neutrality: We expanded our loss forecast for 2024/25 from 0.041/0.064 billion to 0.319 billion/0.098 billion, but due to supply-side reform expectations and a marked increase in overall market valuations, we raised the valuation benchmark from 0.43 times the market account ratio to 0.53 times (one standard deviation lower than the average for the past 5 years), and switched to 2025, raising the target price to HK$3.80 (originally HK$3.36) to remain neutral.