Description of the event

The company released its report for the third quarter of 2024. In the first three quarters, the company achieved revenue of 14.6 billion yuan, -8.1% YoY; net profit to mother was 1.3 billion yuan, or -34.2% YoY. Among them, Q3 achieved revenue of 3.91 billion yuan, or -37.0% YoY, -21.4% month-on-month; realized net profit to mother -0.2 billion yuan, -123.0% YoY and -127.5%.

Incident reviews

The phased mismatch between supply and demand for photovoltaic glass puts pressure on profitability in Q3. Since Q3, there has been a phased oversupply of photovoltaic glass, and prices have continued to decline as inventories continue to rise. According to Baichuan Yingfu's quotation estimates, the average price of Q3 2.0mm photovoltaic glass fell 21.7% month-on-month compared to Q2. The drop in the price of photovoltaic glass dragged down the company's profitability. In the first three quarters of 2024, the company's overall gross profit margin was 19.0%, -2.2 pct year on year; in the Q3 single quarter, the company's gross margin was 6.0%, -18.5 pct year on year, and -20.5 pct month on month.

Operating cash flow increased significantly, and asset impairment dragged down performance. As a leading enterprise in the photovoltaic industry, the company has excellent management capabilities. In the first three quarters of 2024, the company's net cash flow from operating activities was 3.02 billion yuan, a significant increase over the previous year; of these, Q3 net operating cash flow was 1.27 billion yuan, +54.2% year-on-year and +11.0% month-on-month. Q3 The company's asset depreciation was -0.11 billion yuan, mainly affected by cold repairs and product price drops. In terms of cost ratio, the company's total Q3 expense ratio in 2024 was 10.5%, +3.8pct year over year, and +3.6pct month-on-month; of these, sales/management/ R&D/finance expenses rates were 0.3%/2.3%/3.9%/4.0%, respectively.

Investment advice

The profitability of the industry is under pressure, small-scale and old kiln production lines are being cooled down one after another, and the ignition of new production capacity has been delayed. We expect inventory to drop to a reasonable level in the first half of 2025, and prices are expected to reach an inflection point. In the short term, considering the current supply and demand situation in the photovoltaic glass industry, we lowered the company's profit forecast. The company's 2024-2026 EPS is 0.45\ 0.79\ 1.37, respectively, corresponding to the company's closing price on November 8, and PE in 2024-2026 is 55.3\ 31.8\ 18.4, respectively, maintaining a “buy-A” rating.

Risk warning

Increased competition in the industry, demand for photovoltaics falling short of expectations, the impact of fluctuations in raw materials and fuel prices, and the risk of production capacity construction falling short of expectations, etc.