The effective annual melting volume of FY24 is expected to drop 3.1% year-on-year

By the end of November, the company had cold-repaired nine photovoltaic glass production lines this year, with a total daily production capacity of 7,000 tons (2,000 tons in the first half of the year and 5,000 tons in the second half). Among them, the two 1,000-ton production lines that were cold repaired in the first half of the year have been completed, but they have not been restarted and put into operation; the rest of the cold repair work is still ongoing. In terms of additional production capacity, the company has completed the construction of six photovoltaic glass production lines this year, including (1) two 1,200 tons in Malaysia were ignited and put into operation in June and August; (2) the two 1,000 tons in Wuhu, Anhui were already ignited and put into operation in March; and (3) the remaining two 1,000 tons in Wuhu were not put into operation according to the original plan. The company plans to ignite and put into operation four of the 1,000-ton and 900-ton production lines that were cold repaired this year, as well as the newly built Wuhu production line in due course in the future according to the market and the company's own situation.

We expect FY24's production capacity to be 23,200 tons per day, down 10.1% from 25,800 tons at the end of FY23 (note: FY23 has not been refrigerated). Since most of the cold repair work is in the second half of this year, we expect FY24's effective annual melting volume to drop by only 3.1% year over year to 7.6 million tons. Considering that some production lines will be put into operation, we expect the effective annual melting volume of FY25-26 to rebound 15.5% and 3.0% year-on-year to 8.78 million tons and 9.04 million tons, respectively.

The price of photovoltaic glass is weak

The decline in photovoltaic glass prices continued in the second half of the year. As of December 11, the average market price of photovoltaic glass (3.2mm coating) was RMB 19.25 per square meter, down 27.4% and 9.4% from RMB 26.5 and RMB 21.25 at the beginning of the year and the end of September, respectively. Despite this, the recent decline in the prices of raw materials soda ash and natural gas has helped reduce the impact of glass price cuts on the company's profits.

Lowering profit forecasts

Based on the above, we lowered FY24-26 shareholders' net profit forecasts by 16.9%, 24.4%, and 28.2% to HK$2.98 billion, 3.24 billion, and HK$3.58 billion, respectively. FY24 profit fell 28.9% year over year, but FY25-26 rebounded 8.9% and 10.5% year over year, respectively.

Maintaining a “neutral” rating

The company's adjustment of production lines will undoubtedly affect short-term revenue, but it can mitigate the problem of excessive market supply and help the industry recover in the medium term. We raised our FY25 target price-earnings ratio from 8.0 times to 9.0 times to reflect recent stabilization of macro risks. Accordingly, we reduced our target price from HK$3.85 to HK$3.22, corresponding to a 0.5% downside. Maintain a “neutral” rating.

Risk warning: (1) project delays; (2) sharp drop in electricity prices; (3) fluctuating glass prices; (4) sharp rise in fuel costs.