Profit in 2024 fell 70-80% year over year, and asset inventory impairment had a significant impact:

The company issued a negative profit forecast. Net profit to the mother is expected to decrease by 70-80% year-on-year in 2024. Based on the company's 2023 net profit of HK$4.187 billion, the company's net profit for 2024 is expected to be HK$0.837-1.256 billion (median value of HK$1.047 billion). The profit for the first half of 2024 was HK$1.963 billion, and the estimated loss for the second half of 2024 was HK$0.707-1.126 billion (median loss of HK$0.916 billion).

The company's sharp decline in profit is mainly due to: 1) the price of 2H24 glass fell sharply year on year due to the imbalance between the supply and demand of photovoltaic glass, and the company's revenue and gross profit declined accordingly; 2) the company made impairment provisions for photovoltaic glass production lines suspended or undergoing maintenance; 3) due to falling photovoltaic glass prices, the company made inventory reduction provisions. The sharp decline in the company's profit falls short of market expectations, but overall, based on the company's size and cost advantage, the expected loss margin will be significantly smaller than that of second- and third-tier companies.

Cold repairs in the photovoltaic glass industry have greatly reduced production, and price inflection points can be expected after inventory declines:

According to data from Longzhong News, as of January 3, the mainstream price of 2.0mm coating (panel) for domestic photovoltaic glass was 12 yuan/square meter, the same as last week; the mainstream price for 3.2mm coating was 19.5 yuan/square meter, which is also the same as last week. Inventories began to decline slightly from November to December due to the strong reduction in cold repairs in the early stages of the industry. However, due to the 2025Q1 Spring Festival factor and poor demand, it is expected that the overall operating rate of the industrial chain will drop and the pace of delivery will slow down, and the rise in the price of 2025Q1 photovoltaic glass is still under pressure. However, based on the industry's current loss situation, glass manufacturers are in the price promotion stage, and short-term prices may be mainly stable. The overall judgment is that in 2025, with the clearance of supply-side production capacity and the recovery of demand in Q2 after the Q1 off-season, the supply and demand pattern of the industry is expected to improve. After the industry enters the inventory removal stage, the price of photovoltaic glass will return rationally, and the price and profit inflection point will gradually gradually progress.

Updated target price of HK$4.33 to maintain buy rating:

We updated our target price to HK$4.33, which is equivalent to 15 times and 13 times PE in 2025 and 2026. There is room for a 38% increase in the target price compared to the current price, maintaining the buy rating.

Risk warning:

PV installation demand and module companies' production schedules fall short of expectations

Raw materials and fuel costs have risen, and the decline in photovoltaic glass prices has exceeded expectations and production capacity has fallen short of expectations