According to Zhito Finance APP, Citibank released a Research Report stating that it has given FUYAO GLASS (03606) a "Buy" rating, with the Target Price raised from 56.35 HKD to 67 HKD. The company's average sales price (ASP) for the fourth quarter of 2024 is expected to increase by 7.45% year-on-year, and management anticipates that over the next five years starting from the 2024 fiscal year, the average sales price will grow by 6%-7% per year due to an improved sales mix of high-value-added products; management expects to save approximately 0.2-0.25 billion RMB and 100 million RMB from the decline in marine transportation costs and soda ash prices in 2025. The profit margin of the USA factory is expected to exceed 13%, and it is hoped to address the impact of tariffs through product pricing. With its leading position in the market, the company is expected to be more resilient in terms of average sales prices compared to its peers.

The main points from Citibank are as follows:

Strong performance.

Total revenue reached 39.39 billion RMB (an 18.37% year-on-year increase), with net income of 5.5 billion RMB, a year-on-year increase of 33.20%. The gross margin reached 36.23%, an increase of 0.84 percentage points year-on-year. The return on equity (ROE) reached 23.34%, and the earnings per share (EPS) was 2.87 RMB. The dividend payout ratio increased to 62.65%, compared to 60.27% in the 2023 fiscal year. Total revenue from automobile glass increased by 19.49% year-on-year, reaching 35.77 billion RMB, primarily due to a 11.21% year-on-year increase in sales volume and a 7.45% year-on-year increase in average sales price. In addition, overseas revenue increased by 19.36% year-on-year.

Improvement in profit margins.

The annual gross margin was 36.23% (an increase of 0.84 percentage points year-on-year), benefiting from effective supply chain management and an optimized product mix. The fluctuation in gross margin for the fourth quarter of 2024 was mainly due to an increase of 55.5 million RMB in packaging costs (converted to sales costs); one-time expenses incurred from the relocation of the wholly-owned subsidiary SAM in Germany. Management pointed out that, compared to the third quarter of 2024, the comparable gross margin in the fourth quarter of 2024 only decreased by 0.16 percentage points.

Optimization of high-value-added product mix.

The product mix of high value-added products increased by 5.02 percentage points year-on-year in the 2024 fiscal year, reaching 58.96%. In terms of specific products, those contributing significantly to revenue include: fixed sunshade heat-insulating Glass, accounting for 9.12% of total sales, an increase of 1.28 percentage points year-on-year; head-up display system (HUD) or heads-up display Glass, accounting for 8.54% of total sales, an increase of 1.95 percentage points year-on-year; laminated Glass, accounting for 7.15% of total sales, an increase of 1.74 percentage points year-on-year; coated Glass, accounting for 3.76% of total sales, an increase of 1.44 percentage points year-on-year.

Average selling price guidance.

Management emphasized the rapid growth trend of heads-up display Glass (HUD) / augmented reality heads-up display Glass (ARHUD) and expects that in the next five years starting from the 2024 fiscal year, the average selling price will continue to grow at a rate of 6%-7% annually. Management anticipates that the USA factory will contribute about 0.12 billion yuan in revenue by 2025, with a target operating margin above 13%. Management believes that, since the company has established a market-leading position and possesses stronger pricing power, it will be more resilient than peers under the influence of tariffs.

Cost outlook.

Management expects to benefit from the decline in Marine Transportation costs and the decrease in soda ash prices, estimating cost savings of 0.2-0.25 billion yuan and 100 million yuan, respectively.

2025 growth outlook for the automotive industry: Management's growth expectations for the automotive industry are relatively moderate, expecting growth trends in the China/Global automotive industry to be similar to those in 2024, with automotive production expected to grow by 3.7%/0.25% year-on-year in 2024.

Outlook for Marine Transportation and soda ash costs: Management expects the company to benefit from: a decline in Marine Transportation costs following the rise in 2024, with savings expected to be in the range of 0.2-0.25 billion yuan; the decrease in soda ash prices in 2025, with costs expected to fall from 2,130 yuan/ton in 2024 to 1,700 yuan/ton, resulting in an overall cost reduction of about 0.1 billion yuan.

Outlook for market penetration of high value-added products: Management expects that the market penetration rate of high value-added products, such as dimmable sunshade heat-insulating Glass, will increase, particularly in the Passenger Vehicle sector, where prices may exceed 2,000 yuan. The rise of Smart Automobile may trigger upgrades in automotive glass products related to Satellite, Internet of Things infrastructure, Other automotive components, and driving.

Market share prospects in the EU market: Management expects to further increase market share in Europe while strengthening supply chain and delivery capabilities. The company has multiple production bases that export products to the EU, including Fuzhou, Guangzhou, Shanghai, Tianjin, and Shenyang.