China Glass is an old brand of float glass in China, and its history can be traced back to Jiangsu Glass Factory in 1958. The company's core business is the production and sales of float glass products and deep processing products, including colorless glass, colored glass, coated glass, energy saving and new energy glass. By the end of 20FY, the company has 13 float glass production lines with a daily melting capacity of 6650 t / d. There are 6 production bases in China and 1 float production line outside Nigeria. China Building Materials Group and Lenovo Holdings are the first and second largest shareholders of the company respectively. 20FY produces 3544 million weight cases of all kinds of glass products and sells 3660 million weight cases. Thanks to the buoyancy boom, 20FY's revenue increased by 33% to 3.2 billion, while the gross profit margin also improved significantly. Under the background of high float boom or good sustainability, we believe that the company's float production capacity contains more room for improvement, and there is still much room for tapping benefits, and the company's potential growth elasticity is worth paying attention to, combined with the current valuation level. there is still a big gap in expectations of the company.

Cold repair production, external acquisition, internal integration, the company's float glass production capacity contains more room for improvement 20FY at the end of the company in the float production line 10 (a total of 13), combined with the company's float glass production estimate, we estimate that the cold repair production capacity after 20FY will bring about 30% increase in effective production capacity of the company (about 1500 t / min 21h1 has been ignited a total of 1000 t / d). In addition, the company has rich experience in external acquisition and integration of float assets, the company has previously announced plans to acquire 70% of the Nigerian target company (holding and operating a 600 t float line), and 55% of Fujian Longtai (a construction glass production line was ignited in May 21). At the same time, an automotive glass production line is being built). With the gradual landing of the acquisition of assets, the company's float production capacity is expected to further increase. In addition, to solve the possible inter-industry competition, the company's subsequent participation in float glass assets owned by major shareholders is also expected to bring some potential upward flexibility.

Kiln iterative upgrading, shareholder platform advantage, cost optimization, profitability upward excavation space for large companies than float leader Xinyi Glass, Qibin Group profitability gap is obvious, the core originates from: 1) kiln single-line scale is small, kiln age is too large, while the total scale gap is difficult to have large-scale procurement advantage, resulting in high unit production cost; 2) the cost control ability is weak, especially the financial expense rate. The average kiln age of the company is as high as 6.5 years, which is obviously higher than that of Xinyi Glass and Qibin Group, which shows that the demand for cold repair and renovation of glass kiln is more urgent, and the opportunity of cold repair and transformation may improve the scale of the kiln and reduce the level of energy consumption. and then achieve obvious optimization of unit production cost. In addition, the company's controlling shareholders are rich in silicon sand resources and glass industry chain service capabilities. Zhongbo, a wholly-owned subsidiary of the company, has invested in 19 years to sign a procurement framework agreement with Huaguang Group (a wholly-owned subsidiary of Kaisheng Group). Or it can make full use of the group's resources and give better play to the advantage of scale procurement, which may be of certain positive significance to optimize production costs. At the same time, we note that the company's financial expense rate is significantly higher than the float leader, in the context of the float high boom, the company's profits repair or drive to optimize the balance sheet structure, so as to achieve better control of financial expenses, which is expected to decline gradually.

Continued optimism about float Gaojingqi, emphasis on company growth flexibility, the first coverage of "buy" rating float glass new production capacity is strictly restricted by policy, the marginal relaxation probability may be small, and the cold repair pressure of the industry as a whole is relatively high, we estimate that the effective supply increment of float method in 21pm 22 is relatively limited. The demand side benefits from the completion of the upward momentum and building energy saving requirements under the background of multi-layer glass penetration enhancement of medium-and long-term demand increment, we have confidence in the float glass demand, judge the float supply and demand tight situation may have a certain persistence. The cost of the company has more room for optimization, the potential improvement of superimposed production capacity is large, and the flexibility of company growth should be paid attention to. We estimate that the annual income of the company in 21-23 is 46.4,49.8 and 5.58 billion yuan respectively, and the YoY is 47%, 7% and 12% respectively. We estimate that the net profit of returning to the mother in 21-23 years is 6.5,6.9 and 830 million yuan respectively, and the YoY of 22-23 years is 6% and 21% respectively. With reference to the valuation of the comparable company, we recognize that the company will be given a 21-year 10x target PE, corresponding to the target price of HK $4.31, with a "buy" rating for the first time.

Risk hints: lower-than-expected demand, weakening regulation of float glass supply, sharp fluctuations in raw material prices, lower-than-expected pace of profitability repair and capacity growth, and valuation uncertainty risks brought about by different market valuation systems.