Core point of view
Float glass national team, welcome the inflection point in 21. The company is currently the largest float glass business platform under China Building Materials, mainly in the north of the Yangtze River, with 13 production lines and current daily melting volume 6900t/d.
Performance has declined over the past two years, mainly due to a decrease in sales due to the relocation / cold repair of two production lines in 19 years, an increase in the impairment of receivables as a result of the 20-year epidemic and a reduction in relocation-related government subsidies. In June, the company resumed production of three production lines with a daily melting capacity of 1700t/d, and two 600t/d production lines in Kazakhstan and Nigeria are expected to be ignited by the end of 21. Regardless of integration expectations, 21max 22-year glass sales YoY+14/34%. China Building Materials also has 15 float production lines with a total of 7910t/d outside the company.
There is no increment in the supply of 21H2 float glass, and the high price is expected to remain normal. According to Longzhong information, it is expected that the industry 21H2 in the net increase in production capacity is only 50t/d, prices are expected to continue to rise after entering the peak season in July, the market is worried about the sustainability of future completion, but we believe that the increase in glass use per unit area will hedge the impact of the completion cycle, and prices are expected to fluctuate in a high and narrow range in the future. Another significant change this year is the gradual narrowing of the price gap between the north and the south of glass, mainly because production capacity in the northern Shahe region has been shut down, and low price differentials are expected to become the norm against the backdrop of a strict ban on new capacity. The competition pattern of the industry is scattered, the CR5 is only 36%, and the leader is mainly occupied by private enterprises. We believe that market concentration is expected to emulate the cement industry and further improve.
Profitability is expected to improve, group asset integration is expected to enhance the overall competitiveness. The company's historical profitability is lower than that of private enterprise leaders, which we think is mainly due to, on the one hand, the company's production line is concentrated in the north of the Yangtze River, and the price of glass in this area is on the low side, which will improve in the future. On the other hand, the average kiln size is smaller (531t/d, less than the 744/671/696t/d of Xinyi / Qibin / Nanbo), and the kiln size is inversely proportional to the production cost. China Building Materials Group has successively launched the integration of cement / fiberglass plates, and we believe that glass may be the next plate. If all float glass assets of the group are injected, the total production capacity will reach 16.6 million t / d, ranking third in the industry. After the completion of the integration, the company will improve the capacity layout on the one hand. On the other hand, China building materials are rich in silica sand resources, and silica sand in hand can guarantee the production of glass for 70 years.
Financial Forecast and Investment suggestion
It is estimated that the EPS for 21-23 will be 0.43 plus 0.45 PE, which is comparable to the company's 22-year average valuation of 12x PE. Due to its small market capitalization, relatively poor liquidity and lower profitability than the industry leader, the company is given a 30 per cent discount to 8X PE, corresponding to a target price of HK $4.32 (HK $1 = 0.8329 RMB), covering the "buy" rating for the first time.
Risk tips: sharp decline in real estate investment, rapid increase in raw material prices, less than expected progress of new production lines, and uncertain risks of group integration.