Rating: BUY (Initiation)
Target price: HKD4.31
Share price (19 Jul): HKD3.03
Market Cap (HKDm): 5,484.7
Up/downside: 42.2%
We initiate coverage of China Glass Holdings with a BUY call and a PT of HKD4.31. With the increasing penetration of multi-layered glass, we are confident about demand for float glass and expect the tight supply to continue. We see much room for the company to optimize cost and increase production capacity, and appreciate its profit growth potential.
Production capacity upscale potential; profit margin flexibility could increase
China Glass Holdings is a float glass veteran manufacturer with a history that traces back to Jiangsu Glass Factory in 1958. Its core business is the manufacture and sale of float glass and deep-process products, including colorless, colored, coated, energy-saving and new energy glass. As of end-2020, it has 13 float glass production lines with a daily melting capacity of 6,650t/d, 6 domestic production bases and 1 overseas float production line in Nigeria. China National Building Material Group and Legend Holdings are its largest and second largest shareholders, respectively. At end-2020, the company produced 35.44m weight case of various glass products and sold 36.6m weight case. Riding the boom in the float glass industry, its 2020 revenue increased 33% yoy to RMB3.2bn while its gross profit margin also improved significantly. A sustained float glass boom gives its float glass production capacity more room to rise and would allow it to tap industry uptrend benefits. This high potential is worth investor attention, especially in view of its current valuation levels.
Cold repair production; external/internal growth; float glass capacity potential
At end-2020, it has 10 float glass production lines (13 in total). Based on its float glass output, we estimate post-2020 cold repair would lift effective production capacity by about 30% (i.e. by about 1,500t/d; 1H21 involved two furnaces at a combined 1,000t/d). And China Glass has extensive experience in external acquisition of integrated float assets. It acquired a 70% stake in a Nigerian company (owning and operating a 600t/d float glass line) and plans to acquire a 55% stake in Fujian Longtai Industrial (in May 2021: a construction glass production furnace and to build an automotive glass production line). With gradual asset buildup, its floating capacity would increase. In addition, to manage competition, its potential participation in the float glass assets of its major shareholders could add profit margin elasticity.
Kiln upgrades; shareholders’ advantages; cost optimization and profit potential
The profitability of China Glass lags behind float glass leaders Xinyi Glass and Kibing Group. The main reasons are: 1) its single-line kilns are small in scale, kiln age is old, and it falls behind in total scale. It lacks large-scale procurement advantages, resulting in high unit production cost. 2) Cost management is weak, especially in the financial expense ratio. The average age of the company’s kilns is 6.5 years, significantly older than Xinyi Glass and Kibing Group. It indicates an urgent need for the company’s glass furnaces to be modified for cold repair production. Modification could increase the scale of its single-line furnaces and reduce energy consumption and optimize unit production cost. In addition, the controlling shareholder has abundant silica sand resources and full glass supply chain service capabilities. The company’s wholly owned subsidiary, China Glass Investment, signed a procurement framework agreement with Huaguang Group (a wholly owned subsidiary of Triumph Science & Technology Group) in 2019; it could make better use of group resources to benefit from scale advantages such as scale procurements, which is a significant factor in optimizing production costs. At the same time, we observe that its financial expense ratio is significantly higher than that of the float glass market leader. With a sustained float glass boom, China Glass profit restoration could optimize its balance sheet structure and improve financial expense management and control.
We anticipate float glass boom would raise China Glass’s profit margin flexibility
New float glass production capacity is restrained by policy and the probability of a marginal relaxation is small, while industry cold repair pressure is high. We expect effective float glass supply increases in 2021/22E to be muted. Demand has benefited from the momentum brought by construction completions and higher building energy conservation requirements. In the context of an increase in the penetration of multi-layered glass, we are confident about demand for float glass and expect the tight supply to continue. We see much room for the company to optimize cost and increase production capacity, and note its profit growth potential. We estimate 2021/22/23E revenue will arrive at RMB4.64bn/4.98bn/5.58bn, up 47/7/12% yoy, and net profit at RMB650m/690m/830m, up 6/21% yoy in 22E/23E. Relative to peers, we endorse for the company a 10x target PE in 2021E, which derives a price target of HKD4.31. We initiate coverage with a BUY rating. Risk include: lower-than-expected demand; weakening float glass supply management; sharp fluctuations in raw material prices; slower-than-expected pace in profitability restoration and production capacity improvements; and valuation uncertainty due to different market valuation systems.
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評級:買入(啟動)
目標價:港幣4.31元
股價(7月19日):港幣3.03元
市值(港幣):5484.7
上漲/下跌:42.2%
我們以買入通知和港幣4.31元的買入期權開始對中國玻璃控股的買入。隨着多層玻璃滲透率的不斷提高,我們對浮法玻璃的需求充滿信心,並預計供應緊張的局面將持續下去。我們認為該公司在優化成本和提高產能方面有很大的空間,並認識到其利潤增長潛力。
產能高端化潛力;利潤率靈活性可能增加
中國玻璃控股是一家經驗豐富的浮法玻璃製造商,其歷史可以追溯到1958年的江蘇玻璃廠。其核心業務是製造和銷售浮法玻璃和深加工產品,包括無色、有色、鍍膜、節能和新能源玻璃。截至2020年底,該公司在尼日利亞擁有13條浮法玻璃生產線,日熔鍊能力為6650t/d,6個國內生產基地和1條海外浮法生產線。中國建材集團和聯想控股分別是其最大和第二大股東。2020年底,公司生產各類玻璃製品重量盒3544萬隻,銷售重量盒3660萬隻。藉助浮法玻璃行業的繁榮,該公司2020年營收同比增長33%,至32億元人民幣,毛利率也大幅提高。持續的浮法玻璃熱潮為其浮法玻璃產能提供了更大的上升空間,並將使其能夠利用行業上升趨勢的好處。這種高潛力值得投資者關注,特別是考慮到其目前的估值水平。
冷修生產;外部/內部增長;浮法玻璃產能潛力
到2020年底,擁有浮法玻璃生產線10條(共13條)。根據浮法玻璃的產量,我們估計2020年後的冷修將使有效產能提高約30%(即增加約1,500噸/天;2011年第一季度涉及兩個熔爐,合計1,000噸/天)。而中國玻璃在整合浮動資產的外部收購方面擁有豐富的經驗。它收購了一家尼日利亞公司70%的股份(擁有並運營一條600t/d浮法玻璃生產線),並計劃收購福建龍泰實業55%的股份(2021年5月:一座建築玻璃生產線和一條汽車玻璃生產線)。隨着資產的逐步積累,其浮動能力將會增加。此外,為了管理競爭,該公司可能參與其主要股東的浮法玻璃資產,可能會增加利潤率彈性。
窯爐升級;股東優勢;成本優化和盈利潛力
中國玻璃的盈利能力落後於浮法玻璃領軍企業信義玻璃(一千)和奇兵集團。其主要原因是:1)單線窯規模小,窯齡老,總規模落後。缺乏大規模採購優勢,導致單位生產成本較高。2)成本管理薄弱,特別是財務費用比管理不力。該公司窯爐的平均年齡為6.5年,明顯高於信義玻璃(一千)和基兵集團。這表明該公司的玻璃熔窯迫切需要進行改造,以適應冷修生產。改造後擴大了單線爐的規模,降低了能耗,優化了單位生產成本。此外,控股股東擁有豐富的硅砂資源和完整的玻璃供應鏈服務能力。公司全資子公司中國玻璃投資於2019年與華光集團(凱旋科技集團的全資子公司)簽署採購框架協議;可更好地利用集團資源受益於規模採購等規模優勢,這是優化生產成本的重要因素。同時,我們觀察到其財務費用比率明顯高於浮法玻璃市場領先者。隨着浮法玻璃的持續繁榮,中國玻璃盈利的恢復可以優化其資產負債表結構,改善財務費用管控。
我們預計浮法玻璃的繁榮將提高中國玻璃的利潤率靈活性
新增浮法玻璃產能受政策約束,邊際放鬆概率不大,而行業冷修壓力大。我們預計2021/22年浮法玻璃的有效供應增長將放緩。需求得益於建築竣工和更高的建築節能要求帶來的勢頭。在多層玻璃滲透率增加的背景下,我們對浮法玻璃的需求充滿信心,並預計供應緊張的局面將持續下去。我們認為該公司在優化成本和提高產能方面有很大的空間,並注意到其利潤增長潛力。我們預計2021/22/23年度收入將達到人民幣46.4億元/49.8億/55.8億元,同比增長47/7/12%,淨利潤將達到6.5億元/6.90億/8.3億元,22/23年度同比增長6/21%。相對於同行,我們支持該公司在2021年實現10倍的目標市盈率,目標價為4.31港元。我們以買入評級開始承保。風險包括:需求低於預期;浮法玻璃供應管理減弱;原材料價格大幅波動;盈利能力恢復和產能改善的步伐慢於預期;以及市場估值體系不同帶來的估值不確定性。
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