Event: the company issued a profit forecast on the evening of July 23, and the company expects 2021H1 net profit to be no less than 300 million yuan (2020H1: net loss of 277 million yuan).
The company believes that the substantial year-on-year turnaround in the performance is mainly due to the further recovery of the glass market, the increase in the price and sales volume of the Group's products, and the combined impact of improved internal management.
The company's production line resumes production and the ex-factory price rises, and the box net profit increases greatly. Due to the improved supply and demand pattern, 2020H2 domestic construction float glass prices V rise, rising again after the Spring Festival in 2021 and a substantial national price rise in May, as of July 23, the national construction float glass average price of 2956 yuan / ton, year-on-year increase of 1382 yuan / ton, price elasticity is significant; we estimate the company 2021H1 box net profit or close to 20 yuan (estimated 2020H1 box loss of about 15 yuan), a substantial increase over the same period last year. According to the data of Zhuangchuang and Glass goods Network, the company has two production lines with a total production capacity of 1000 tons per day in June (one in Shaanxi and one in Suqian). With the resumption of cold repair capacity, the company will further release performance elasticity in the second half of the year, driving rapid profit growth.
In the future, the industry will benefit from the cold repair cycle, and the company will actively promote resumption of production and industry integration. We judge that the completion of real estate construction in 2021-2022 will continue to maintain a steady growth, at the same time, due to the large number of old kilns, the supply side will benefit from the cold repair plans of various enterprises, and there will continue to be a supply gap, supporting a steady rise in glass prices. In addition to actively promoting the resumption of production of the remaining cold repair lines (Linyi and other production lines), the company's strategic pace of integrating the industry by means of acquisition and replacement indicators is also gradually falling to the ground. The company completed the acquisition of 55% equity interest in Fujian Longtai in May and is expected to increase its production capacity by 1 700t/d in the second half of the year. Longtai will continue to build a new production line in the future, while the production line in Kazakhstan is also expected to be put into production after the local epidemic resumes. We judge that the company's own production capacity is expected to grow rapidly in the next 2-3 years. On the whole, China Glass has the dual potential to enjoy the future industry high demeanor β and its own development α.
The path of reducing cost and increasing efficiency is clear. After the merger of the two materials, the China Building Materials Group began to strengthen unified procurement to reduce production costs, while as for the glass plate, the company reduced the cost control fee by means of unified procurement with Kaisheng Technology and Luoyang Glass. As the group caliber glass production capacity is in the forefront of the industry, and China Building Materials has good procurement resources from central enterprises, we judge that the purchasing cost of soda ash is close to the industry-leading level. In addition, because the energy used in production can also be purchased uniformly, it is judged that the company's unit energy cost also has room for decline, and the cost-driven profit flexibility is also greater because of the company's low gross profit margin in the past.
In addition, according to the data of Zhuochuang and Glass period cargo network, the company's current average production line size is 510 tons per day. With the resumption of existing production capacity and the launch of new production lines in the future, the company's average production line size is expected to increase and give further play to scale effect. At the same time, with the improvement of endogenous profits, balance sheet repair will continue, and the financing cost of the company is expected to be further reduced.
The future strategic positioning is clear. In the future, the company is expected to become the only float glass platform under China Building Materials, and the production capacity of high-quality float glass in the medium-and long-term building materials group may be reorganized and injected into the company. According to the data of Zhuangchuang and Glass period cargo Network, Kaisheng Technology currently has a float production capacity of 4650 tons per day in China Building Materials Group. Without considering the future construction plans of both sides, it is estimated that if asset integration is carried out, the company's float glass production capacity will increase by 63% compared with the same period last year, the average production line size will increase by 4%, and both sales and cost are expected to be improved. The company is expected to become one of the industry leaders in the medium to long term.
Investment suggestion
Considering that the price of glass is rising rapidly and is optimistic about sustainability in the future, we raise the price assumption. Corresponding to an increase in the company's revenue forecast for 2021, 2023, 33.4%, 37.9%, 36.8% to 48.62, 56.83, 5.999 billion yuan, an increase of 53.2%, 16.9%, 5.6% over the same period last year; and an increase in 2021, 2023 net profit of homing to 8.8412.86, 1.395 billion yuan, an increase of 1142.9%, 45.5%, 8.5% over the same period last year. In a cautious scenario, the company is valued at 8 x 2021 PE and the target price is raised to HK $4.61 (original: HK $1.60, assuming HK $1 = RMB0.85), maintaining a "buy" rating.
Risk hint
Demand is lower than expected, industry production capacity is faster than expected, industry policy risk, systemic risk and so on.