Key topics for investing in subsidiary qualifications:
Incident: On April 29, 2024, Follett released its 2024 quarterly report. The 2024Q1 company achieved operating income of 5.726 billion yuan, up 6.73% year on year, up 1.5% month on month; net profit to mother of 760 million yuan, up 48.6% year on year, -3.9% month on month; net profit without return to mother 760 million yuan, up 52.5% year on year; gross profit margin of 21.47%, year on year, up 3 pcts year on month. The company's performance slightly exceeded expectations.
Shipment growth and cost improvements, and the impact of flat glass price reductions: benefiting from the March downstream production schedule exceeding expectations and falling prices of upstream raw materials soda ash and natural gas, the number of accounts receivable and bill turnover days decreased compared to 2023. At the same time, the number of inventory and inventory turnover days declined significantly. Verification showed a significant increase in downstream bargaining power. The company's Q1 shipment volume increased and the cost side improved. The impact of the decline in flat glass prices, the company's net profit in 24Q1 remained flat month-on-month, up 48.6% from the low season in Q1 in '23.
Glass price+cost decline, Q2 profit is expected to rise: in April, the price of photovoltaic glass rises by 0.5-1 yuan/square meter, natural gas leaves the heating season and is expected to continue to be oversupply on the cost side; as of April 29, the industry's glass production capacity is 107,000 tons/t. Although the willingness to ignite has increased, small and medium-sized enterprises account for a total of 3,800 t/d of new ignition production capacity in 24 years. Overall, we think the actual production capacity in Q2 is limited, and downstream production capacity is still relatively limited. With support, glass prices are expected to remain flat in May. Price increases compounded cost improvements, and Q2 earnings are expected to continue to rise.
Production expansion at home and abroad continues to advance, and the leading position continues to be consolidated: the company's Anhui Phase IV project already ignited a 1,200t/d production line at the end of March, plus the remaining 3*1200t/d production line and the overall 4*1200t/d production capacity of the Nantong project. It is expected to be started and operated within this year. The company's production capacity is expected to reach 30,200t/d by the end of 24, while the Yibin and Guangxi projects continue to advance. The company's overseas layout continues to advance. The company has invested in Vietnam and plans to build a 2*1600t/d production line in Indonesia. As overseas entry barriers are raised, the premium is expected to continue to be maintained. As domestic and foreign projects are gradually put into operation, the company's market share will continue to increase and profit flexibility.
Profit forecast and valuation: PV glass shipments are expected to be 16.13/19.35/2,322 billion square meters (2.0mm caliber) in 24-26, with net profit of 39.9/48.4/5.86 billion yuan respectively. The current stock price corresponds to 15.7/12.9/10.7 times PE in 24-26. As a leading PV glass company, the company will continue to use cost advantages and control capabilities to close the profit gap with peers, and expand advanced production capacity to continue to consolidate its leading position, giving 20 times PE in 2024, corresponding to a target price of 34.0 yuan /share, maintaining a “buy” rating.
Risk warning: Global PV demand growth falls short of expectations, risk of large price fluctuations in the industrial chain, risk of capacity construction falling short of expectations, industry policy falling short of expectations