The first-quarter results fell short of expectations, and the gap with the leading gross margin widened: the company's revenue for the first quarter of 2024 was 1.44 billion yuan (same below), +0.8%/-22.9% yoy, and attribute/ deducted non-net loss of 0.06/0.09 billion yuan, down 151%/419% year over year. The first quarterly loss since 2022 was lower than our expectations, mainly due to lower gross profit margin and sales volume than expected. The company cold-repaired the 850-ton old production line in the first quarter, and photovoltaic glass production declined slightly from month to month. At the same time, sales declined from more sales than production in the fourth quarter of last year to more production than sales. According to Zhuochuang information, the average price of 2.0 mm photovoltaic glass fell 9% month-on-month in the first quarter, leading to a multi-year low of 8.2% in gross margin, down 1.7/3.6 percentage points yearly/month-on-month, and widening the gap with leading Follett by 1.6 percentage points month-on-month to 13.3 percentage points month-on-month. Sales/management/R&D/finance expense ratio 0.4%/2.6%/3.8%/1.4%, -0.2/+0.3/+0.2 percentage points year-on-year. Net interest rate after deduction of non-return to mother was -0.6%, down 0.8/6.1 percentage points year-over-year.

Glass prices rose in April but inventory removal came to an end. There will be another oversupply in the second half of the year: PV glass was quickly removed from storage in March, driving prices up 3% in April. At the same time, falling soda ash and natural gas prices led to lower costs, driving the industry's profit margin to improve markedly. The industry continued to lose inventory in the first half of April, but as some component manufacturers lowered their operating rates, the second half of the month slowly began to accumulate inventory. Recently, production in the industry has accelerated markedly. Since March, 9,500 tons of new production capacity have started, including 7,500 tons since March 30 (including the 1,200 tons of Luoyang New Energy that the company ignited today). According to the production plans of various manufacturers, we expect it to reach 17,000 tons in March-June (global production capacity of about 100,000 tons by the end of February). By the end of the year, global production capacity will increase by 25,000 tons (or 23%) year on year to 131,000 tons, and the growth rate is still relatively fast. Considering the three-month climbing period for new production capacity, we expect supply to grow rapidly month by month starting in June, but it is unlikely that component production will continue to increase significantly at a high base, so there will be another oversupply in the second half of the year, especially in the fourth quarter.

Lowering the target price and maintaining neutrality: As the first quarter results fell short of expectations, we lowered our 2024-26 profit by 13%/15%/14%, and lowered the target price to HK$4.98 (previously HK$5.71) based on 7.7 times the 2024 price-earnings ratio. Stay neutral.