1H23 results slightly beat our expectations

Jinjing Science & Technology Stock announced its 1H23 results: Revenue fell 0.3% YoY to Rmb3.72bn, and attributable net profit dropped 28.5% YoY to Rmb261mn. In 2Q23, attributable net profit fell 21.3% YoY to Rmb173mn. The firm's results slightly beat our and market expectations, mainly due to slightly higher-than-expected earnings from photovoltaic (PV) glass. In 1H23, Jinjing Malaysia's earnings totaled Rmb25.24mn, and Ningxia Jinjing's were Rmb13.3mn.

Earnings from traditional glass under pressure; growth in alternative- fuel glass business notable. In 1H23, revenue from the glass segment rose 11.8% YoY to Rmb2.36bn, and GM fell 5.4ppt YoY to 8.3% possibly due to pressured earnings from traditional float glass. In 1H23, the average price of plain float glass (tax included) in the industry fell 9% YoY to Rmb1,905/t. Tengzhou Jinjing suffered a loss of Rmb23.58mn, weighing on earnings of the traditional glass segment.

However, we attribute the positive YoY revenue growth to contributions from PV glass and transparent conductive oxide (TCO) glass. PV glass: In 1H23, Ningxia Jinjing's revenue rose 1% YoY to Rmb374mn, and its earnings turned positive at Rmb13.3mn. Jinjing Malaysia booked revenue of Rmb263mn and earnings of Rmb25.24mn, with a net margin of nearly 10%. TCO glass: According to the firm, its TCO products maintain a leading market share in the domestic perovskite and cadmium telluride markets.

Limited impact from soda ash price cuts in 1H23; lower cost pressure supported earnings. In 1H23, revenue from the chemical business fell 11.6% YoY to Rmb1.99bn, and GM rose 2.9ppt YoY to 22.3%. The industry's tax-included sodium bicarbonate price fell 4% YoY to Rmb2,545/t in 1H23, implying limited pressure for price cuts.Meanwhile, the cost pressure on soda ash eased as coal prices fell, which might have supported earnings.

Blended expense ratio fell YoY due to a decline in G&A expense ratio. In 2Q23, the firm's blended expense ratio fell 0.3ppt YoY to 7.9%, and its G&A expense ratio dropped 0.9ppt YoY to 2.8%. The firm attributes this to effective expense control. Ratio of net operating cash flow to net profit fell slightly; capex pressure slightly eased. In 1H23, the firm's ratio of net operating cash flow to net profit slightly dropped YoY to 1.95. The cash-to-revenue ratio rose 28ppt YoY to 0.56. The firm's capex fell 35.5% YoY to Rmb424mn in 1H23.

Trends to watch

Overhauls at soda ash factories in July-August drove price rebound; Jinjing is steadily shifting to new businesses. Alternative energy glass:The firm's Phase II 600t/d production line in Malaysia came online in late May, which we believe will boost the firm's PV glass earnings in 2H23.The firm expects to resume the operation of the second Tengzhou production line in 2H23, further increasing its TCO glass capacity.

Soda ash: The industry's tax-included sodium bicarbonate price rose Rmb110/t MoM to Rmb2,160/t at end-August, as some companies reduced output due to overhauls, and the soda ash supply fell. If supply reduction slows, soda ash prices may come under pressure. Float glass: In July-August, the inventory pressure on float glass eased compared with June, and the product's tax-included ASP reached Rmb2,087/t at end- August. We expect demand in the peak season to boost glass prices, while capacity pressure may partly affect the magnitude of price rebound.

Financials and valuation

We cut our earnings forecasts for soda ash and float glass businesses and lower our 2023 and 2024 EPS forecasts by 24% and 41% to Rmb0.38 and Rmb0.43. The stock is trading at 18x 2023e and 16x 2024e P/E. We maintain OUTPERFORM and cut our TP 19% to Rmb8.7 (23x 2023e and 20x 2024e P/E), implying 25% upside.

Risks

Resumption of float glass production faster than expected; decline in soda ash prices sharper than expected; orders from new businesses disappoint.