Core views
The company is the world's largest manufacturer of glass fiber, and its production capacity continues to expand. According to China Chengxin's 24-year follow-up rating report, by the end of '23, the company had 19 glass fiber production lines and 4 electronic cloth production lines, with production capacity of 2,416 million tons and 960 million meters/year respectively. The first phase of the 100,000 ton glass fiber production line at the Huai'an base was put into operation in late May, and the 80,000-ton cold repair line in Egypt was put into operation in early May. After the above production capacity is fully released, production capacity will increase to 2,636 million tons. Due to high technology and high capital barriers, the glass fiber industry maintained a clear pattern of oligopolistic competition. The top 3 domestic glass fiber companies accounted for more than 70% of production capacity in '23. Driven by the dual carbon target, demand in fields such as wind power, photovoltaics and new energy vehicles remains positive for a long time. Leading companies in the glass fiber industry have outstanding competitive advantages, and industry concentration may further increase.
Supply growth in the industry has slowed. Since mid-late March, the price of thick yarn has generally risen, and the industry can be expected to reverse:
According to the company's annual report for '23, most glass fiber yarn products are already at the lowest prices in history. Let's take the mainstream product wrapped direct yarn 2400tex East China price as an example. According to Zhuochuang information, its average price continued to drop from 4,050 yuan/ton in January 2023 to 3012 yuan/ton in March 2024.
On the cost side, according to Zhuochuang information, the comprehensive cost of 2400tex alkali-free direct wound yarn is about 4,000 yuan/ton, and the production cost of most manufacturers is 3,200 yuan/ton, and the industry is generally at a loss.
According to the 2023 development report of China's glass fiber and products industry, the growth rate of China's total glass fiber production in 21/22/23 was 15.2%/10.2%/5.2% respectively, showing a declining growth rate. In terms of production capacity, according to Zhuochuang information, the domestic production capacity of the glass fiber industry at the end of 22/the end of 23/the end of April '24 was 658/680.5/6.918 million tons respectively, with year-on-year growth rates of 3.4%/1.7% for the first 4 months of '23/'24, respectively. In the downward cycle of the industry, supply growth also slowed markedly. On March 25, '24, leading glass fiber companies such as China Jushi and Changhai Co., Ltd. issued price increase letters one after another, raising the price of direct wound yarn by 200-400 yuan/ton and increasing the price of joint stock yarn by 300-600 yuan/ton. This price increase is due, on the one hand, to the rational return of prices in the industry. On the other hand, due to the pressure on industry costs and the continuous loss of profits in the industry for a long time, there is a need for some profit restoration. We believe that prices are expected to continue to rise moderately in the future, and April may become the low price point of this cycle.
E-yarn prices have also reversed trends, providing additional performance flexibility: similar to the price trend of glass fiber coarse sand, e-yarn prices have been on a downward trend since 2023. We believe this situation may come to an end in early April 2024. According to Zhuochuang information, the price of international alkali-free electronic yarn (G75) in Chongqing has risen from 7,250 yuan/ton in early April to 8800 yuan/ton in late May. According to the company's investor interactive platform announcement, the company currently has a production capacity of 270,000 tons of electronic yarn, supporting 960 million meters of electronic cloth production capacity. The vast majority of e-yarn is mainly for personal use, and a small amount of e-yarn is sold abroad. According to a report by the Financial Federation, since April 15, the company has recharged 400-600 yuan/ton for new orders and demand according to G75 yarn, and 0.2-0.3 yuan/meter for 7628 electronic cloth. According to Zhuochuang News data, no new increase in supply has been observed in the electronic yarn industry in 24 years, and the supply pattern is better than that of thick glass fiber yarn. As one of the main raw materials for copper-clad sheets, the possibility that e-yarn/cloth will continue to rise in price is not ruled out.
Investment advice
We believe that the inflection point of the industry has just emerged, and we are optimistic about the company's resilience in the upward cycle of the industry. The specific logic is as follows: First, the company's production capacity continues to expand, competitive advantage continues to increase, and long-term demand for wind power/photovoltaic/new energy vehicles is improving downstream; secondly, after going through the industry downturn in the past 3 years, coarse yarn and e-yarn/cloth prices are expected to rise, and the company's profit elasticity can be expected; finally, as a leading overseas manufacturing company, overseas production capacity will continue to increase, and the global layout will continue to improve, and global competitiveness will continue to increase. We estimate that the company's net profit for 24-26 will be 26.14/33.45/4.054 billion yuan, respectively. According to the closing price on June 3, the corresponding EPS is 0.65/0.84/1.01 yuan, corresponding to PE 17.52/13.69/11.30, which is the first time coverage gives a “buy” rating.
Risk warning
The release rate of new glass fiber production capacity exceeded market expectations, the rise in raw material prices exceeded market expectations, and the growth rate of downstream demand was lower than market expectations