The company predicts that the net profit of 1H21 will be substantially turned from loss to profit compared with the same period last year.

The company issued a 1H21 profit forecast: the net profit of the company in the first half of the year was not less than 300 million yuan, compared with-277 million yuan in the same period in 2020, a substantial turnround from losses to profits compared with the same period last year, mainly due to the booming supply and demand of the glass market, the company's product prices and sales volume rose, in line with our expectations, and exceeded market expectations.

Pay attention to the main points

The supply gap may widen again in the peak season, and prices are expected to continue to rise in the second half of the year. Since the beginning of the year, the strong completion demand has continuously driven the glass industry to exceed expectations. The price of float glass has been strong and reached a new high, of which the average price of 2Q21 float including tax (Zhuochuang Information) is 2545 yuan / ton, an increase of 75% over the same period last year. Overall supply and demand are booming, and inventory is still at an all-time low. Looking forward to the second half of the year, we are optimistic that the traditional peak season is approaching, the glass demand is further upward, and the supply-side pressure has been fully released as most photovoltaic backpanels return to floatation, and with the increase in supply and demand, the gap between supply and demand is expected to widen in the second half of the year, pushing prices to continue to rise, and there is room for float leader profits to exceed expectations for the whole year. We estimate that in the second half of the year, the average price of float glass including tax will increase by 100 yuan / ton compared with 1H21, and the company's net profit per ton will increase by 70 yuan / ton, contributing an additional net profit increment of about 80 million yuan to the company.

Resumption of production + acquisition promotes a high increase in production and sales, with both volume and price rising or enjoying excess profit flexibility. As the float glass industry is in a high business cycle, the company actively promotes the resumption of the original cold repair production line, and continues to carry out production line acquisition. At the end of 2020, the company has 10 float glass production lines (a total of 13 production lines), and we estimate that the production capacity is 5350 tons / day (with a total capacity of 6650 tons / B); 1H21 company cold repair one production line, new ignition and resumption of four production lines, we expect the effective capacity to increase to 6200 tons / day in the first half of the year. As the company has another three production lines in the second half of the year (including one overseas production line to be acquired), we estimate that the company's output and sales volume are expected to increase year on year in 2021, while the new capacity can contribute to annual sales in 2022 and will maintain rapid growth. with the rising price of float glass, the company has broad profit flexibility. High-quality float platform, long-term asset expansion, cost reduction and efficiency can be expected. The company is located in the float glass platform of China Building Materials, and we expect that the company will continue to acquire assets and integrate internally in the future, and the scale of assets is expected to continue to rise. At the present stage, under the support of the high prosperity of the industry, the company opens the "five unification -" strategy, in which the group headquarters uniformly manages and refines various expenses, and reduces costs by divesting non-profit assets, collecting raw materials, and extending upstream and downstream. By means of group endorsement to reduce financing costs and other ways to increase efficiency and reduce financing costs, we are optimistic that the company is expected to move towards the road of high-quality development and has broad space for long-term improvement.

Valuation and suggestion

We maintain the company 2021max 22e EPS 0.50max 0.72 yuan, and the current share price is 5.6x/3.9x corresponding to 2021max 22e Pmax E, respectively. We maintain our outperforming industry rating, and we expect the gap in float glass to widen in the second half of the peak season, supporting prices to continue to rise. We maintain the company's target price of HK $4.30, corresponding to 2021Compact 22e 7.4x/5.1x Pdebase E, which has 31.5% upside compared to the current share price.

Risk

The demand for completion is lower than expected; the production capacity on the supply side is higher than expected; and the cost control fee is lower than expected.