Flat glass: the new production line’s contribution to cost reduction is significant

The company released the 2018 annual report, with revenue of 3.064 billion yuan, a year-on-year increase of 2.4%, net profit of 407 million yuan, a year-on-year decrease of 4.5%, excluding non-net profit of 370 million yuan, a year-on-year decline of 9%, in line with market expectations.

Business analysis

The price of hedging products with efficient new production capacity fell, and the annual performance remained stable: Influenced by well-known 531 policy, photovoltaic glass prices dropped sharply in 2018, Q3 low prices fell by 35% for the year highs, although at the end of the price rebound, but the sales price is still down about 15% in 2017, however, companies rely on at the end of 2017 and 2018, respectively, the launch of q2 two 1000 tons, investment amount of the new production line, doubled capacity over long and at the same time, the average cost of production is greatly reduced by about 10% in 2017, effectively hedge the decline in the price of products, and to support its full-year revenue held steady profits.

The price of photovoltaic glass will rise in 2019: the price of photovoltaic glass started to rebound from 2018Q4 and increased more before the end of the year. In march this year, the price was raised by 10% again. Although we had expected that the price of photovoltaic glass would rise in 2019, the rate of price increase was still faster than expected. Based on the macro supply and demand dynamics of photovoltaic glass throughout the year (supply +15%vs. Demand +25~30%) and the current enterprise micro inventory situation, we expect that the price of glass still has room to rise. The company's two 1000-ton production lines put into production last year will contribute to the annual output in 2019, and it is expected that two more 1000-ton production lines will be put into production in anhui and Vietnam respectively in Q2 and Q4 this year. The company's annual glass production and sales are expected to increase by more than 50%.

The expansion cycle is long, the competition pattern is good, and the double-sided penetration is accelerated. The high prosperity of photovoltaic glass will continue in 2020: due to the expansion cycle of photovoltaic glass industry for one and a half years, the potential new production capacity in 2020 is basically clear (about 20% increase). With the gradual production of new production capacity of the two leading enterprises in the industry, the industry concentration will continue to improve, and the leading edge of the industry duopoly will further expand. At the same time, with 1)2.5/2.0mm thin glass price gradually rationalized; 2) accelerated battery lamination trend; 3) the generation gain on the back side is widely verified by the actual power station; The penetration rate of double-sided power generation modules will accelerate, so that the growth rate of photovoltaic glass demand will continue to be faster than the growth rate of photovoltaic new installations. Based on the assumption that the annual compound growth rate of new installations is 20%, the demand for photovoltaic glass is expected to achieve 100% growth in three years. Therefore, the photovoltaic glass industry is expected to continue this year's high prosperity in 2020.

Earnings adjustments and investment recommendations

After the adjustment, the company's 2019~21E net profit forecast is 6.7(+3%), 9.8(+17%), 1.2 billion yuan. The compound growth rate of net profit in three years is 43%, and the corresponding EPS is 0.35, 0.50, 0.62 yuan.

The current a-share price of the company corresponds to 49/33xpe for 209/20. We have lowered the a-share rating to "overweight". However, the price of H shares only corresponds to 10/7xpe in 209/20, maintaining the "buy" rating on H shares.

Post time: Dec-11-2019