FLAT GLASS(06865.HK)：EARNINGS RECOVERY-格隆汇

机构：申万宏源研究
研究员：Yan Hai/Chen Chuyao

　　Flat Glass reported 1Q24 revenue of Rmb5726mn (+6.7% YoY, +1.5% QoQ) and net profit of Rmb760mn (+48.6% YoY, -3.9% QoQ), which is above market expectation. 1Q24 earnings above market expectation. Given that COGS decreased more than solar glass price in 1Q24, overall GPM recorded 21.5%, +3pct YoY, -1.9pct QoQ. NPM recorded 13.3%, +3.8pct YoY, -0.7pct QoQ. Net operating cash flow recorded Rmb601mn (+225% YoY), since new capacity ramped up and began to generate revenue. Total asset reported Rmb43.4bn (+0.94% QoQ). Net asset reported Rmb22.9bn (+2.98% QoQ). Given that ASP of 2.0mm solar glass has increased by 10% in 2Q24 and prices of soda and natural gas slightly declined, we believe the company will continue its earnings recovery.
　　Steady capacity expansion plan. A new production line with capacity of 1200tons/day of Anhui project started in March and the company currently has capacity of 21800tons/day. The rest three lines of Anhui project will start in May, June and July, respectively. Nantong project will be commissioned from 3Q24. The company will reach capacity of 30200tons/day (+47% YoY) by end of 2024. The company also began to construct its overseas projects in 2024, namely Vietnam project with capacity of 1600tons/day and Indonesia project with capacity of 2*1600tons/day, and the two projects are expected to be commissioned in 2026. Since overseas price of solar glass is Rmb1-2/sqm higher than domestic price and raw material costs are lower, we believe the overseas expansion will strengthen the company's global supply capacity and improve its profitability.
　　ASP of solar glass will remain stable in 2024 thanks to a balanced supply-demand environment. By end of 2023, operation capacity of the solar glass industry reached 98530tons/day. By end of this April, capacity of the industry increased to 107110tons/day and there are still some projects planned to start in 2H24. Considering ramping up of new capacity, we believe overall supply of the solar glass industry in 2024 will increase by 20-25%, resulting in a balanced supply-demand environment.
　　Maintain Buy rating. We maintain our 24-26 EPS forecasts: Rmb1.71 in 24E (+38.7% YoY), Rmb2.32 in 25E (+35.1% YoY) and Rmb2.32 (+0.1% YoY) in 26E. We maintain our target price of HK$27.8, representing 15x 24E PE. With solid demand and cost reduction, we believe the company will see an improved margin in 2Q24. We therefore maintain our buy rating.
　　Risks: downstream demand below expectation. Capacity expansion below expectation. Industry oversupply above expectation.