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机构：中金公司
研究员：Yan CHEN/Qing GONG/Maoda YANG
China Jushi preannounced its 1H24 results: Attributable net profit dropped 50-60% YoY to Rmb825mn-1.03bn, and recurring net profit fell 50-60% YoY to Rmb508-635mn. It estimates median attributable net profit and median recurring net profit in 2Q24 at Rmb580mn and Rmb407mn. The firm’s preannounced recurring net profit missed our expectations, possibly due to slower-than-expected earnings recovery of some products.
Trends to watch
Roving products experienced several rounds of price hikes in 1H24; efforts to boost sales via price hikes paid off. Glass fiber manufacturers increased prices of direct yarns, chopped yarns, plied yarns, and some wind-power yarns in 1H24 as they had faced pressure on earnings for a long period and inventories in downstream channels were low in 1H24. Data from Sci99.com shows that the tax-inclusive ASP of 2400tex direct winding yarn rose Rmb500-600/t QoQ in 2Q24 and grew to Rmb3,600-3,700/t by early July.
Meanwhile, China Jushi's efforts to boost sales paid off. Inventories at factories in the industry reached 630,000t at end-June, down 20% from the end-March level. We expect the firm's roving sales volume to rise more than 10% QoQ in 2Q24. However, we think the per-tonne net profit growth of its roving products in 2Q24 was slightly lower than we expected because the price growth of some products was milder than price growth of direct yarns. In addition, China Jushi has long-term orders on hand. Overall, we believe the firm will still lead the industry in terms of the implementation of price hike policies.
Electronic fabric prices increased and were more stable than roving product prices. Data from Sci99.com shows that the tax-inclusive ASP of 7628 electronic fabric rose Rmb0.3 QoQ to Rmb3.8/m in 2Q24 and reached Rmb4.2/m in early July. Prices of electronic fabric products were more stable than those of roving products. Some electronic yarn factories have resumed production recently. For example, China Jushi’s Kunshan Bicheng project with 38,000t/yr of capacity resumed production in May. Given that there are no large-scale capacity expansion projects for electronic fabrics, we think the supply-side pressure on electronic fabrics will be weaker than that on roving products.
Pricing and sales capabilities are strong; watch price hikes in 2H24. Although per-tonne net profit of China Jushi’s roving products was lower than we expected in 2Q24, we expect an increase of Rmb100-200 over May-June as price hikes for diverse products were fully implemented. We expect earnings of glass fiber to improve at China Jushi.
The firm has shown strong bargaining power. We suggest watching growth in prices of fiber glass boosted by recovery in demand in the fields of automobiles, wind power, and copper clad laminate. Fiber glass demand from the automobile and wind power industries equaled 40-50% of China Jushi’s sales. As the firm has 1bn meters of electronic fabric capacity, we expect its earnings to surpass peers as its price hikes for mid-range and high-end products are implemented.
In 1H24, the firm’s production line in Egypt resumed production after completing maintenance work, with annual output reaching 120,000t. In addition, a production line with 100,000t of capacity started operating at the firm’s Huai’an plant according to the company. We expect China Jushi to see additional capacity and new plied yarn capacity in 2H24.
Financials and valuation
Given potential price hikes for some products in 2H24, we keep our 2024 and 2025 EPS forecasts at Rmb0.58 and Rmb0.88. The stock is trading at 18x 2024e and 12x 2025e P/E. We maintain an OUTPERFORM rating and our TP of Rmb13.8, implying 24x 2024e and 16x 2025e P/E, offering 31% upside.
Risks
Disappointing recovery in demand; faster-than-expected progress in new capacity expansion.