Investment Summary
Results Again Exceed Expectations, with Profits up 43% in 2020
Flat Glass announced satisfying results for 2020. It is expected that the Company will record net profit attributable to the parent company of RMB1.5-1.66 billion for the whole year, up 109.2%-131.5% yoy, and net profit attributable to the parent company excluding non-recurring items of RMB1.48-16.4 billion, up 114.4%-137.7% yoy, exceeding our estimate of RMB1.39 billion and the market consensus of RMB1.27 billion by approximately 14%-24%. The expected increase in the Company's results was attributed to the significant year-over-year increase in both the sales volume and sales price of the Company's products under the strong demand in the photovoltaic glass market, and the cost reduction due to the year-over-year decrease in the prices of main raw materials and energy.
According to the Company's Q3 report on A-share market, it means that the Company will record a net profit of RMB688-848 million in Q4, up 96.01%-141.60% qoq and up 227.62%-303.81% yoy.
This year, the demand for photovoltaic glass in the photovoltaic industry increased significantly after the COVID-19 pandemic. The shortage of products caused the price of photovoltaic glass to increase twice in July and September. The quotation for 3.2mm glass has risen from RMB29 per square meter at the beginning of the year to RMB42 per square meter. The strong quotation has maintained until the end of the year. On the other hand, the price of raw materials such as soda ash and natural gas remained low. Therefore, the profitability of manufacturers has improved significantly.
Large-scale Capacity Expansion Ushers in the Great Era of Photovoltaic Industry
Meanwhile, the Company released an announcement, with the aim of ensuring the supply of production capacity of ultra-thin photovoltaic glass and meeting the market demand for the large-size photovoltaic components. The Company will build five glass production lines of photovoltaic components with a daily melting capacity of 1,200 tons in Fengyang City, Anhui Province (including original production and supporting processing). The total investment of the project is estimated to be approximately RMB4.35 billion. The project will be successively put into production from 2022.
In December, the Company completed the ignition ceremony of the first production line in Vietnam (1,000 tons per day) and the cold repair line (600 tons per day) in Jiaxing. Currently, the production capacity is approximately 6,400 tons per day. The Company's total production capacity will reach 18,200 tons per day, including the second production line in Vietnam (1,000 tons per day) planned to be ignited in the first half of this year, and four new production lines originally planned in Fengyang City, Anhui Province (1,200 tons per day), which is nearly three times the current capacity. There is vast room for future growth.
Due to the long construction period, we believe that the price of photovoltaic glass will remain high in 2021. It is expected that the price will go up before going down, fluctuating around RMB35-40 on average. After more than ten years of development, domestic photovoltaics will officially enter the era of affordable Internet in 2021. According to the 14th Five-Year Plan, new energy shall account for 30%, but now it is only 5%, of which photovoltaics account for only 3.5%. In the next five years, the average annual compound growth rate of the photovoltaic industry is expected to reach 25%. In the medium and long term, in order to achieve the 2060 carbon neutrality goal, the photovoltaic industry will be a major drive. It is difficult to reverse the situation of strong demand and tight supply. Leading companies with advantages in capital, market, technology or scale will continue to benefit.
Sign Another Order of RMB14.2 Billion to Secure Future Revenue
Flat Glass recently released an announcement on signing a strategic cooperation agreement with JinkoSolar and its subsidiaries on the sale of photovoltaic rolled glass. JinkoSolar will purchase 59GW photovoltaic rolled glass for components from the Company in 2021 to 2023. The specific price will be negotiated monthly. According to the current average market price, the total contract value is estimated to be approximately RMB14,196 million, accounting for approximately 151% of the Company's total assets in 2019. According to the delivery cycle of the order, the future growth trend is certain. In terms of product mix, the Company can produce 210 large-size components by expanding 30-40% capacity in 2021. Under the certain trend of future industry upgrade of large silicon wafers, the Company's product mix will be further upgraded.
Investment Thesis
The prosperity of the photovoltaic industry has sustained, and the Company's results have repeatedly exceeded expectations, which increase our optimistic expectations for the Company in the future. we raise the target price to HK$45.4, equivalent to 2020/2021/2022 E 49.7/30.7/23.8x P/E and 12.5/9/6.8x P/B, BUY rating. (Closing price as at 7 January 2021)
Financials
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