Investment Summary

Substantial Growth in Result Forecast of Annual Report

Flat Glass issued the result forecast in 2019, estimated to record net profit attributable to the parent company of RMB680 million to RMB730 million, up 67% to 79% yoy, median lower than market consensus of approximately 5%; net profit attributable to the parent company excluding non-recurring items of RMB640 million to RMB690 million, up 72.5% to 85.7% yoy, net profit attributable to the parent company in Q4 of RMB173 million to RMB223 million, up 47% to 90% yoy, down 9% to 30% qoq, mainly due to expenses set aside at the end of the year.

Entered into “Fast Lane”of Long-term Development

Due to generally good global photovoltaic installed capacity and heavy demand in overseas market in 2019, the market price of photovoltaic grass was drove to continue to rise. In line with SCI99.COM, the market price of photovoltaic grass was increased three times in 2019, with price of 3.2mm photovoltaic grass increased to RMB29/m2 in December, returning to level before 531 New Deal in 2018. In terms of industry prosperity in 2020, with gradual implementation of domestic photovoltaic subsidy projects, sustainable and high-speed development of overseas photovoltaic market, and gradually increased proportion of double-glass modules, the demand for photovoltaic glass would continue to increase. However, the limited newly increased capacity of the industry in the short term, tightened supply and duopoly pattern are expected to support continuous high prosperity.

In the long run, in line with national planning, the non-fossil energy of the country would account for 20% of total energy consumption from 2021 to 2030. Deemed as key driver to accelerate energy transformation, the photovoltaic industry has entered into “fast lane” of long-term development. Tesla recently noted that it would vigorously develop photovoltaic roof business. We believe that depending on strong band appeal and R&D strength of Tesla, photovoltaic is expected to enter into universal application era, and photovoltaic glass is expected to benefit for a long time as upstream industry chain.

Continues Capacity Expansion

The glass capacity of Flat Glass ranks second in the world. More than 1,000 tons of new capacity would be put into production in the next two years, including two production lines of 1,000 tons per day of Vietnam (expected to be put into production in June 2020 and September 2020), and fourth-tier and fifth-tier production lines of 1,000 tons per day of Anhui Fengyang (expected to be put into production in 2021). The capacity of photovoltaic grass of the Company would achieve 9800 tons per day by the end of 2021, up approximately 85% from that of the end of 2019. Due to obvious advantages in technology and scale of newly increased capacity, increase in finished production rate and decrease in unit cost are expected, as well as further improvement of profitability of the Company..

Investment Thesis

Considering low season in Q1 and low staff density of the photovoltaic industry, as well as successive resumption of work of many factories of the Company, the epidemic is expected to have less impact on the Company throughout the year. We decide to revise target price to HK$7.6 for the Company, equivalent to 2019/2020/2021 E 18/12.3/8.5x P/E, Accumulate rating. (Closing price as at 17 Feb 2020)

Financials

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