Zhitong Finance App learned that Huatai Securities released a research report saying that due to the low starting point of 1Q23 and the phased release of demand, the building materials industry as a whole enjoyed a relatively common profit recovery in 2Q23. However, it is expected that this trend will diverge in 3Q23. The profit of photovoltaic glass is expected to recover further compared to 3Q23. Float glass has remained stable overall, while the profits of cement companies are likely to decline significantly compared to 2Q23. The bank believes that the differentiation in demand is the main reason for this differentiated performance. Electricity investment, represented by photovoltaics, has continued to grow strongly since the beginning of the year. Real estate and infrastructure, the two main engines of economic growth in the past, are still constrained by the market and capital. Considering that unbalanced demand growth continues, it is expected that 4Q23 earnings will continue to diverge. The overall valuation of the industry is already low.
The main views of Huatai Securities are as follows:
Cement: Demand for real estate infrastructure is under pressure, and the industry's profit level falls to a low level
Affected by year-on-year pressure on real estate investment and the gradual decline in the growth of investment in traditional infrastructure such as transportation and municipal administration, there is still pressure to stabilize demand for cement, and off-peak production has not had the desired results. The industry continues to show a situation where the peak season is not booming, and the off-season is even weaker. The bank expects a clear decline in the profit of the cement company 3Q23 compared to the previous month. As gross profit per ton falls to a low level, some companies may once again experience losses in a single quarter. Although cement prices stopped falling and rebounding in late September, since the momentum for demand recovery is still insufficient, it is difficult for the relationship between supply and demand to improve significantly. It is expected that the improvement in industry profits from 4Q23 to 3Q23 may also be moderate.
Float glass: supply and demand recovered simultaneously, profits remained stable
Price rebound and profit recovery are the main themes of the 2Q23 float glass industry, and the industry has achieved a transition from extensive losses to general profits. Since 3Q23, production, sales and prices of float glass have still fluctuated due to increased supply, widespread fluctuations in soda ash prices, and delays in payment of some public debt by some leading housing companies. However, thanks to a simultaneous recovery in demand, the overall relationship between supply and demand in the industry has remained relatively balanced, and manufacturers' inventories have been further digested. The bank expects the profit of 3Q23 float glass companies to be stable compared to 2Q23. Thanks to the current low inventory and high construction and consumption season at the end of the year, it is expected that the float glass industry will still maintain the profit level since 2Q23 in 4Q23. A steady pace of real estate sales may be the key for next year.
Photovoltaic glass: Strong demand drives continued profit growth month-on-month
Since the beginning of the year, photovoltaic glass supply growth has declined quarterly (net increases of 8,700 t/d, 5,350 t/d, and 4,150 t/d, respectively, in 1-3Q), while demand growth has strengthened quarterly. According to SMM statistics, 3Q23 component companies have an average monthly production schedule of 50 GW. Thanks to the gradual easing of marginal changes in the relationship between supply and demand, the price of photovoltaic glass strengthened month by month in 3Q23, compounded by the fall in the cost of soda ash, it is expected that the profit of photovoltaic glass companies will continue to improve significantly in 3Q23 compared to 2Q23. With the accumulation of downstream PV inventories, it is expected that the pace of demand growth in 4Q23 may slow down, and there is limited room for further increases in the price of photovoltaic glass during the year, but the trend of continued month-on-month recovery in profits is still expected to continue.
Risk warning:Real estate sales were weaker than expected, peak production in the cement industry was weaker than expected, and photovoltaic glass production capacity growth was stronger than expected.